Morning Market Report: As Expected a Debt Deal? A brief History of Debt

Treasury Secretary Geither (Turbo Tax Timmy) tells CNBC ‘default is off the table’ and that much is going on behind the scenes. Was default ever on the table? This newsletter (and by extension the statements I make on Twitter and to my Facebook friends) had taken the position of maybe to no doubt they would NOT let the country go into a default and relegated the default talk to the realm of "dramatics". Of course, no formal agreement is in hand, things could still awry, but with default would come (above all else for the pols) the risk of losing elections and responsibility for who knows what. Financial Armageddon to just a little poof of nothing is what would happen with default, and that imho (since no one really knows for sure what would happen) is just too wide of risk reward spectrum for the DC establishment to be responsible for.

 

And should this debt ceiling raise of a couple a Trillion come about before the August deadline, I’d wager a bet that the credit rating agencies  will stand down and not do a thing to the AAA rating. A downgrade to Aa could carry heavy enough consequences that these credit ratings agencies (really all a part of the banking ruling class) is something that would be shocking if it were really to happen. We know that this little ratings company called Weiss rates the U.S. a C, but who the heck is Weiss even if they are much closer to the truth about US debt? This is an S&P, Moody’s and Fitch controlled game.

 

Why am I so sour of U.S. finances? I’ve been writing my next book to be entitled The Late Great Dollar Bill. Let me give a little information I have gleaned about the debt load of the country by way of some tweets I did last night as Gold played around with $1600. These numbers will be refined and adjusted as I work through my book :  

 

 -US debt tripled between 1950 and 1980, BUT debt to GDP ratio slid over 50% due to GDP expansion. Little DC talk now about spurring real GDP growth. Yes debt load plunged even with a war and all else that went on during the 70’s. Now? The big vision is either Draconian spending cuts, higher taxes, or do nothing but pretend and spend.

 

-True, the debt to GDP ratio briefly surpassed 100% of GDP during WWII, but declined to .74 by 1950’s.

 

-US debt as % of GDP was .33% in 1790; now with future liabilities included it’s more than 6x GDP. There was no social security in 1790, but now if I tell you I am going to pay you a certain amount of money after collecting money from your paycheck when you retire, that should also be construed as debt. This is why you buy Gold, metals and hold. 

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The modest 1790 debt to GDP ratio came after the Continental Currency hyper inflation debacle. Present day: biggest debt bubble ever.

 

-Continentals which declined to .01 on the dollar represented an estimated 2 times + Colonial GDP (still researching these numbers. It might be better to show this relative to the modest amount of Colonial gold vs US gold holdings of 10k tons vs a $14 TT debt load.)  

 

 -These figures do don’t take into consideration state and state pensions which total another $7 TT+. Who’s on the hook if the state’s run into really big financial trouble? It will be Uncle Sam.

 

-Much of this data gleaned from Baro’s Macro Economics: A Modern Approach.

 

Executive summary: More PhD economics: We’re Piled High and Deep as a nation like never before.

 

This is why gold (priced in diluted dollars) is where it is. No doubt more flushes will occur by way of the paper futures market, but $1600 will be in the rearview mirror soon enough as print, print, print continues. Everyone should already be thinking about 1700 and 1800 dollar gold for this year.