US Treasury Bonds Collapse

I think it's time we all switched to using gold as our unit of account, as the fiat currencies of the world continue to be consumed in a firestorm of inflationary "money" creation. Whether or not we hold actual physical gold (which we should, as our bedrock cash position) we should be seeking to own stuff that is rising in value in gold terms. The real problem is that the signals we get from investments priced in EUR, USD, JPY, etc. are being seriously distorted by the massive issuance of these currencies, resulting in investors continuing to hold them and even add to them, believing their value is rising when it is in fact falling.

US government bonds are a prime example – widely considered the safest investment in the world, and rising fairly steadily for years as interest rates drifted lower, they have in fact fallen to about half their 2002 value. Here are the details, using TLT, the 20 year T-Bond ETF as an example… In July of 2002, when the ETF was launched, you would have paid $82 per share for it. Over the years, you would have collected $29.71 in interest, and today you could sell each share for about $90. A nice, safe 46% return over 7.75 years, or 5% CAGR. But measured in gold grams, the picture is radically different. Each share cost 8.4 grams in 2002, and paid a total of 1.8 grams in interest over the years. Today, you could sell each share for about 2.5 grams – a 49% loss over the same 8 year period, for a -8.4% CAGR. I have created a chart of TLT in USD and gold, based on the "adjusted closing price" as calculated by Yahoo finance. Take a look at it to see what I'm talking about.
US Treasury Bonds in USD and Gold
And this is just the start of the collapse… as more dollars are created, bond buyers will begin to worry about the value of the dollars that will eventually be returned to them, and the interest they demand will skyrocket. This will create a double-whammy drop in bond prices as their value in dollars falls, and the value of each dollar falls as well.

Of course, just holding gold doesn't earn any profit (as measured in gold) but it doesn't lose value, either. There are plenty of investment strategies that have risen in gold value over that same period, but buying and holding most stock indices, bonds, real estate are not among them.

I'm working on a DVD series called "The Truth About Gold" that will detail some strategies for dramatically expanding your wealth, as measured in gold. I will be making a few copies available to early adopters on a pre-order basis; if you are interested, drop me an email at [email protected]

I've recorded an expanded commentary on this topic as a podcast. You can download it or listen to it here:

Audio MP3