And a Super Sunday to you! Yes… It’s Chuck! And yes, I know I’m not a “Pfennig Pfriend” but… I wanted to write about something that I really only have the time and space for, in this format. So, you’re stuck with me on this fine Sunday!
What I want to talk about today is something that I’ve updated readers of our monthly newsletter to clients, called The Review & Focus (RF) and I call it: An Inconvenient Debt. So, let’s get going on this, as I have lots to talk about!
Well, just about everyone knows that we recently crossed the $16 Trillion mark for our national debt. But what you might not know, is that it was just 10 months ago that we passed the $15 Trillion mark! As the debt grows larger and larger, the expansion of the debt moves at a faster pace. Let me show you how quickly our debt has grown since 2001, as your debt ceiling has been lifted 13 times in that span!
In 2001, our national debt was $5.7 Trillion, in 2008 it was $10 Trillion, and today it is $16 Trillion…
Here’s a graph of our national debt going back to 2001… The graph line sure doesn’t give me a warm and fuzzy, does it you?
Source: Bloomberg, Oct. 18, 2012
Many new readers to the Pfennig accuse me of banging on the current administration and leaving the previous administrations alone. But that’s not true! I wrote the first white paper on our debt back in 2001, and pointed the finger at that administration for their budget deficits, every year! Look, I don’t care who’s to blame… it just needs to stop!
But that’s not what keeps me up at night… The thing that really causes me to lose sleep is our Unfunded Liabilities. Unfunded Liabilities represent all the promises we have made that are, well, unfunded! Right now, that figure is $121 Trillion. The U.S. Debt Clock, which can be found at: usdebtclock.org
The Debt Clock forecasts that with no changes to our current programs, the Unfunded Liabilities will reach $148 Trillion in just 4 short years! Imagine those expenditures being added each year to our National Debt. Are we becoming Greece?
There are really only a few choices a country has to deal with debt that cannot be paid off. They can raise their revenue (think much higher taxes), they can reduce their deficit spending (fat chance of that happening), they can allow their currency to be debased to a level that allows them to pay back debts with cheaper currency, and finally… They can default.
It’s my opinion that we will not reduce our deficit spending, and instead will try to apply a tourniquet around the bleeding by raising taxes to levels not seen by most people before, and debase the dollar. And if all else fails, default… That’s way down the road, while the increase in taxes and the debasing of the dollar is happening before our eyes, right here, right now!
Now, many countries are choosing to do the same debasing of their currencies, which means the U.S. will have to work harder to have the dollar cheaper than other currencies. I get asked all the time this question: “Chuck, if everyone is debasing their currencies, why would we buy non-dollar currencies?”
Ahhh grasshopper, I’m glad you asked… Basically, the way I see it, is simply that the U.S. dollar will lead all currencies down the road of debasement, which means other non-dollar currencies will potentially have greater value than the U.S. dollar.
Gold and other precious metals seem to be the currency du jour during this period of currency debasement, as they can’t be debased, they can’t have liabilities tied to them, or be subject to devaluation!
So… I’m not just someone that points out the problems… I have ideas as to how to solve the problems, but most people don’t ask me… for they are afraid of what I might say… Shoot Rudy, the legal people at EverBank always cringe at what I might say! That’s because I say what’s on my mind…
So… Here’s Chuck’s view on how to fix the debt… Please if, you disagree, I understand, for this is not everyone’s cup-o-tea… At the same time, it’s just little old me, and my thoughts… they’ll probably never go past this letter!
- Let’s stop all wars… that’s the war in Iraq, Afghanistan, on drugs, on poverty, you get the point!,
- Let’s close all military bases around the world, especially in countries where the people don’t want us there any way. Bring those soldiers home, and put them on the borders to protect our country.
- While discretionary spending isn’t going to make or break us, I say stop it! If we don’t have the money to pay for some program, stop funding it! Look… if it’s something that the public really wants, a private entrepreneur will begin pay for it, for if there’s demand, the entrepreneur will find a way to make money.
- Pass a law requiring a balanced budget… and no more debt ceiling increases.
- Repeal 1913… Look it up… and while we’re at it, repeal any laws made since 2000, that infringes on our personal liberties, or gives our Gov’t more power. And one more thing, don’t allow any lawmaker pass a law on citizens that they are exempt from.
- And now, the 800 lb gorilla in the corner of the room… What the lawmakers call “entitlements”… Since when does someone like me pay into a system for 50 years, and when it comes time for me to withdraw the money I paid into the program, it’s called an “entitlement”? Any way… as long as the Medicare, Medicaid, and Social Security are the biggest nut, of our debt, here’s my plan… First of all, anyone 60 years or older gets 100% of what was promised them. No cuts to their programs. Anyone from 50-59, gets 50% of what was promised them, but everything that anyone paid into the system. And then anyone younger than 50, gets nothing promised to them, but everything they paid into the system. They have plenty of years of work to plan their retirement.
- By doing these things… we will reduce our annual budget deficits, and eventually get to a balanced budget. Having a balanced budget stops the bleeding in the national debt. Then to reduce the debt, we begin to change the so-called “entitlements” outlays, and our national debt will begin to narrow.
Think I’m nuts? Well, that’s OK… I’ve been called worse! At least, I’m thinking of ways to reduce the debt! Our lawmakers come up with plans that reduce “X” from future spending… Are you kidding me? Who falls for that kind of rhetoric? All someone would have to do is increase future spending, and the bleeding continues! We have to stop this deficit spending now!
And then, while I’m thinking of everything I’ve written today… if the U.S. Gov’t is going to continue to allow the dollar to be debased, and cheapened, then your purchasing power is being reduced, folks. To offset this potential of a cheaper dollar, and a loss of purchasing power, diversifying a portion of your financial portfolio out of the dollar and into other currencies and metals, have the potential of retaining your purchasing power.
Many people over the years, have asked me what percentage of their financial portfolio should they allocate to currencies and metals… I tell them that each individual has their own risk tolerance, but… I’ve always held to no more than 20% in currencies and 10-15% in metals.
Thanks for your time today… I’ll be back tomorrow morning with a regular A Pfennig For Your Thoughts!
EverBank World Markets, a division of EverBank