By Lynette Zang:
Timothy Geithner, US Treasury Secretary, has sent letters begging congress to raise the national debt ceiling. The rating agencies are threatening a downgrade on US Treasuries if we don’t. Republicans in congress, want a fiscal plan that reduces deficit spending (spending money you do not have) by roughly 1 trillion dollars, in order to vote to raise the debt ceiling by 2.4 trillion dollars.
In other words, we have to increase the debt limit to service the debt we already have and then it’s ok to spend more money that we have to borrow? And if we do that, the rating agencies will maintain our AAA rating. Wow!
Now I understand that we have to pay our bond holders or they won’t loan us anymore cheap money. Except that Quantitative Easing (us buying back our own bonds because no one else wants to buy them) tells us that we’re already at that point.
I also understand that the government wants to keep spending lots more money than our income (tax receipts) allows. Notice the biggest drop in income since 1895!
So we are forced to do it on more debt (deficit spending).
Presuming the US will not do an out right visible default, they must service this debt. They can do it visibly by raising income and other taxes. They can do it invisibly by devaluing the dollar, (creating inflation).
It’s easy to see that the dollar is in a downward slide. Regardless of the “reasons” given for increased prices in food, gas or everything else (except for real estate), this is the real reason prices on everything are going up. When Bernanke says “We have not met our inflation targets.” He is saying is that he wants to devalue the dollar further! Inflation is an invisible tax on your wealth. It is much easier for a government to institute and much harder for a population to avoid the inflation tax.
There are those that think the governments are all powerful and that somehow, magically, all of this debt will evaporate and the US will remain the world’s super power. Unfortunately, history tells us otherwise. History also tells us that a major transfer of wealth away from the general population to the chosen few is the ultimate outcome. But history also tells us how to survive and even prosper through this. That answer is gold, the primary currency metal.
As central bankers inflate and tax the population invisibly, gold posts double digit gains against every currency.
We are between a rock and a hard place. If we do raise the debt ceiling, we can continue to spend with reckless abandon. If we don’t raise the debt ceiling, we are forced to choose the programs we will fund with current tax dollar income.
Either way, at some point, our bill will come due. And it is the general public that will bear the brunt of it, through austerity measures (fewer services, less pay, higher taxes) and worse (hyperinflation). What we don’t know is when, so make sure you and the ones you love are protected and, dare I say it, even positioned to thrive through what the bankers and governments have chosen as our path. Convert those dollars into gold today and sleep well tonight.
We believe that everyone deserves a properly developed strategy for financial safety.
Chief Market Analyst, ITM Trading