“If the US were a corporation, it would have bonds that are junk rated.”
That’s the word from Marc Faber but, then again, his column is called the “Gloom, Boom, Doom Report” so he is very much talking his book. Faber makes the case that our unfunded liabilities make the US a toxic investment, much the way GM health and pension obligations. The US ended up bailing out GM but who can bail out the US? Faber argues that additional debt growth no longer has the ability to add to GDP growth, meaning we have passed a tipping point where we have no choice but to pay off existing debt (most likely through inflation) or default.
Pragmatic Capitalist has a great article discussing total debt to GDP and, yes, we all need to be very concerned but our debt to GDP is up at levels we hit in the Great Depression – that was 80 years ago and the US is still standing! While I don’t advocate dismissing these issues, I do want to point out that these issues are always with us and the MSM has gone from completely ignoring them (our Meatball Market of January) to focusing on nothing but. Suddenly Faber, Roubini and various bond pimps have center stage and the gold bugs are trying to pull the last group of suckers into that tent with scary stories about the imminent collapse of the USA, as if having a share of an ETF that says it holds some gold somewhere is going to do you any good when your broker goes dark in the predicted economic catastrophe.
The reason gold has been a valuable alternative to currency throughout human history is that it has a high value to weight ratio – Try loading up the SUV with a pound of gold ($17,088) or 235, 42-gallon barrels of oil and you’ll see what I mean. Gold’s value as a currency hedge is that it’s readily exchangeable anywhere in the world for cash. While it may make some sense for the bomb-shelter crowd to store some bullion along with the beans – what edge do you think you’re getting with a certificate that says you own a share of an ETF that stores some gold somewhere?
If the US economy implodes and the market collapses – where exactly will you be going to claim your gold? In 2008, when the economy WAS collapsing, gold fell from $936 on October 8th to $681 on the 24th. …
