By: John Fisher
I was just doing my weekly internet reading and came across a very reputable source that now pegs the total US debt at just over $100 Trillion (what’s a trillion here or there anyway?) That represents the unfunded debt, net of revenues, of all liabilities of the US. That makes this year’s estimated budget deficit of $1.7 Trillion pale in comparison.
In simplest terms, the $100 Trillion in debt is money the US has created through cash creation, bond issuance, quantitative easing, electronic derivatives and other measures obscured in terminology impossible to decipher – all to meet obligations over and above revenues received, principally taxes. The result is inflation, defined as the increase of money supply into the global system.
Most Americans are not aware that over 70% of US dollars are held outside of the USA. For instance, there are more dollars held in Russia than within the US. The majority of dollars are held by foreign central banks in the form of reserves. It is not lost upon these dollar holders that the global reserve currency issuer, the United States, is completely insolvent. And, they are well aware of the fact that the dollars they do hold are worth less every day. Like a bad investment, at some point you have to sell what’s left and reinvest in a better asset class.
We are seeing that happening now as China, Japan and others have expressed an unwillingness to continue to buy dollars in the form of Treasury auctions. In fact, they are actually beginning to liquidate their dollar reserves and replace them with other currencies, natural resources and gold. They can no longer risk holding their country’s reserves in the form of an asset that is nothing more than paper with a promise – a promise that the Treasury and Fed are finding more difficult to honor with each passing day.
So, ponder these two questions:
1) Can the US ever repay our debt?
2) If the US is unable to repay our debt, then what?
All Things Considered – John’s Commentary:
The market is moving sideways. That is not a bad thing! Gains from the earlier rise are being consolidated. The market could go up or down, although the technical bias is to the upside. If it goes down, it’s simply a buying opportunity. If it goes up, we will be glad we have a position (or disappointed if we don’t). Don’t try to outguess the market. Rule #1 – Invest with the primarily trend (up). Rule #2 – Invest consistently in modest amounts over time. That is what has always worked for me and my many clients. If at some point you don’t get in, you will never get in until the top, and then it will be too late, and you will find yourself on the losing end of this bull market.
What to buy: Plain old bullion and near-bullion coins. There are some fantastic buys available right now, as the market is quiet. In some cases the prices are lower than I have seen for a long, long time.
Quote of the Day: “Even during the period when Rome lost much of her ancient prestige, an Indian traveler observed that trade all over the world was operated with the aid of Roman gold coins which were accepted and admired everywhere.” – Paul Einzig
