There are some pretty dire predictions about the global economy out there. There is talk of debt default by the US. There are two reasons why this is not going to happen:
1. The US will likely get the support of foreign nations. Why should they continue financing the US given the collapse of the USD and the pitifully low interest rate? They can't even look to their external trade surplus and say Americans are buying far more of their products. Americans are all spent up. The implication is that the US would have to accept higher interest rates. Governments don't just like to raise rates. They need very good reasons to do so. The only good reason is inflation. Given the level of indebtedness around the world, no one is going to aggressively raise interest rates. We can therefore expect the next scenario to avail.
2. The US will print money: The USD is the monetary base for global finance. Most global debt is denominated in USD, and all US debt is in USD. The implication is that a weaker USD is not inherently bad for the US. The US can simply print money to make payments. The problem of course is that this is inflationary. The problem is that this option will lead to high interest rates as well, just inflation will be leading rather than rising rates.
Add the fact that Iran is being an annoyance, and you have a huge justification for holding gold or other precious metals.
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Andrew Sheldon www.sheldonthinks.com
1. The US will likely get the support of foreign nations. Why should they continue financing the US given the collapse of the USD and the pitifully low interest rate? They can't even look to their external trade surplus and say Americans are buying far more of their products. Americans are all spent up. The implication is that the US would have to accept higher interest rates. Governments don't just like to raise rates. They need very good reasons to do so. The only good reason is inflation. Given the level of indebtedness around the world, no one is going to aggressively raise interest rates. We can therefore expect the next scenario to avail.
2. The US will print money: The USD is the monetary base for global finance. Most global debt is denominated in USD, and all US debt is in USD. The implication is that a weaker USD is not inherently bad for the US. The US can simply print money to make payments. The problem of course is that this is inflationary. The problem is that this option will lead to high interest rates as well, just inflation will be leading rather than rising rates.
Add the fact that Iran is being an annoyance, and you have a huge justification for holding gold or other precious metals.
-----------------------------------------------
Andrew Sheldon www.sheldonthinks.com
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