The U.S. is in a financial debt spiral. What’s the Administration to do? This article analyzes 6 alternative courses of action available, presents the consensus view of each, comes to a conclusion as to what will unfold and suggests what the implications are for one’s investment portfolio. Let’s take a look.
So says Gary Christenson (deviantinvestor.com) in edited (and in some places – paraphrased) excerpts from his original article* entitled The Budget Box & Containing the Craziness.
[The following is presented by Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com and www.munKNEE.com and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Christenson goes on to say in further edited/paraphrased excerpts:
Below are those 6 alternative courses of action available, the consensus view of each, and what will most likely unfold:
1) Borrow more money to pay the bills. Sure, why not? Run that credit card up to the limit and then increase the limit. It has worked in the past and should work forever! But it seems that the Chinese, Japanese and Arabs are currently less interested in buying our bonds. There is a problem here. Maybe we should just print a few $Trillion!
2) Monetize the bonds. The Fed “prints” a few $Trillion, buys bonds from the Treasury, and government spends. When there are more dollars in circulation, each dollar is worth less and buys a smaller amount of food, gasoline, and other essentials….Also, other countries and people might understand that “printing money” is another step down an already dangerous road. People and countries might realize that the dollar is weak, Congress and the Administration are undermining the dollar, not supporting it, and everyone will lose confidence in an already unpopular Congress, Administration, and Federal Reserve. Oops! History suggests this won’t work for long.
3) Tax ourselves into prosperity. This has never worked, and people are wise to this nonsense. Congress might sell the idea of borrowing and printing, but people do not want taxes increasing – taxes such as Obamacare, carbon taxes, more fees, more licenses, national sales taxes – whatever. Worse, the inevitable inflation acts like a nasty tax on the middle and lower classes. Our wages are stagnant or only rising slowly, our expenses are rapidly increasing, and our standard of living inevitably falls. Congress is wary of increasing taxes – the voters don’t like it and might vote the politicians out of their cushy offices. This alternative is very dangerous to contributions and reelection success. Bad as this alternative is, the fourth is even worse.
4) Cut spending. IMPOSSIBLE! More government employees, more spending, all programs funded forever, and we must maintain welfare for the poor, for the rich, for the large corporations, for congress, and for the administration. Everyone knows it is politically impossible to cut spending. Well, maybe we could agree to reduce planned increases by 0.04% over ten years, all in the last five years, of course, and only after a thorough review by politicians. Nobody can reasonably expect congress to cut spending. The fifth alternative is even more unacceptable.
5) Tell the truth! We must confess that the government’s promises are totally unaffordable. Period. Wait! Radical answers are never popular and the truth is seldom necessary! We must refer this to a committee of career politicians for additional study. There is absolutely no need to address such truths as:
- Congress will never voluntarily cut spending or balance the budget,
- borrowing cannot continue forever and
- debt cannot increase forever or that, as a result,
- sacred programs, such as military spending, social security, foreign aid, medical care, prescription drugs, many departments, and so much more would need to be reduced, or even more dire consequences would occur.
Enough! No more truth! Let’s look at the 6th alternative – the last possibility.
6) Default! Just admit that they lied. The government refuses to pay its debts. Everyone who invested in government paper, and the plans and investments that depend upon those investments, such as money market funds, insurance companies, and pension plans will not be repaid. This is the big one – the ultimate in counter-party risk. That giant sucking sound is the sound of government default sucking the life out of the financial system and destroying most of our assets, our way of life, and our financial futures. Unthinkable!
We have examined all six possible resolutions to the U.S.’ financial woes and determined that:
- default and telling the truth are unacceptable and
- increasing taxes and cutting spending are painful, especially to reelection dreams.
- more borrowing,
- monetizing of debt,
- more spending as the national debt climbs to new heights of craziness,
- higher prices for everything you need, and
- more talk-talk as the remaining choices become more painful.
How far will the prices for gold and silver rise after three to five more years of excessive spending, more debt, more “printing” and more scurrying around inside the budget box with no clue, no plan, no hope and no real change?
Gold, the national debt, and the “debt limit” have tracked each other fairly well since the year 2000. As you can see gold was “too high” in 2011, compared to the red line of national debt, and is now “too low.” However, we can depend upon Congress to borrow and spend, and gold prices will rise to reflect that reality….
There is no reason to expect the correlation between gold, the national debt and the “debt limit” to change so buy gold for monetary insurance, invest in silver, maintain confidence in the fact that our political and monetary processes will force both gold and silver to rise substantially in price, and sleep well.
[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
*http://www.deviantinvestor.com/5667/5667/ (Copyright © 2014 – All Rights Reserved)
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