Sovereign Debt Concerns Resurfacing

It appears the prevalent belief that the worst of the debt crisis is behind us will be totally upturned in the months ahead. While everyone was cheering the bailout of Greece, I’ve always been firm that the worst was yet to come. Well don’t look now, but insurance on Greek debt rose to record highs on Friday. The problem in Greece is the Euro, which is acting just as gold did during the Great Depression. Greece does not have the ability to devalue its way out of its debt like the U.S., and this imposes deflationary forces on an over indebted nation. Think this through a second. The real value of debt is rising in Greece and the geniuses in Europe can’t seem to figure this one out. People are still rioting in Greece because at the end of the day, the government employs just about everyone, and they need to borrow what they cannot raise in revenue. This is more or less the situation we face in the U.S. no matter what the armchair investors tell you.

We are going to face a very serious debt crisis in the future and our chances of coming out of this unscathed is disappearing by the day. Our politicians may say they are on top of this debt crisis, but their actions don’t match their words. They talk about budget cuts, then they go off and run record deficits. They talk about an economic recovery while foreclosures are at record highs and recent college graduates can’t find jobs. Gas is over $4 dollars in many parts of the country, but I guess there is no inflation because the Fed said so. There is a lack of integrity at the very top, and this validates my fears that the worst is yet to come.

Republicans and Democrats try to blame each other for the problems we face today. Well the last time I checked, deficit spending occurred no matter who held power in Congress and which party held the Presidency. I try to leave all left vs right debates alone because as far as I can tell, they both don’t know how to manage an economy. Not surprising considering the fact that all these politicians are lawyers. How our government will figure things out by relying on the same economic advisers who didn’t see the crisis coming I do not know. Perhaps they believe in miracles.

There is some serious inflation in the pipeline coming from a number of sources. Not only are the printing presses running full steam, but extreme weather is affecting food production worldwide. The last straw will be the collapse in confidence in our government, and by extension, paper money. This is not exactly a doomsday scenario, but it does favor gold. When sovereign nations begin to default on their obligations, see how gold reacts. Then come back to me and tell me if gold is a hedge against inflation or a hedge against government stupidity.

Watch gold for it is giving you a glimpse into the future. The bullish trend in gold will really accelerate if more funds take the lead of the University of Texas Investment Fund and start trading their paper gold for the physical metal. It truly appears as if we areheaded for liftoff in gold. Whether it occurs now or in 6 months is immaterial. Watch for round 2 of the sovereign debt crisis to serve as fuel for the rocket launch.

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