Is This the Moment of Truth?
The comments below are an edited and abridged synopsis of an article by James Rickards
A slow, steady accumulation of debt with no particular plan for repayment can continue longer than expected, and then suddenly descend into a full-blown financial distress scenario and a rapid end-state of collapse.
It’s the lack of control that allows the debtor to reach the point of non-sustainable debt, and then have a sudden crisis. The inevitable becomes a surprise.
This is where the US now finds itself. The national debt has been accumulating slowly for decades. There is no plan to make it sustainable; just a wish that creditors will keep expanding the debt, or rolling it over.
The US has a lot of ‘friends,’ at home and abroad, who expect benefits (entitlements, foreign aid, government contracts or tax breaks). Congress and the White House each exhibit a complete lack of control.
Of course, the US won’t actually go bankrupt. It can print all the money it needs to pay off its debts in nominal terms. The issue is when that kind of money printing becomes necessary, and under what conditions.
Up for discussion: The Trump tax cuts; the removal of discretionary spending caps; the reinstated earmarks for pet projects; student loans defaults; and the US debt-to-GDP ratio.
Russia, China, Iran, Turkey and others are stockpiling thousands of tons of gold as a hedge against the inflation they expect as the US tries to print its way out of its non-sustainable debt.
There are other signs that the day of reckoning is coming much faster than experts believe. Fiscal policy is now characterized by a complete lack of control.
Treasury financing requirements are skyrocketing. The Treasury has just issued $300 billion of new debt to cover maturing debt, new obligations and interest on the debt itself.
The US is much closer to an inflection point than Congress and the White House realize. The time to hedge against the worst outcomes—with gold, silver, land, natural resources, and other hard assets—is now.
