Thread: Greece Exposes Future: US to easily exceed projected deficit

Greece Exposes Future and Gold Opportunity

Commodities / Gold and Silver 2010
Mar 23, 2010 - 11:40 AM

By: Neil_Charnock

We are looking at a high probability of a rally in the gold price in the coming weeks which will spur gold stocks into upward motion yet again. This is suggested due to fundamental and technical reasons. Inflation (of the money supply), increasing demand and coming uncertainty as the sovereign debt crisis gradually unfolds are three of the key fundamental drivers going forward. The pace of the increase in the money supply is increasing and causing distortions that are essential to understand.

There has been a staggering US$2.59 TRILLION in Treasury Department sales since the beginning of 2009. Spending is still increasing not declining as the US looks to blow-out (easily exceed) its projected deficit of $1.6T. Could we now see a massive new wave of liquidity in the global system in response to national defaults?

When a country becomes insolvent it is not forbidden to continue to trade as companies are here in Australia. I do not know the individual laws around the world on this issue however my point is that a country is vastly different to a bank or company. A country different and an unsustainable deficit and debt is different by magnitude and character to a bank or company insolvency. It is obvious that a country has no choice but to continue to trade.

Countries have mechanisms that can enable it to borrow money offshore and print money if it is no longer unable to borrow. That is unless you are part of a monetary Union like the Euro in which case you have to turn to the other members of your Union or the IMF for help. Outside this experimental Union we are running an experimental unbacked global reserve currency which also seems to be unravelling.

A country outside the EU can print all it likes in theory however if this is done to excess you can eventually end up with a post WW1 Weimar Republic Germany or post WW2 Hungarian hyperinflationary scenario. This is caused by excessive printing of the local currency to a point that all confidence is lost. Confidence in the once mighty USD is waning alarmingly and creating uncertainty at this point in history although it is not a forgone conclusion that it will develop into a full blown hyperinflation.

Markets do not like uncertainty which will be on the increase this year due to debt issues with Portugal, Italy, Greece, Spain, the UK and the USA. There are three major factors you have to get right to make money from such a situation. These are; predicting and timing the gold price movement, selection of the right gold shares and currency movements.

I have been talking about the likelihood of currency fluctuations and upheavals for this year. I still believe this is very important for you to consider and weight in your investment decisions. It will have a strong positive effect on gold in all currencies as central banks and large investors are attracted to gold as a hedge or investment.

I opened 2010 (January 5th Outlook for 2010 and A World First) with a very brave statement; “This year will initially see a continuation of the trends established in 2009. I understand that this seems like a bland statement. The stock market reads future trends and outcomes at times and has factored (government sponsored) growth this year. Thanks to the vast overflow and after effect of the stimulus capital flows this will come to pass initially and therefore I consider that the highest probability is that the stock market rally will continue in the first half.â€

Well, let me just rush to Australia and invest in some of their gold stocks. Horse puckey! Yes the euro is rising against the dollar again, but our interest rates are below zero and it seems Bernanke and the Fed will keep them there. There is still faith in the U.S. as our Treasury obligations are still being snapped up abroad.