The United States isn't yet teetering on the brink of
like Greece -- but it's not for a lack of trying. In fact, we're on
an eerily similar path.
According to the U.S. Treasury, our national debt is currently more
than $13 trillion (that's a 13 with twelve zeroes). And that's not
even counting unfunded Medicare and social security liabilities.
That works out to roughly $118,477 for each and every taxpayer. But
this is a
that never stops ticking.
At the current pace, we are slipping $3.9 billion deeper in the
hole every day --
$163 million per hour
. That means that by the time you finish reading the next
paragraph, we'll have saddled our kids and grandkids with another
million or two that must be repaid.
The federal government has now run a
for 21 consecutive months (the longest stretch of red ink on
record). In April, tax receipts totaled $245 billion, but outlays
hit $328 billion. That means for every $1 taken in, we spent $1.34.
No household could survive long on that reckless budget -- but then
again, you and I can't print money.
For all of 2010, the deficit is projected to reach $1.5 trillion.
That's an insane +780% increase in just three years. As a
, the gap is currently in the double-digits for the first time
since World War II. And the combined shortfalls could total $9
trillion in the next decade -- ballooning the debt past $20
At that point, assuming an average interest rate of 5% (far below
what we'd have to pay in a real crisis), interest payments alone
would hit $1 trillion per year -- leaving very little for anything
And forget about the
. Even if we could pay down the balance at a rate of $10 million
per day, it would still take 5,753 years to become debt free. Yet
our leaders aren't interested in paying the tab -- they're still
spending like drunken sailors.
Sowing the seeds of inflation
Without a dramatic economic surge to boost revenues, U.S. debt
could exceed GDP within the next two or three years. And there's
only so much the International Monetary Fund could do (20 cents of
dollar comes from American taxpayers, and we can't bail ourselves
As we saw when Greece reached its tipping point, the international
community could soon demand much greater incentive to lend us
money. This could ravage both the debt and equity markets. And the
U.S. dollar (a safe-haven
under other circumstances) will come under direct fire.
So where does all this lead?
investor Bill Gross believes the United States is locked on a
collision course with a "debt super cycle." And former Fed chief
Alan Greenspan is warning of painful double-digit
on the horizon.
Just as France deliberately stoked inflation to ease the burden of
debts amassed during World War I, the only way the U.S. can make a
dent is by diluting the value of a dollar. Leaving interest rates
at zero is a good start, and running the printing presses overtime
will finish the job.
Make no mistake: this is an indirect form of taxation. Whether the
government takes a 25% upfront cut from each dollar of your
paycheck, or simply devalues that dollar to the point where it can
only buy $0.75 worth of products it could have before, the end
result is the same.
Fortunately, there are ways to turn the tables. In fact, certain
asset classes don't just protect against inflation, but profit
handsomely from it. Here are a few ideas:
Precious metals like gold, silver, and platinum would be a natural
beneficiary and a reliable inflation
Commodities (particularly dollar-denominated ones like crude oil)
would likely flourish as the
Foreign money markets would generate relatively safe monthly
income, and currency
will sweeten returns. I've personally been accumulating a position
Franklin Hard Currency Fund (Nasdaq: ICPHX)
If the U.S. is foundering, then you'll want a portion of your money
as far away as possible, like Chile, for example. The expanding
South American market would remain buoyant with copper exports and
relies on the U.S. for just 15% of its trade.
of the dollar could be a boon for multinationals like
that generate more than half of their sales overseas.
Action to Take -->
One solution I recommend to readers of my StreetAuthority
newsletter is to buy the
Jefferies Global Commodity Equity (
I've told my readers about is a fund that's basically a
"fund-of-funds" built for a single purpose: to keep investors a
step ahead of inflation. (
Go here to find out more
If you think inflation is imminent, start accumulating small
positions utilizing the strategies mentioned above.
-- Nathan Slaughter
Nathan Slaughter's previous experience includes tenures at
AXA/Equitable Advisors and Morgan Keegan. In addition, he's
earned Series 6, 7, 63, & 65 certifications. Read more...
Disclosure: Neither Nathan Slaughter nor StreetAuthority, LLC
hold positions in any securities mentioned in this article.
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