As expected for some time now, the U.S. hit its debt ceiling today, forcing the Treasury Department to implement extraordinary measures to keep the nation’s bills paid. As the fight over debt rages on, both political parties will look to take advantage of the situation in the weeks ahead. The U.S. debt ceiling is just another dog and pony show that will be utilized by political powers to attempt to sway voters. In all likeliness, some type of agreement will be hammered out sooner rather than later. That agreement will almost certainly again just kick the can down the road, leaving the root cause of the problem for someone else to deal with at another time.
The U.S. dent now stands at over $31 trillion. That is $31 trillion dollars, an amount that cannot be fathomed by most individuals. It would reportedly take almost a million years to count to 31 trillion to put the figure into some perspective. With the interest meter always on, how can the U.S. ever possibly repay such a massive amount of debt? The answer to that question could be the key to gold’s long-term fortunes. Most experts believe there is only one way for the country to repay such an amount of debt, and that way does not bode well for the dollar or the economy. Currency debasement is a term that has been thrown around in recent years, oftentimes from individuals who are considered to be “crazy,” “nuts” or otherwise deranged. Those individuals may have the last laugh, however, as the U.S. is rapidly running out of gimmicks to pay its bills on time.
A U.S. default on its dent is almost too crazy to consider. The global implications of such a scenario make it almost impossible to even imagine. A default is a legitimate threat, however, that needs to be avoided at all costs. A U.S. default would cause borrowing costs to go through the roof, and could be the first stage of a global recession the likes of which has not been seen before. Not wanting this to happen, the U.S. will likely come up with an alternative solution to keep paying its bills while avoiding worldwide panic. A currency debasement may be the only solution available.
Lowering the value of the U.S. Dollar may be good for the government, but it is not so good for you. If every dollar you currently own bought tomorrow only half of what it buys today, your supply of money is basically cut in half. That is exactly what could happen if the U.S. elects to debase the dollar. The currency is already in some serious trouble on the world stage as nations look to move away from it. Its status as the global reserve currency of choice is already under attack as other nations such as China look to get a seat at the global power table. Whatever the case may be, the dollar appears to have some tough times ahead of it. As the dollar declines, so does your purchasing power and your wealth.