"Fiscal Meth"

"Fiscal Meth"
by Addison Wiggin

"We’re now four days into fiscal year 2013. [Yes, we know. But please try to contain your excitement.]

As of Monday, Oct. 1, the national debt stands at $16,159,487,013.300.35. This means the government racked up $1,369,146,684,743.20 in new liabilities last year. We can confidently predict that with the usual accounting games, the “official” 2012 deficit announced next week by the Treasury will be somewhat less. What’s one of the telltale signs of addiction? Denial.

“The U.S., in fact, is a serial offender, an addict whose habit extends beyond weed or cocaine and who frequently pleasures itself with budgetary crystal meth,” writes Pimco’s Bill Gross in his latest monthly missive. The United States, Mr. Gross submits, sits squarely within a “ring of fire” on the following chart. Its deficit in fiscal 2011 was 8% of GDP — worse than Greece. Throw in future liabilities for Social Security, Medicare and Medicaid and the “fiscal gap” runs closer to 11% of GDP — much worse than Greece.

“Look at who’s in that ring of fire alongside the U.S.,” Gross writes. “There’s Japan, Greece, the U.K., Spain and France, sort of a rogues’ gallery of debtors. Unless we begin to close this gap,” Mr. Gross goes on, “then the inevitable result will be that our debt/GDP ratio will continue to rise, the Fed would print money to pay for the deficiency, inflation would follow and the dollar would inevitably decline.”

Investment conclusion: “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.’”

As of this week, Uncle Sam is only $235 billion away from hitting the “debt ceiling” yet again. Assuming the feds keep up fiscal 2012’s pace, we’ll hit the ceiling on Dec. 3 — 60 days from now. Undoubtedly, there will be squawking in Congress, but in the end, they’ll vote to raise it. Which brings up something else we can predict with confidence…

To underscore the point, Gross’ underlings issued a white paper this week. It said, “The latest round of quantitative easing made gold even more attractive, and owning the metal should be considered as part of a diversified portfolio.” And a well-balanced breakfast. “I find myself,” says EverBank’s Chuck Butler, “continually explaining to people that don’t own gold (or silver) that it’s not a useless, barbaric relic that people that don’t own gold like to refer to it as. But once investors own gold (or silver), they see what all the hubbub is about. They see what countries around the world are doing to their respective currencies, and if there is a financial catastrophe, then gold is the only asset that can offer protection. I tell people that owning gold (or silver) is like an insurance policy for your wealth. And just like any insurance policy, you hope you never have to really use it, but if you do have to use it, you’re happier than a lark that you had the insurance!”

- http://dailyreckoning.com/fiscal-meth/

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