U.S. Attains Frightening Milestone
The comments below are an edited and abridged synopsis of an article by James Rickards
It took some hard work, but the US has finally managed to find itself with $30 trillion of government debt. In light of this dubious accomplishment, Rickards has some advice: Get ready for the hangover.
The US government bond market was invented by Alexander Hamilton early in the first administration of George Washington around 1790. The newly formed United States of America was facing claims from creditors who had financed the Revolutionary War.
The Congress had a simple solution: Default. But Hamilton had a better idea.
He said the new government should borrow more money and use that to pay off the old creditors. Once that was done, the US would be deemed creditworthy and could borrow more money to pay off the money borrowed in the first round.
This plan was so successful that the US Treasury market is now celebrating its 230th anniversary. That’s how long the US has been borrowing new money to pay off old debt.
Up for discussion: Inflation is the only way out; the debt death trap; a small rounding error away from recession; and heading for a sovereign debt crisis.
“In basic terms… the United States is going broke. We’re heading for a sovereign debt crisis.”
“Tax cuts won’t bring us out of it; neither can structural changes to the economy. Both would help if done properly, but the problem is simply far too large. You can’t grow yourself out of this kind of debt.”
“So an economic time bomb is ticking. Velocity is dropping. Debt is growing while growth is slowing. The explosion will come in the form of asset bubbles bursting and stocks crashing.”
“There’s no way out of the debt death trap except through inflation… Time to buy some gold before the rush into hard assets really begins.”