Thursday, November 5, 2009
“By All Relevant Debt Indicators, the US Fiscal Scenario Will Soon Approximate [that of] Countries on the Verge of a Sovereign Debt Default”
Josh Lipton points out:
The American Enterprise Institute for Public Policy Research (AEI) published a paper indicating that “by all relevant debt indicators, the US fiscal scenario will soon approximate the economic scenario for countries on the verge of a sovereign debt default.”
Well, the U.S. is acting like a banana republic.
Lipton also quotes Einhorn and Rosenberg to argue that America's overheated printing presses and huge debts are helping to drive gold higher:
David Einhorn of Greenlight Capital, recently speaking of why he’s become a fan of gold, had this to say:Einhorn added, “Prospectively, gold should do fine unless our leaders implement much greater fiscal and monetary restraint than appears likely. Of course, gold should do very well if there is a sovereign debt default or currency crisis.”
I have seen many people debate whether gold is a bet on inflation or deflation. As I see it, it is neither. Gold does well when monetary and fiscal policies are poor and does poorly when they appear sensible. Gold did very well during the Great Depression when FDR debased the currency. It did well again in the money printing 1970s, but collapsed in response to Paul Volcker’s austerity. It ultimately made a bottom around 2001 when the excitement about our future budget surpluses peaked.
David Rosenberg, chief economist and strategist at Gluskin Sheff, also continues to favor gold. The fact that the yellow metal continues to surge higher -- even with ongoing deflationary developments -- suggests that other factors are driving bullion to new bullish heights, he says.
“It’s called scarcity of supply relative to fiat currency,” Rosenberg argues.