US on the Road to Ruin, Time to Protect Your Assets

“It’s time for another surreality check, but this time it isn’t the publicly traded companies that deserve attention, it’s the governments that have saved them,” write Eric Sprott and David Franklin in a scathing assessment of the walking-dead US government. They continue, “make no mistake – the dead men are still walking – they’re just a lot bigger now than they were two years ago, and they don’t generate earnings – they print money and tax their citizens.”

Simply put, the problem is that “the United States Government is on a trajectory to default on their obligations. In its current financial condition, it will not be able to fund its forecasted budget deficits and unfunded Social Security and Medicare promises on top of its current debt obligations.” The way they explain it, it’s impossible to know exactly when the market will integrate this cold calculation, but the time is coming. It then follows that, “there simply isn’t enough taxing power, value creation or outside capital willing to support its egregious spending.”

The spending Sprott and Franklin refer to amounts to a roughly $9 trillion deficit by 2019, and there’s no straightforward way to fill that gap. As they explain, “how on earth does anyone expect them to raise this capital? … all existing investors would have had to increase their US bond purchases by 200% in fiscal 2009. Foreigners, however, only increased their purchases by a mere 28% from September 2008 to July 2009 – far short of what the US government required.”

The advantage for dear readers comes in understanding this ongoing macroeconomic trend and protecting your own assets accordingly. As they describe, the “bottom line is that there is serious cause for concern here — and don’t be fooled into thinking this crisis will fix itself when (and if) the economy recovers.” Policymakers have lost long term perspective and have put “the US on the road to ruin, and the major governments of the world have noticed and are taking action.”

In its entirety, the 5-page Sprott Asset Management document topics range from closing Social Security to new entrants to limiting Medicare with vouchers as it provides an eye-opening surreality check of a dead government walking.

The Daily Reckoning