Sooner or later, most governments screw their creditors. Also, Bill Bonner doesn’t remember signing a social contract. From Bonner at bonnerandpartners.com:
NORMANDY, France – The Dow rose 222 points yesterday – or just over 1%.
But we agree with hedge-fund manager Stanley Druckenmiller: This is not a good time to be a U.S. stock market bull.
Speaking at an investment conference in New York last week, George Soros’ former partner warned that…
…higher valuations, three more years of unproductive corporate behavior, limits to further easing, and excessive borrowing from the future suggest that the bull market is exhausting itself.
But we promised to return to the scene of our crime today…
Heresy!
In these pages, we recently committed heterodoxy… even heresy!
We don’t know what got into us… and we are deeply sorry for our misdoings, the remembrance of which is grievous unto us…
…but in a moment of weakness (oh, ye gods of democracy, why have you forsaken us?) we dared to question whether voting makes any damned sense.
We concluded that it didn’t.
We don’t know the candidates well enough to know who is really better. We don’t have any idea what challenges the next president will face, nor which candidate would be better equipped to deal with them. We don’t know if the candidates believe what they say they believe or whether they will do what they promise to do.
We only know our vote, statistically, won’t make a bit of difference. And that we don’t want the “lesser of two evils.” And that we don’t feel any obligation to play this game!
Dear readers cancelled their subscriptions… and heated up their irons.
“What about the ‘social contract’?” a reader wanted to know.
We’ll come back to that in a minute. First, we want to touch on a remarkable statement, by a remarkable candidate, in a remarkable election.
Donald’s Debt “Discount”
Donald Trump let it be known last week that if the U.S. federal debt begins to weigh too heavily on his shoulders, he will do what he does best – renegotiate.
He will get a “discount.”
“WHAT??!!!”
The question flew down Wall Street and around the back alleys of lower Manhattan… across the City of London… and through other major financial centers all over the world.
“What did he say? Did he just say he was going to default on the U.S. debt? I can’t believe it!”
“Renegotiating” the terms of debt… getting a discount… is what you do when you can’t pay.
It’s what Argentina just did, after years of wrangling in the courts, in which its creditors seized one of its naval vessels in a foreign port. The idea of discounting U.S. Treasury bonds – the world’s safest credits – was beyond remarkable… It was unthinkable.
To continue reading: Donald Trump Wants to Do the Unthinkable
Mr. Gore, I respect your opinion a great deal.
What are your thoughts on Trump’s “debt discount”? Also, will having gold “on hand” as individuals benefit us when the SHTF?
Thank you for your time
Lisa,
We’ve been going back and forth here on SLL so long, you can call me Robert, or Bob. I answer to either.
Sooner or later, US debt will be “discounted,” especially if you count unfunded pension and medical liabilities as debt. They will be discounted in the sense that those who expect payment will not get what they are expecting. However, I believe the recipients of Social Security and the medical programs will be first in line for haircuts because those programs are driving the growth of regular debt and the unfunded liabilities are far larger (an estimated $100 to $200 trillion) than the debt, which is $19 trillion.
The reason we read so much about central banks, including the Federal Reserve, wanting to increase inflation is because inflation devalues debt, thus making it easier to pay off. In that sense, the US and every other heavily indebted nation in this world is already trying to “discount” its debt, although nobody admits to it. US debt is denominated in US dollars, so theoretically, at least, the US can always “pay” its debt by monetizing it–exchange Federal Reserve debt for the government’s debt. This payment by currency depreciation discounts the debt. However, current efforts to depreciate currencies are having limited success because the world is already saturated in debt; additional debt is having little effect on either real GDPs or price levels.
So much of the “horror” when Trump talks about discounting debt is of the faux variety, since that is the unstated aim of current monetary policy. If debt keeps growing at its present rate, or faster, sooner or later the US will go broke and the debt will most assuredly be discounted, either through wholesale central bank debt monetization (Japan has basically reached this point already), a rescheduling of debt (paying less than the stated debt), or outright repudiation. Trump talking about discounting the debt may make the US’s creditors nervous, but they should already be nervous. I have said for some time said that bonds at the current rates of interest are a terrible investment with virtually unlimited downside and no upside.
As for gold, it is “real” money for all the reasons I’ve discussed on SLL, (see “Real Money”). I recommend owning precious metals, not to speculate on their price against fiat currencies, but because they will always have exchange value, especially when the SHTF. Don’t rush out and put every dollar you have into them, but have some on hand where you can get to it when the SHTF. That is part of prudent preparation for the worst.
Thanks Bob 😉 — I am pushing 50 and have accepted the fact that I may never see my SS but there are so many at the age now they should be using their SS and the idea of cutting it is infuriating to me. Let’s get these lazy fake “disabled 20,30,40 year old peeps who have worked little or not at all off the SS and don’t slight those that have worked their entire lives. I had an opportunity in 2012 to make a large purchase of real gold and (hanging my head) I chose to make a less wise choice of spending – but redemption may be at hand – Thanks again for your insight
You’re welcome.