Is government debt too great to be paid without devaluing currencies?
*Dow Theory Letters, by Richard Russell, September 6, 2013
”The fundamentals in the US and the world are enough to turn your hair gray. Debt worldwide is out of control. Total debt to GDP in most countries in the world is at a mind-blowing 300-400%. It’s obvious that this debt will never be repaid. As the US continues to grow, it is forced to borrow more money. The Fed now owns $2.2 trillion in federal debt. This year, in 2013, the Fed has purchased more debt than the Treasury has issued. I could go on and on about the horrors of the debt situation. But remember, the market is not stupid. It contains all the information known to everybody. This is the reason that I follow the markets so closely. If we are heading into a brick wall, the market will know it and reflect it.
Yesterday I described the magic of compounding, as practiced by Warren Buffett. Compounding assets may be the only way for investors to survive under current low interest rate conditions. The common man has run into a brick wall as far as income is concerned.
Ultimately the nation is caught in a vicious vice in which it must borrow more and more to sustain itself. The question now is not how to generate income but where to find the safe zone.
When looking for safety investors normally make a dash for cash. But with the Fed creating cash wholesale, the future of the dollar is in question. As the purchasing power of the dollar declines, gold comes to the fore. I see the action of gold as representing an ever expanding base. JP Morgan currently has a large position in gold. My advice — follow the big money. And there is no bigger money than JP Morgan.”
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