The Kindness of Strangers and a Broken Promise

By: Richard Mills | Fri, Aug 12, 2011
Print Email

As a general rule, the most successful man in life is the man who has the best information

The public debt is the money borrowed by the US federal government. The government borrows the money through the issue of securities by the Treasury and other federal government agencies.

Public debt has two parts:

US debt increased by $1 trillion in 2008, $1.9 trillion in 2009, and $1.7 trillion in 2010. As of August 3, 2011, the debt was $14.33 trillion dollars, of which $9.78 trillion was held by the public and $4.56 trillion was intragovernmental holdings.

Standard and Poor's downgraded the credit rating of the US by one notch from AAA to AA+ on August 5, 2011. The long term outlook is negative and the rating could be lowered further, to AA, within the next 2 years.

"We were downgraded because of years of reckless spending, not because concerned Americans demanded we get our finances in order. The Washington establishment has spent us into near default and now a downgrade, and here they are again trying to escape responsibility for their negligence in handling the economy." Ron Paul US Congressman (R)

The US national debt is $14.33 trillion - almost 70% of that debt is owned by Americans. The $4.5 trillion foreign owned component of the US national debt is mostly owned by Asian economies.

America's largest creditors:

Asian's are buying US Treasuries to stem gains in their currencies against the dollar, they need a strong dollar versus their currency to keep Americans buying their exports. This will not change, at least not on China's part, until that country's economy is supported by internal consumption rather than relying on exports.

America's real problem isn't foreign held debt, although the US does owe almost a third of overall debt to foreign states. China and Japan (the US's third and fifth largest creditors) together hold only 14.4% of US debt - American's debt to themselves, approaching ten trillion dollars, is over eight times the amount owed China.

China, at $1.16 trillion, is actually the third largest individual creditor to the U.S., behind the Social Security Trust Fund and the $2.67 trillion the government owes it - in second place is the $1.63 trillion the Federal Reserve has recently purchased.

The budget shortfall, the deficit, for the first ten months of 2011 already exceeds the $900 billion in discretionary savings Congress agreed to find over the next decade in the just concluded debt deal - the July deficit alone was $132 billion. Even the "super committee" that is charged with lowering the deficit by $1.2 trillion over ten years (above and beyond the $900 billion) is only going to come up with one year's worth of deficit spending savings and in total we are talking much less than two years worth of deficit spending out of ten, thats if such diverse committee members can compromise in front of an election year.

The government's deficit is now $1.103 trillion for fiscal year 2011, which has almost another two months to run till Sept. 30.


Conclusion

According to the Bureau of Economic Analysis (BEA) Medicare and Medicaid spending, in the second quarter of 2011, rose to a combined annual rate of almost $992 billion. Medicare's unfunded liability alone amounts to $353,350 per U.S. household. Total entitlements spending plus interest on the federal public debt account for about two-thirds of the federal budget.

The largest problem in America is the massive debt bomb called the Social Security Trust Fund and the $2.67 trillion the government owes it. America's population is aging, 78 million baby boomers are retiring over the next 15 years meaning massive increases in federal transfer payments.

The biggest holders of US debt are Americans - the majority of money Americans owe is owed to themselves. This self owed debt is going to continue to increase because social benefit cupboards have been stripped bare, the monies have been removed and spent, all that's left are IOU's.

This is not simply a matter of today's $2.67 trillion dollars, as serious as that number is, its dwarfed by the hundreds of trillions of dollars America is committed to spending on social benefits over the coming decades.

It would seem to this author, because foreigners own less than a third of America's debt, that Americans are not indebted to the kindness of strangers after all, at least not yet.

Future Social Security obligations, the Federal Reserve and Ben Bernanke secretly giving away $16 trillion dollars, pork barrel politics, more rounds of quantitative easing (QE3,4 etc) and US Defense spending means huge budget deficits for years to come. This has serious implications for the value of the US dollar and the price of precious metals.

But there is more:

The gold price today would have to be US$2358 to match gold's nominal high in 1980. The US dollar is a broken promise, people are going to continue to buy more gold and silver. The seasonally strong period for gold and gold stocks is right around the corner.

Mine production costs are dropping, with gold trading around $1750 and silver at $38, gold and silver miners are going to look pretty good to investors next quarter. Junior precious metal companies, the owners of the worlds next mines, are going to have their turn in the spotlight and should be on every investors radar screen. Are they on yours?

If not, maybe they should be.

 


Richard Mills does not own shares of any companies mentioned in this report.

 


 

Richard Mills

Author: Richard Mills

Richard (Rick) Mills
www.aheadoftheherd.com

Richard Mills

Richard lives with his family on a 160 acre ranch in northern British Columbia. He invests in the resource and biotechnology/pharmaceutical sectors and is the owner of Aheadoftheherd.com. His articles have been published on over 400 websites, including: SafeHaven.com, WallStreetJournal, USAToday, NationalPost, Lewrockwell, MontrealGazette, VancouverSun, CBSnews, HuffingtonPost, Beforeitsnews, Londonthenews, Wealthwire, CalgaryHerald, Forbes, Dallasnews, SGTreport, Vantagewire, Indiatimes, Ninemsn, Ibtimes, Businessweek, HongKongHerald, Moneytalks, SeekingAlpha, BusinessInsider, Investing.com and the Association of Mining Analysts.

Please visit www.aheadoftheherd.com

Moderated investor friendly forums - Ahead of the Herd is powered by Community Intelligence.

Free highly acclaimed newsletter featuring today's investable junior resource companies.

If you are interested in sponsoring Richard's site please contact him for more information, rick@aheadoftheherd.com

Legal Notice / Disclaimer: This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

Ahead of the Herd.com Media Group Inc.a division of Ahead of the Herd Holdings Inc. All rights reserved. No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned. While we believe the sources of information to be reliable, we in no way represent or guarantee the accuracy of the statements made herein. Ahead of the Herd.com does not provide individual investment counseling, act as an investment advisor, or individually advocate the purchase or sale of any security or investment. The publisher, editors and consultants of Ahead of the Herd.com may actively trade in the investments discussed in this website and newsletter. They may have substantial positions in the securities recommended and may increase or decrease such positions without notice. Neither the publisher nor the editors are registered investment advisors. Subscribers should not view this publication as offering personalized legal or investment counseling. Investments recommended in this website and publication should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company in question. Unauthorized reproduction of this newsletter or its contents by Xerography, facsimile, or any other means is illegal and punishable by law.

Copyright © 2009-2017 Richard Mills

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com