Year to date bonds, US dollars and Gold have been the best performers. But deficit spending is a cancer that is rapidly growing all over the world and US debt is particularly worrisome because America has the world's largest economy and the benchmark currency. Strategist Michael Pento reviews some deficit math with Aaron Task and reiterates a need to cut spending and accept a period of increased economic pain in order to reset the system toward a sustainable path. Pento sees the US Fed cutting rates again in the future in a futile war against worldwide deflation. I have to agree. I think this is why bond yields have broken down again this month.
Pento says gold has to go higher. He may be right. I think certainty about the future in anything including this volatile rock is a dangerous sentiment. My concern is that after nearly quadrupling in value over the past 10 years, there is also enormous downside risk to gold from present levels. Riding a speculative frenzy of fear is not exactly a rational or high probability “investment” thesis. There is no way to tell when a speculative fever will break, but gold frenzy today reminds me of the sentiment around the last peak in 1980. No shortage of dynamite to juggle these days. Don't forget to arm yourself with lots of safety gear. We need a plan that envisions more than one outcome.
“U.S. debt will top $13.6 trillion this year and rise to 102% of GDP by 2015. Moreover, the publicly traded debt (debt excluding intra-governmental obligations) will rise to $14 trillion by 2015, up from “just” $7.5 trillion in 2009.
At $14 trillion, the interest payments on the public debt will total about $1 trillion in 2015, he continues; even assuming solid growth and low inflation, that would equal about 30% of total government revenue.”