By GE Christenson
Our financial system, as it currently operates, is unsustainable. Unproductive debt
cannot exponentially increase forever. I assume this is obvious to almost everyone. Jim Sinclair
says, “The financial system is simply FUBAR. It is that simple. The reason to own all things gold is that simple.
has several meanings, but my interpretation of FUBAR
econciliation.”The U.S. government deficits are, on average, larger every year. This means that the total (official) national debt
is not only increasing each year but also that the rate of increase is accelerating. Since 10/1/2000 the national debt
has increased about 9.1% per year, but since 10/1/2007 it has increased 12.2% per year. Worse, this is only the official debt
and does not even consider the net present value of unfunded Social Security
, Medicare, Medicaid, and government employee pensions and liabilities. Depending on who is calculating the liabilities, the total unfunded liability is approximately $100 Trillion to $230 Trillion and the annual increase is perhaps $7 – $11 Trillion. (The entire U.S. GDP
is about $15 Trillion per year – for comparison.) This will not end well.In essence, the above two facts are incompatible – hence an economic train wreck is in process. What could happen? Follow the logic here.When there is too much of something, it loses value. If we have too many eggs, the price drops. If too many autos are for sale, there will be lower prices for autos. Central banks around the world are currently producing amazing quantities of dollars, euros, yen, and most other unbacked paper currencies. Hence, their value will decrease against the commodities we need for survival – food, energy, and so forth.There is too much debt
in our financial system, whether measured in nominal value or as a percentage of GDP
. Hence the value of that debt
will decline. Some debts will default, bonds will decline in value as interest rates inevitably rise
, and other debt
will drop in value and purchasing power.Politicians have made excessive guarantees for future benefits to Social Security
recipients, Medicare recipients, government pensions, and others. Those guarantees cannot all be delivered as promised, hence they will decline in value and purchasing power, or the promises will not be fulfilled.
Why are the following ten steps necessary?
The best time to start preparing was about a decade ago. The second best time is today. Make a plan and act.
Start by reducing living expenses and eliminating credit card debt
.Expect sweeping changes! I hope the inevitable currency collapse is slow and gentle, not rapid and destructive, but history suggests rapid and painful are more likely.Phase out of paper assets and into something real. Gold, silver
, diamonds, farm land, rental property, and buildings come to mind.Perspective – Perspective – Perspective! It is better to be early than late. It is better to trust yourself than to depend upon a government agency for your food and shelter. To whatever extent you can, take charge of your own financial affairs, savings, and retirement.Plan on huge inflation in consumer prices for food, energy, transportation, medical costs, and more.The middle class will be hurt the most. Those who plan and prepare will, as always, survive and prosper. Make a plan!Government control over the economy will increase. Surveillance on individuals will increase; there will be much less personal and financial privacy. Act accordingly!Social change will follow a currency collapse. It might be violent. The government is preparing in many ways for social violence. Are you?Currency induced cost-push inflation appears inevitable. When? As a guess
, well before 2016. Gasoline costing $8.99 or more per gallon is a distinct possibility. Don’t discount this just because it sounds extreme. It might be a low estimate.Economic manipulations, mal-investments, and unsustainable policies will self-correct. Plan on corrections and adjustments that will bring painful consequences. The bigger the bubble, the more catastrophic the collapse and the larger the collateral damage. The sovereign debt
and paper money bubbles appear VERY large and ready to pop.
Unproductive government debt cannot increase forever, but our financial system currently depends upon ever increasing expenditures and debt. There are far too many dollars in circulation, more debt than can be repaid, and massive unfunded liabilities have been created by the promises made by politicians. The purchasing power of the dollar must decline, many debts will not be repaid, and many promises for future benefits will be reduced in value or will simply disappear. Hence, the FUTURE income stream from debt-based assets is increasingly risky. A few to consider are:Social Security
benefits. The government must borrow or print to pay current benefits. The value (purchasing power) of future benefits will almost certainly decline.Municipal and state bonds and pension promises are increasingly risky. Will more cities and states default on their bonds? Why are their pension plans, on average, increasingly underfunded? Will your pension plan remain safe? Consider moving your IRA
into physical gold
safely stored outside the banking system.US
government 30 year bonds and 10 year notes will decline in price as interest rates rise
, and will also decline in purchasing power as the dollar devalues. Why would you lend money (long-term) to an insolvent government at less than 3% interest per year when that government has assured you it will debase the currency and reduce the value of the debt
you bought? Is this a financial train wreck
in process?Mutual funds and money markets based on bonds and other debt
are at risk. If the underlying debt
defaults, the value of the mutual funds and money markets will decline. Counter-party risk is real.
Why is debt based future income increasingly risky? The payoff will be delayed, defaulted or executed in mini-dollars after inflation and counter-party defaults have ravaged the purchasing power of those paper debts. We have Been Warned!
Would you prefer hard assets with no counter-party risk? Reread the Ten Steps To Safety, and then take charge of your financial life to whatever extent you can.
aka Deviant Investor