A reader asked about the national debt, the debt ceiling, and the potential for an economic crisis in the US if—or when—it can no longer pay its bills.
US fiscal policy is a huge topic, on which many books have been written. Personally, I’m inclined to agree with the bearish views of folks like former Office of Management and Budget (OMB) director David Stockman.
I’ll go further and say that my friend Doug Casey will eventually be right in his prediction of a Greater Depression that future historians will probably say started with the crash of 2008. And it won’t be limited to the US.
So, yes, all of this matters. It mattes a very great deal.
I’m convinced that at some point, there will be a global liquidation of bad economic policy of epic proportions.
I just can’t say when.
I’d already held this view a long time when the crisis of 2008 hit. It seemed like the much-delayed time had finally come to pay the piper. But no; he gave the global economy a pass and went on his merry way. I was sincerely shocked that the financial house of cards didn’t come crashing down.
Today, the world economy seems so rickety. Bailouts, bail-ins, negative interest rates, money-printing on unprecedented scales… it seems hard to believe that the next crisis won’t finally bring Fiscal Judgment Day. And it just might.
But I thought 2008 was the proverbial “it,” and I was wrong. I wrote about the Wile E. Coyote economy in 2009. We’d gone off an economic cliff, and as soon as Wile E. looked down, we’d fall. I still think that’s true; we did go off a cliff. But Wile E. still hasn’t looked down… and there’s no way to say when he will.
The plain truth of the matter is that politicians proved more adept at kicking the can farther down the road than many of us imagined possible.
It goes without saying that it’s dangerous to think we know the future. And yet we do, all the time. As the saying goes, we confuse the inevitable with the imminent.
Once bitten, twice shy. I’m sure Fiscal Judgment Day will come—but I’m not sure it will be anytime soon.
What about problems like the US bumping up against its debt ceiling again?
I see zero chance that Trump will sit back and let the debt ceiling derail his re-election bid. In fact, he’s pushing for $2 trillion in infrastructure spending. He’s clearly not worried about debt.
Oddly enough, it might be the Democrats that demure on increasing the debt ceiling. They’d do that in a heartbeat if they thought they could pin it on Trump and make him look bad.
I don’t know how it will play out. Neither does anyone else.
I do know that neither entrenched political party in the US wants to knock the house of cards down.
Eventually, they will lose control, but I’m not going to try to predict when that will be.
There’s one more thing I know: the piper could show up at any time and present his bill.
This makes a significant allocation in physical gold absolutely essential.
I know I sleep better at night having that in hand.
As for making money, there are plenty of ways to speculate in today’s markets that don’t require guessing the timing of the next crisis. I’m certainly not simply sitting on bullion while waiting for Financial Judgment Day—but I’m prepared for it, whenever it arrives.
That’s my take,
Monday, May 6, 5:06pm, EDT, 2019