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Last Updated on: 29th December 2020, 12:35 am
Thomas Jefferson once said “The government that governs best, governs least.” Meaning, the less “governing” you do, the less lying, cheating, stealing and wasteful spending that happens.
So the fact that the U.S. government had its first shut-down in 17 years should be cause for celebration, if it weren’t for the degrading confidence in our country’s debt and our financial markets.
The fact that our politicians are playing fast and loose with our financial markets is extremely disturbing. All investments are priced according to the interest rates on our “risk-free” Treasury notes and bonds.
And if investors feel there’s actual risk in getting paid back by the U.S. Treasury, it will cause a tsunami of destruction in all financial markets throughout the world.
Financial markets are all about confidence, and when there is none, markets plummet as we last experienced in 2008.
The Coming Cat-5 Hurricane
According to Bill Gross, the founder of PIMCO with $1 trillion under management, “The shutdown is a like a Category 1 Hurricane compared to the debt ceiling deadline on October 17, which is a Cat-5.”
If the U.S. government doesn’t agree to a deal to raise the debt ceiling, we could go into default on our debt.
Gross went on to say, “Default would be catastrophic, but it won’t happen”. He explained that the government has enough six times the tax revenue to cover the debt service of $25 billion per month. The Treasury is also required to pay its debt service before anything else, including Social Security or IRS refunds.
So the possibility of an actual default is remote, but there was a quality of exasperation in Gross’ voice yesterday that I’ve not heard in 15 years of listening to his interviews.
Even though a default on our government debt is probably not going to happen, our “leaders” are using the shutdown and debt ceiling deadlines as leverage to further their political agendas.
The fact that they are allowing this to come so close to the deadlines is what’s so dangerous.
To be so nonchalant about such a serious issue could set off a market crash, without warning.
It doesn’t matter if we don’t default this time.
The markets discount the future, and market participants will start to think about what will happen next time.
If the market starts to think that there’s a possibility that we could default, it’s enough to set off a market crash that would make 2008 look like a birthday party.
This Is Your Wakeup Call
We all realize that our government can’t continue to spend twice as much money as they bring in, as they have the last ten years.
We realize that you shouldn’t pay your mortgage with your credit cards, which is what the Fed is doing by buying $85 billion a month in Treasuries and mortgage-backed securities.
We know that the only way out of a $17 trillion dollar debt is to inflate.
We’ve heard the statistics…One in seven people in America are on food stamps. Our country’s debt grows by $200 million per minute. Fifty percent of our population does not pay any taxes at all. And our country’s largest export is dollars – not actual products, but paper money.
It’s not sustainable. There will be a day of reckoning.
We are heading for a very turbulent, painful period.
Just like the mortgage crisis and the internet bubble, we all knew it would end badly.
Comparatively, this government-sponsored credit bubble is many times larger than both of those combined.
The Time to Act is Now
This is the most important time in your life to do the right thing financially.
We’re headed toward a world where the U.S. dollar is no longer the reserve currency, and that means in large part, our middle class will go away.
What you do right now will determine whether you are rich or poor. It sounds dramatic, but it’s true.
There will be no in-between.
You must take steps to build your wealth, and if you already have it, preserve it. Along with the turbulent times ahead, there will be incredible money-making opportunities for those who are prepared.
In the next few years there will be opportunities where you can buy assets for pennies on the dollar, and you can become part of the wealthy class.
But you need to have some chips to play with. Hard assets like gold and silver will not only preserve your wealth, but in crisis situations they will be the best performing investments.
Britain’s Fall from Grace
There is some historical precedent to draw from… For 200 years the British pound sterling was the world’s reserve
currency. Then in the 1967, after decades of government overspending, debt accumulation, and entitlement spending (sound familiar?), the British government began to devalue the pound.
This marked the end of Britain’s hold on the world’s reserve currency, and the end of British dominance.
Britain went through a series of labor strikes and their own versions of government shut downs since workers were not getting paid.
This upheaval caused the price of gold to go sky high in the next 15 years in terms of the pound. On January 1, 1970 gold closed at 14.56 pound sterling/ounce. By 1983, gold had hit 313 pound sterling/ounce, a rise of 2,049%.
Those who had paper assets were wiped out. Those who put their money in hard assets got rich.
Let’s learn from the past. Protect yourself and profit.