Wednesday, April 21, 2010

Puru & The Rock

Puru Saxena presents his forecast:

"The developed nations are over-extended, their debt levels are ballooning and their governments are creating copious amounts of money. Put simply, most industrialised nations are now caught between a rock and a hard place. After years of excesses, the developed world is slowly beginning to realise that you cannot continue to live beyond your means and spend your way to prosperity. Today, US national debt stands just north of US$12 trillion, its fiscal deficit for this year alone should come in around US$1.6 trillion and the nation faces mind-boggling deficits for as far as the eye can see. Furthermore, demand for US government debt has begun to wane and this implies that the Federal Reserve will have to resort to creating even more money over the following years. Make no mistake; the US cannot afford higher interest-rates and in order to keep a lid on the government bond yields, we are convinced that the Federal Reserve will resort to debt monetisation. In other words, the central bank will create new dollars in order to fund the deficits. Needless to say, this money-creation will be extremely dilutive and end up undermining the viability of the world’s reserve currency. If our assessment is correct, within the course of this decade, the interest-payments on the existing government debt will become so large that the US Treasury will need to issue new debt just so that it can keep paying interest on its outstanding debt. When that happens, you be sure that foreigners will not be eager buyers of US government debt. Therefore, the Federal Reserve will have to create additional money, just to keep the Ponzi-scheme going. And when all else fails, the US will simply debase its currency, thereby repaying its creditors in significantly depreciated dollars. Although our prognosis may sound far-fetched, we want to remind you that throughout history, currency debasement has been the norm rather than the exception. Let us put it simply, the US is now left with three options:
•Sovereign default (unimaginable)
•Severe economic contraction (unlikely)
•Currency debasement (most probable)"

The entire article:

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