My brother has been saying it for years. I haven’t been listening, but I suppose I have woken up from a nascent dream based in Candyland. Its coming, the real depression, that is. I talk to people all day long and they simply don’t get it, or don’t want to get it. I am not sure which, but the cold hard truth is out there and Agent Mulder is hot on it’s tail.
While you and I have been de-leveraging our personal debt load, the U.S government has run up a massive and quite simply unpayable debt. So, while I paid off my 20K worth of debt following 2008’s crash, The US government has run up a debt for every single person in the US of almost 51K. While it took me 3 years to get out of credit card debt, the government was spending at twice my rate running up the tab. Surely, you see this can’t keep going on this way. Last Summer Congress created a task force to shave 1.2 trillion off of spending. Did they get anything done? Nope.
Unlike most people who simply don’t see the connection to the US debt and my own future, I get it and it is terrifying. So, for those of you who don’t quite understand how this impacts you let me give you a clear example. As the USG runs up this crazy debt that is closing in on 20 trillion dollars, the US dollar becomes weaker. How much weaker, you ask? Well, if you bought a book 10 years ago you probably have noticed that the Canadian dollar was almost 50% higher than ours. So, if it cost $10 US to buy a book it would cost roughly $15 Canadian. Well, within 10 short years that has been erased. The US and Canadian dollars are at parity with each other. This means Canadians can now come into the US and get a great deal on just about anything, and they are buying up real estate, to the tune of more than $20 billion a year. The dollar has literally dropped in value by 50% when compared to a Canadian dollar. Does the USG seem too concerned? Not really, they have continued to run up massive debt loads and refuse to address the problem.
So, even if we hypothesize the USG can turn off the spigot of debt, which is doubtful,we likely will approach and pass $20 trillion of debt. The USG will have to print money, because it can, and frankly it will have no choice to cover its bills. Its the one tool it has untethered access to. It can print ’til the cows come home, ’til the ink runs dry, or ’til no one will take the dollar. The dollar is nothing more that an arbitrary agreement among the world that it holds value. Here is the rub, just like any fine art print, the more you copy it, less valuable it becomes. Currency is no different. The minute you have too much currency in the economy chasing too few goods, hyperinflation starts ramping up. So imagine pumping an extra 10 to 20 Trillion dollars into the money supply over time to pay down the national debt. The result would significantly devalue the dollar. $10 cup of coffee, $200 tank of gas, $30 movie tickets? That will become the norm as the dollar approaches a net value of zero. Now the Federal reserve has a neat trick too (bare in mind they are the government), they can buy US debt from the treasury and put it in a vault for keeping. They currently own $1.6 trillion worth. See how this makes no sense? While the right hand spends heavily, the left is picking up the bill with freshly minted money. Of course the real question is what will the Federal Reserve do with this massive debt the USG owes them. Umm, delete key anyone, it is all just data somewhere on some massive computer.
I’ve never been a savvy investor, the internet bubble of 1999, cost me more than half my IRA. Then 2001 nailed it another 20%. Then we hit 2008 which saw everything peel back 60% plus. So after 20 years of playing the stock market all I have to show for it is pocket change and lint. It is unequivocally a gamble at this point, and the crazy part is it has run back up on no real changes in the economy or fixes in the system that sent it over the edge in 2008. What this says to me is it will crash back down when reality sets in. I pulled out of the market when it 11,000 last year, irrational exuberance is what I call this rally and it appears to be running out of steam.
That leaves me with no other options except to hedge my bets. After listening to some advice and cajoling I finally started buying silver US coins minted prior to 1965. Here’s something for you to chew on. A 50 cent piece back in 61 was worth 50 cents. It had 90% silver in it, giving it a real tangible value. In 1965 the USG debased the coins and removed silver from them. The result is that same 50 cent piece today can be bought for around 10.50 in today’s dollars. What this tells you is that had you been smart enough to horde 5K worth of these coins in the 60’s they would be worth more than 100K in US dollars today. While that seems impressive and like a great investment, you are probably not seeing the point. The US dollar has dropped in value over that same 50 year period by a whopping 2000%. Now extrapolate that forward with a 20 trillion dollar debt load paid of with money becoming ever more worthless. Silver is currently at around $28 dollars an ounce. Seeing it go to $150 or more seems quite probable in the next several years. Doesn’t take a rocket scientist to see if silver is moving up the dollar is going down in value.