Those who have been following this blog know that the US dollar is vulnerable. It may be the most important factor in determining an investment strategy over the next couple of years. This conclusion is based upon the mathematical impossibility of servicing government debt and obligations. Either the government must drastically curtail the welfare state (social security, medicare, etc.) or abandon the dollar. Politically, it is considered impossible to do the former. Hence, the most likely outcome is either a continuing or precipitous drop in the value of the US dollar.
Sprott Asset Management has just issued a report entitled “Safe Haven No More” that is a MUST READ. It discusses why they believe the dollar must go down. It is entirely consistent with my reasoning. In the report, they nicely lay out their thought process, including a detailed look at Federal obligations. This is very valuable information because it is important that investors understand the magnitude of the problem the US government has created. Whether or not you agree with the conclusions, it provides a perspective to judge unfolding economic and political events.
Their calculation of debt excludes virtually all stimulus that has not been reflected in the deficit already. Hence, it understates this problem to the extent of guarantees and funds committed but not yet spent. I agree with virtually everything in the report. However, I do not believe that the expected strategy can save the welfare state. If/when the dollar collapses, the welfare state does not suddenly become sustainable. It is the root cause of where we are and must ultimately be dealt with. The government has promised over $100 trillion (present value) dollars in social programs. The total wealth of the country is only around $50 trillion. If they confiscated every dollar of wealth from every citizen, firm, charity, etc. they would still be 50% short of being able to honor their promises. Such social promises are absurd and totally unfundable. They cannot be remedied by trashing the dollar. Hence, trashing the dollar may buy some time but cannot save an overly bloated welfare state. Either these committments will have to be cut drastically or they will be funded via a Zimbabwe-style inflation. READ THE REPORT.