OVER THE CLIFF
We’ve been running ads on Fox and CNBC TV with a scary economic theme. It goes like this. “America is in terrible financial trouble. A new book National Bankruptcy, Why The Middle Class Is Doomed by bestselling author James Cook tells it like it is. Find out why our financial downfall is inevitable. Read why we face the worst economic crisis in history. Learn why America is heading towards certain ruin. Also read, Between A Rock And A Hard Place. Will the European Debt Crisis come here? Ten experts offer advice on how to navigate the coming crisis and hopefully emerge unscathed. Get this crucial information to help you weather the economic storm ahead. Call now, 1-800-328-1860.” (You can get these books by calling for them just as our ad instructs).
Our TV commercial paints a gloomy outlook for the dollar and the economy. We claim that America’s finances are so far down the road to bankruptcy it’s too late to turn them around. Furthermore, the politicians and the public won’t stand for the kind of draconian spending cuts necessary to cure our wasteful ways.
The “bond king,” Bill Gross writes about our financial predicament. He knows it’s a problem but he can’t see the certainty of a crisis ahead and he waffles. “Armageddon is not around the corner. I don’t believe in the imminent demise of the U.S. economy and its financial markets. But I’m afraid for them.” He continues, “We owe not only $16 trillion in outstanding Treasury bonds and bills, but $60 trillion more. Kindly wonder, how we’re going to get out of this mess.” Our response is that we aren’t going to get out of this mess.
His warning about what’s going to happen if we don’t change is exactly what is going to happen. “Unless we begin to close this gap, then the inevitable result will be that our debt/GDP ratio would continue to rise, the Fed would print money to pay for the deficiency, inflation would follow and the dollar would inevitably decline. Bonds would be burned to a crisp and stocks would certainly be singed; only gold and real assets would thrive within the ‘Ring of Fire.’”
Uncle Sam is passing out money for thousands of programs and printing money to pay for it. The borrowing and spending won’t stop until the markets stop it and the dollar dies. The voters will elect big spenders who raise taxes to pay for it all. That will further wreck the economy and foster even more money printing.
By telling us what will happen if we don’t stop spending Mr. Gross has summarized the inevitable outcome. “The U.S. would no longer be in the catbird seat of global finance and there would be damage aplenty, not just to the U.S. but to the global financial system itself, a system which for 40 years has depended on the U.S. economy as the world’s consummate consumer and the dollar as the global medium of exchange. If the fiscal gap isn’t closed even ever so gradually…bond managers…may together force a resolution that ends in tears. It would be a scenario for the storybooks, that’s for sure, but one which in this instance, investors would want to forget. The damage would likely be beyond repair.” We would argue, the damage is already beyond repair.