It seems that we are living during the age of the “bailout.” Late Sunday in Europe a rescue package deal was sealed to lend Ireland up to 85 billion Euros (112.3 billion US Dollars) at an interest rate of almost 6%. Ireland can draw upon the funds as necessary and the funds are being provided by other European nations, the IMF and Ireland’s National Pension Reserve Fund. The money will be used to recapitalize their banks as well as provide three years of budgetary assistance.
This is the latest bailout of a European nation with Greece being bailed out earlier this year. The bailout is being dubbed the blueprint for future bailouts as investors are looking at Portugal and Spain next as they will probably need funds as well.
As a result treasuries had their steepest monthly loss this year; gold and silver are both up on the news. It looks as though the world is going crazy with debt, using debt to pay for debt and more spending. It seems crazy to me that governments worldwide feel as though they don’t need to make as much as they spend. This never ending cycle of borrowing at some point has to stop. Ben Bernanke himself said “unsustainable trajectories of deficits and debts will never actually transpire, because creditors would never be willing to lend to a country in which the fiscal debt relative to the national income is rising without limit. One way or the other, fiscal adjustments sufficient to stabilize the federal budget will certainly occur at some point. The only real question is whether these adjustments will take place through a careful and deliberative process … or whether the needed fiscal adjustments will be a rapid and painful response.”
Eventually the game will be up and fiat currencies will fail, whether that will be through inflation into hyperinflation into collapse, or an overnight phenomenon that creates panic and extreme loss in savings and investment will only be known in hindsight. With all of the bailing out we are doing here in the United States it will be only a mater of time before our currency fails. The US Dollar has already been in question, especially since the first round of quantitative easing. China, our biggest lender, has been cutting back on its lending to us, which further confirms what Bernanke had to say.
As governments around the world continue take on more and more debt look for gold to continue its rise. Gold does well when currencies do poorly as it is the ultimate safe haven asset. Buying gold coins is a good strategy for protecting yourself from this type of fiscal irresponsibility.