You've all heard the arguments about the debt ceiling and the government shutdown. The Republicans use the debt debate to gain power in order to cut social programs, give corporate tax breaks, and expand the military. The Democrats talk about the debt like it's nothing to worry about. They say we have to continue to spend money or the whole system will collapse in a fiery inferno, and they use cuts to social programs as leverage. All the while their solution is to spend more money on federal government programs. The political posturing does nothing to solve the real problems. Separately, most economic attention is focused on inflation and deflation, which is really just noise (for now) compared to the larger debt problems facing U.S. taxpayers. Although both inflation and deflation have a direct impact on the economy as a whole, they are not the biggest long term threat. The national debt is the real threat, but it's harder to see the consequences until they are hitting us square between the eyes. You can view the ongoing U.S. debt calculator here, U.S. National Debt Clock.
Wikipedia also has a nice page devoted to the History of the U.S. Public Debt. As you can see, unlike what the politicians tell the people, it doesn't matter who is in power. The debt keeps increasing, and so is the pace at which it is expanding. Why do you think we're talking in the trillions instead of millions or billions? Another good reference is this link to the U.S. Treasury Website for Foreign Government Bond Holdings. Some credit rating agencies have downgraded the U.S. government, including S&P, and the most prominent Chinese agency, Dagong. While other's like Fitch have put the government on ratings watch with a negative outlook. No matter what ratings agencies say about the situation, it's clear that there is a debt problem in the United States.
Like I mentioned before, I'm not an expert of technical analysis. I use common sense in most of my decisions. To say that the U.S. government is addicted to debt is an understatement. With a $17 trillion debt and only a $15 trillion annual GDP it's pretty clear the debt is a problem. It's also clear that the politicians don't have an answer. When it comes to finances, the banks and the governments aren't stupid. They know that it's a death spiral now, and it has global implications.
The wildcard in all of this is the dollars status as the world's reserve currency. China, Russia, Australia and many other governments are busy creating bilateral trade agreements that don't use the dollar (see China Busy Signing Currency Deals). The U.S. government currently has the luxury of leveraging the dollar's status as the primary reserve and settlement currency. However, the world saw this scenario before, and not too long ago in historical terms. When the U.K. pound sterling lost its status as reserve currency the world was a much different place. The implications of the dollar being removed as the reserve currency are widespread, and people need to prepare. And yes, that might mean "black Friday" shoppers can't fight over their next crock pot or tickle me Elmo doll. You can bet that the politicians and bankers who kick the can down the road won't suffer. They always seem to find a way to escape the realities that the rest of us face every day.
The global economy is based on consumption, backed by debt to fund the whole thing. So increasing the GDP simply isn't possible at this point, because the earth's resources don't have the capacity to keep up with the debt. That is why saving and owning hard assets is the best option. Land is a great investment, but what will do you use to buy that land? Owning gold and silver doesn't mean you have to live your life in fear, or that you have to use every penny you earn to own it. On the contrary, once you slowly start accumulating some physical precious metals you won't have to worry as much about the currency issues in the world. You can watch the politicians act like children, all the while seeing their lies and knowing the truth, and laughing at their ridiculous behavior. Stay tuned for Part II.
God Bless and Keep the Faith.
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