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When the dollar finally fizzles out only gold and silver coins will give the average American the purchasing power they need to move on.

April 11, 2011 – When the dollar finally fizzles out only gold and silver coins will give the average American the purchasing power they need to move on. Whether the demise of the dollar is already inevitable is arguable, at least according to many cheerfully deluded pundits. But that is immaterial because nobody in Washington has the chutzpah to tackle the big issues.

Nothing more aptly demonstrates that fact than last week’s budget squabble over totally inconsequential cuts that threatened to shut down the government. The real problem is debt service, and the tipping point where interest on our debt consumes 40% of revenues is fast approaching.

US debt assets have taken another huge hit from Pimco, the world’s largest bond fund manager. When the company unloaded 100% of its US debt in February, “holdings of U.S. government- related debt weighted by market value” dropped to zero says the Wall Street Journal. Now Pimco has gone one step further and is gobbling up shorts on the debt, betting on further price declines.

Falling price translates to higher yields – in other words, higher interest the Fed will have to pay on its debt. And higher Fed interest translates directly to higher interest on consumer and business borrowing, the last thing this economy needs.

All the talk about the debt so far has been nothing but political posturing. Obama excludes debt interest from his definition of a balanced budget. Democrats and Republicans alike are talking about trimming the budget with a scalpel while only “radical” tea partiers have picked up machetes. But that is what we need.

For one thing, politicians bandy about the official debt figure of $9.1 trillion. Granted that alone is cause for austerity. But Bill Gross, Pimco’s founder, is more “worried about the hefty portion of each year’s budget that goes toward non-discretionary and entitlement spending.” Medicare, Medicaid, and Social Security obligations put the true US debt at $75 trillion, says Gross. "Unless entitlements are substantially reformed, I am confident that this country will default on its debt."

That should worry every one of us. Default would be the final step to complete devaluation of the dollar, leaving gold and silver coins as the only meaningful currency.

Shannon King

Senior Staff Writer – GoldSilver.org

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