- Medicare, Medicaid and Social Security now account for 44% of total federal spending and are steadily rising.
- Previous Congresses (and Administrations) have relied on the assumption that we can grow our way out of this onerous debt burden.
- Unless entitlements are substantially reformed, the U.S. will likely default on its debt; not in conventional ways, but via inflation, currency devaluation and low to negative real interest rates.
My Take: First, the op-ed pieces that Bill Gross puts forth are some of the best on the Internet. While you may not agree with him all the time, he presents well reasoned and well researched arguments.
Secondly, the topic that he’s writing about in this entry is focused on the potential default by the government on its debt. If you’ve talked to me in the last 2 years, I’ve said over and over that the government would promote inflation to turn the debt we have now into pennies on the dollar. Devalue the currency and you devalue your debt.
We do not live in a vacuum and the devaluation of our debt means many things to many people outside of the U.S. Debt holders will not be fond of such actions. If you’re inside the U.S. the concerns raised by Bill Gross should send off a yellow flag in your head. If his notion about these back-door default scheme by the government come true, then how will this impact your current investment/savings strategy?
In the coming weeks I will be looking at a few ways to internationally diversify your portfolio in such a way that you hedge your bets against deterioration of the dollar, while still investing in solid companies that do not cause your portfolio’s risk profile to shoot off the charts.