Unfortunately, the interconnected world economy is rapidly approaching a major crisis. Rather than just one smaller country (in terms of GDP) such as Argentina facing the threat of bankruptcy and oft-resulting hyper-inflation, many of the largest countries, from the U.S. to much of Europe (including the U.K.) and Japan, are effectively bankrupt.
If these countries were companies, the consequences of bankruptcy would have likely been dealt with years ago. However, because they are not, politicians have been able to continue to act in their own self-interest and manage for the short-term. By not addressing the issues sooner, the problems are exacerbated, until they results in a crisis much worse than if the cause was dealt with appropriately in the beginning. We are near this crisis point today.
The U.S. national debt of $14.1 trillion is at an unsustainable level, at more than $170 thousand per each of the over 81.6 million U.S. families. The U.S. Treasury, however, reports debt on a cash basis so it does not take into account unfunded obligations for entitlement programs such as Social Security, Medicare and Medicaid. According to Shadowstats.com, the total debt on a GAAP basis from 2002 to 2009 was on average 6.4x greater than the debt on a cash basis. Applying this same methodology equates to total national debt of close to $1.1 million per U.S. family today. To make matters worse, in 2009 nearly half of American households paid no federal income tax; so with only half of households paying taxes, the national debt burden on a GAAP basis could be over $2.0 million per tax-paying family. This is clearly unsustainable and likely past the point of no return.
The situation is set up to only get worse. The U.S., the world's largest consumer of goods, spends 80% of the federal budget on interest, defense, and entitlement programs. The country could cut spending in all other programs and it would continue to result in annual budget deficits that increase debt. Interest rates have nowhere to go but up; which will place an even larger burden on the government. Beginning 2011, the first group of baby boomers reached 65. Baby boomers increasingly leaving the workforce will put even more stress on unfunded entitlement programs such as Social Security.
Meanwhile, many states such as Illinois and California have incredibly large unfunded pensions and deficits themselves that are primed to put them in precarious financial positions as we have witnessed recently in Greece and Ireland. Billions of federal stimulus dollars to the states are scheduled to run out in the spring. It is just a matter of time before the states look to the federal government for additional bail-out funds.
The debt issues inevitably lead to weakness in a country's currency. All of the world's major currencies are fiat, meaning they are not backed by a commodity such as gold. Over the course of thousands of years, no fiat currency has ever survived on a long-term basis, yet governments around the world continue extensive money-printing and policies that make their fiat currencies weaker. On top of this, many of the fiat currencies that have crashed throughout history were around for less time than the U.S. has been off the gold-standard (which will be 40 years this August). Meanwhile, world government debts are out of control and the same policies, mainly increased spending and large deficits, that got us into this mess are being continued and promoted further.
Accordingly, it should come as no surprise to even a novice investor that current government fiscal and monetary policies are leading to a crash of the monetary system. A large part of investing is being skeptical - rather than believing everything you hear from today's political leaders, you need to start judging their actions and applying your own common sense. For example, just recently U.S. Treasury Secretary Timothy Geithner reiterated the country's strong dollar policy - but every action taken by the Fed, from near-zero interest rates for 25 months counting, to extensive money printing, tells a different story. While Europe pursues aggressive spending cuts through a myriad of austerity measures, the U.S. has done the opposite by substantially increasing spending, which continues to add greatly to its deficit.
Structural issues in the Eurozone along with debt issues in countries such as Japan sometimes make it seem like the U.S. dollar is stronger than it really is. In reality, all of the major world currencies have been on a prolonged decline when compared to gold.
Much about investing in gold is common sense. Despite what may seem like a complex financial world, the principal underlying investment in gold is quite simple - gold has been money for thousands of years and in its physical form is much more difficult for governments to manipulate than paper currencies. This makes gold the safest investment in times of fiscal irresponsibility as we are seeing today.
People have been increasingly realizing that the government's policies are imprudent and undermine the nation's fiscal stability. They purchase gold as insurance against potential financial calamity. It also has the potential for outsized return, as the run-up of gold prices over the last decade has lagged the increase in the money supply. It is therefore no surprise that precious metals continue to reach all-time highs and are poised to continue being a fantastic sector to invest in for years to come.
World Oil Usage is Nearing an Unsustainable Level
Just as the issues in Greece and Ireland have sparked conversations about gold, the BP Gulf Oil spill has brought the topic of oil to dinner conversations. People recognize that oil is a finite resource and that drilling has moved to more difficult locations such as deep-ocean areas like the Gulf because much of the "easy" oil has been depleted. Unfortunately, it seems that people have not connected the dots with oil in the way they have recently begun to with gold.
The general public has similar views about the oil situation and the debts of various nations around the world. Everyone admits freely that running out of oil is a problem but to most people it lurks in the distant future and there is little urgency to deal with it now. They wishfully believe that our current way of life can continue and hope that future technological advancements will save the day. Such thinking is not only naïve but dangerous.
Oil is the lifeblood of the world's economy and the main reason for the technical and economic advancements over the last 150 years. Since no one alive today has lived in a world without oil, the availability of cheap energy has been taken for granted. It has become commonplace to think that everyone can eat food transported to us from the other side of the world and that heavy steel can be easily shipped across oceans to and from Asia.
The world's transportation system, from cars to boats and planes, is ill-equipped for non-liquid-based fuels. Oil is also a key ingredient in so many other products that we cannot easily replace it with alternatives. For instance, plastics are derived from oil and it has been a key component in expanding the food production to support the huge population of the world today (7.0 billion vs. 1.0 billion prior to the age of oil).
There is little argument about "Peak Oil" - the concept that oil production will reach a maximum point and then terminally decline, if it hasn't already. Indeed, just this last November, the International Energy Agency announced that it believes Peak Oil occurred in 2006. Despite the implications, this news and other information about Peak Oil has received very little coverage in the mainstream media. Regardless of whether we have passed the point of Peak Oil, the key question is how a growing world will adapt to oil production declines in the face of rising demand; oil consumption continues to increase exponentially by the decade while new oil discoveries have lagged behind since the 1960's.
The U.S. has less than 5% of the world's population but consumes close to 25% of the world's oil due to our style of living. Meanwhile, the rest of the world is racing to catch up with the U.S. Population and growth in emerging markets such as China and India continue to accelerate, offsetting any savings from more expensive energy alternatives. Cars as cheap as $2,000 in India are helping a whole new class of people consume oil faster, while new cars in China are growing at rates above 30% per year. You don't need be a genius to see that these cars are leading us onto a crash course............."
Hilfe, werde von einem psychopathischen "witzig" -Stalker verfolgt. Von wem? Seht meine Bewertungen"