US Debt and Default Talk
The US is the biggest debtor nation in the history of the world. This cannot go on forever. Eventually, the creditors are going to say “no more, that is the end of the line”.
If you think the problems are bad now, you wait till we do not have any more credit, you wait till the currency collapses, interest rates going through the roof, inflation going through the roof. It`s not going to be a pretty picture. There is going to be social unrest. It`s going to be a mess.
The sooner we deal with it, the better.
“Yes, I’m sure there will be an agreement, but it doesn’t solve the fundamental problem of excessive debt and of further, very substantial deficits. They’ll iron out something with lots of compromises and with spending cuts that are backloaded, in other words they won’t happen immediately. As we go along say in three or five years’ time when these spending cuts should occur and when the tax increases should occur, nothing will happen in my opinion.”
Being the world reserve currency is something that obviously Congress does not comprehend. About two-thirds of central bank reserves are in US treasury paper. What is going on in Washington right now demonstrates the total lack of comprehension of what is the role of the dollar (i.e. the flight to Swiss & gold).
This also illustrates my point that the world cannot afford the dollar to be the reserve currency anymore because we are plagued by internal political conflict with no real hope in sight. What is going on in Washington now seems to be a strange secret ritual centered on a mystic suicide cult or a plot for the Manchurian Candidate
Financial TV actually has a countdown clock to the day of Default. I still feel that a compromise at the last moment that offsets the default but does not do anything meaningful in the over the top debt problem will come.
There is nothing going to happen that is going to offset the borrowing demands of the US Treasury in a significant way. Rating Agencies who have not hesitated to downgrade everything Euro cannot hide from the sloppy process going on now in the Senate and House.
IMF Chief Christine Lagarde:
…has warned overnight that the global reserve currency status of the dollar is at risk due to the “worrisome” US debt debate. “One of the consequences could be a decline of the dollar as a reserve currency and a dent in people’s confidence in the dollar.”
Strategist for Cazenove Capital …you “have to own” gold. He said that the real inflation adjusted high from 1980 (using the more accurate RPI) was over $8,500 per ounce and gold could reach that level in the coming years. He said that silver was volatile but would likely outperform gold. Fiat currencies are being “printed into oblivion,” and so not owning gold is “a form of insanity.”
On one hand, I am glad that Washington DC is finally (!) talking about the unsustainable borrowing and spending habits of the United States. It had to happen sooner or later; better now than never.
On the other hand, the tenor and substance of the dialog and proposals reveal just how far up the creek we really are and just how hopeless it really is to plan on something sensible emerging. After trying to make sense of the various proposals I think I can summarize them all with a single phrase: You’d better be ready.
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