As Good as a Politician's Promise

This week's Economist takes note of the perilous state of the US dollar, among other fiat currencies.

Two important factoids are offered to inspire thought on the matter:

1) "the price of gold has been rising, even though official inflation is low".
2) the present value of the US government's future obligations stands at $45 trillion.

No one should be allowed to read that second line without gulping.

Perhaps... investors have been lulled into a false sense of security by the performance of central banks in recent years, and the independence that has been granted to many of them by governments. But this very aura of inviolability may be storing up problems, since it means that governments can borrow still more at cheap rates. And if governments then find themselves crushed by debt, you can rest assured that this independence will be taken away. And then, once again, the paper in your pocket will only be as good as a politician's promise.

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Despite what I see, from my fatalistic point of view, as the dire implications of this predicament, it's refreshing to read some truth on the matter.

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Its actually far worse than

Its actually far worse than anyone will admit to in writing. If you factor in FannieMae and FreddieMac et al,the ultimate number is going to rival 1920,s Hungary for the inflation record. The crux of the problem is demographics. It cannot be avoided. There is no way short of executing 100 million people over 65 which of course will not happen. There is a confluence of events and HARD statistics that cannot be hedonically deflated away. The nanny state CANNOT provide sevices to the coming retirement wave. Simple numbers show you'll have more people sucking up more resources from a far smaller pool of productive tax payers. The larger group(lets call them voters) cannot be placated without huge increases in the money supply ergo inflation, as the smaller group is not superhuman and can never physically work more than 40 hours a week avg. Wages will have to be comensurate with the huge tax increases ergo , more inflation. Old people love voting and almost ALWAYS vote for more freebies, never to cut freebies. They also become MORE thrifty, thereby cutting state sales tax intakes. This is the issue that will finally kill the nanny state, as the politico endorsed inflation to relieve pressure from the grey mobs becomes endemic with crazy % wage and price increases. This of course will eventually drive the long interest rates into double digits, bringing down the house of cards real estate derivatives industry. Places like California and Arizona and British Columbia where there are hordes of retirees will be forced to issue idiot level amounts of bonds which will be increasingly worthless. Interest rates MUST BE KEPT UNDER double digits as they are desperatly attempting to do now. eventually they won't be able to. Game over real estate deriv's and junk state and muni bonds. Orange County was the warm up. Voting on these issues is absolutely worthless, its like voting to get rid of gravity?! Physical gold and offshore holdings(Swf) in low tax environments as well as commodities will make a killing. At some future point when it gets nuts you'll be able to roll out of that into 10 cent on the dollar/dinar realestate somewhere. we've made 300% on our hard assets in the last 2 years already and the first phalanx of lonely old people with 'chest pains' and myriads of other neurosis havn't even hit the under staffed emergency ward yet. Its going to be a negative feedback loop of funny money printing and hedonic lying by the symbolic analysts until it simply breaks. Good ridance,.

"promised obligations" If

"promised obligations"

If you trust the State, the number is 45 Trillion. If you don't, maybe 2 or 3.

45 trillion is the number

45 trillion is the number that got o'neil fired. no one can swallow that number, and i contend and lots of people who are black belts as well, that the ultimate number could be far higher , as they used conservative estimates and omitted huge future liabilities. there is no way out other than hyperinflation, followed by a deflationary event.