We have oft voiced our view that the growing U.S. debt position is unsustainable, including significant debt on the books ($13T) and unfunded liabilities ($56T and counting). Respected investment commentator Richard Russell espoused on the issue in his Friday commentary. We post some pertinent quotes from Russell’s newsletter below. He also describes his view of investment implications, which is aligned in many important ways with ours. Best regards,

Dan Hoskins

Partner

Crescat Capital LLC

“The US has a national debt of $13 trillion (that’s trillion, not billion). There’s no way in God’s name that the US can ever pay off that debt. Actually, if the US does nothing the interest on the debt will eat up the nation. Worse, aside from the national debt the US has over $50 trillion in unfunded liabilities.”

“To put it frankly, the US is facing a debt future that can not be solved by cutting back on expenses and raising taxes. Even if the US taxed away all the income and profits of individuals and all corporate profits, the government would still not be able pay off its debts.”

“In my opinion, the US MUST default on its debt. There are two ways to default. One is simply to renege on the debt. I don’t think the US would ever do that. If the US did that, nobody would ever deal with the US again. The other way to default on the debt is to inflate it away. I’m absolutely convinced that this is the path that the US will take. If the US inflates enough, then over time (many years) the devalued dollar will tend of reduce the power of the debts.”

“I guess optimists continue to believe that Treasuries are temporary save-haven items and that they are going to move higher. But if the bonds rally by say 5% and you lose 8% in the dollar, what good are the bonds? Some experts believe that deflation will drive interest rates well below zero. Ah, that’s why the smart guys are buying Treasuries. I knew there was a reason. But I’ll tell you something — I don’t trust the reason.”

“My guess is that gold has bottomed. Too many investors and too many cental banks are potential buyers of gold. And they are ‘bottom-fishing.”

“As far as I’m concerned, the “word” is out. The US will default on its monster debts. The US will default via systematic inflation. This will gradually “kill” the dollar. The protection against declining purchasing power of the dollar (brought on by Fed inflation) is gold.”

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