Latest Deal With Greece Shows Future of U.S.
A commentary on recent events by National Gold Group’s Michael Carr – November 28, 2012
Once again, the euro has been saved when Greece was bailed out by the stronger members of the European Union (EU). The latest deal included the use of some tricks that may spread beyond Europe and help other countries decrease their official debt levels.
To help Greece achieve debt reduction targets, the EU made the targets less stringent. They then reduced the interest rate on loans they owned and deferred payments allowing Greece more time to pay off the loans.
As the U.S. faces the fiscal cliff, these same techniques could be used to reach a deal. The targets for debt reduction can easily be lowered and pushed into the future, especially since there is no real debt reduction. Negotiators are trying to reduce government deficit spending from $10 trillion to $6 trillion. Not spending $4 trillion they do not have is the low bar already established and could be lowered even more if both sides simply agree to delay action now so they can work the details later.
Since the Federal Reserve owns at least ten percent of the outstanding government debt, payment terms could easily be modified if government officials chose to do so. The Fed could also forgive loans, which is a course of action the Bank of Japan seems to be pursuing.
None of these steps truly lower debt or reduce deficits. In the end, all major governments are increasing the money supply and adding inflationary pressures to the global economy. As the economy grows slowly, the additional money is destined to increase price levels under the most basic laws of economics.
Gold has been the investment of choice when inflation is unleashed and as Greece just demonstrated, governments are working on new ways to create inflation.
The above commentary is for informational purposes only and is not a solicitation by National Gold Group or Michael Carr. It is the commentator’s opinion only and not intended for investment recommendations, and does not necessarily reflect the views of National Gold Group. Any references to outside sources are believed accurate. Past performance is not a guarantee of future results. All commodities involve risk. Investors should consult their financial advisor before making any investment decisions.