America’s deficit spending is devastating the U.S. dollar, driving economies around the world to gold, writes columnist George Will.
“One of the many television commercials exhorting viewers to buy gold says solemnly that it is an asset whose value ‘has never dropped to zero,’ a boast that surely sets a record for minimalism,” says Will.
“Still, the world's appetite for gold as an investment option is intensifying.”
Last month, India purchased 200 tons of gold at $1,045 an ounce, before the price topped $1,108 this week. China is diversifying away from dollar-denominated bonds — into gold, the price of which, some savvy investors reckon, could soar to $2,500 an ounce in three to five years.
“One reason for all this is U.S. behavior,” writes Will.
The 2009 budget deficit is triple that of 2008. That’s 10 percent of GDP. Former White House economist Lawrence Lindsey says the administration’s policies will likely produce deficits of 7 percent of GDP for the next 10 years.
“Ronald Reagan's worst deficit was 6 percent of GDP, and for only one year,” writes Will.
Americans' net worth has dropped at least $13 trillion since the recession began in December 2007.
“What is to be done?” writes Will. “Americans could suddenly begin saving substantially more, but this would deepen and prolong the recession. Alternatively, America could reflate the value of its assets by printing money.”
U.S. credit woes may not be over, thanks to $4.2 trillion of dubious debt that comes due over the next five years, says Caitlin Long, head of corporate strategy for Morgan Stanley.
That debt is based in the commercial real estate and non-investment grade (junk) markets.
“At best, this wall of maturing U.S. debt will strain credit capacity,” Long writes in the Financial Times.
“At worst, it will prolong the credit crunch and restrain economic growth.”
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