On Gold And The US Debt Trap?

Tyler Durden's picture

Via John Butler of Amphora Commodities,

As with much of the euro area, the US is in a debt trap. All the politicking in DC does not change this economic fact. The federal debt is going to be devalued. Yet even now, amid a new economic slowdown, US consumer price inflation is set to remain positive following a large spike in global food prices. Few things damage economic confidence more than food price inflation. Combined with the escalating financial crises in the euro area and also now in US municipals, the global slowdown already underway is likely to accelerate, leading to a further deterioration of sovereign finances. The debt trap is deepening, with ominous consequences for monetary and price inflation. The dollar and most currencies remain severely overvalued; gold and most commodities, undervalued.



The US is in a debt trap, plain and simple. Yet policymakers refuse to talk about it because to admit that it is a debt trap is to admit policy failure. After all, it is rather difficult to blame a government debt trap on ‘free-markets’. (Not that free markets had much to do with the world’s most regulated industry—finance and banking—blowing itself up in 2008. No, such colossal blowups require vast amounts of government intervention.)


That said, the US is not in the same debt trap as much of the euro-area because its debts can be systematically devalued through monetisation by the national central bank. In the euro-area, this requires some degree of consensus, and the interests of all members are not congruent. Hence the constant back-and-forth between those who want to be bailed out of their debt traps, and those who are being called upon to do the bailing.


The US has no such monetary straightjacket, or any fiscal straightjacket for that matter. President v Congress, Republicans v Democrats, left v right: If there is anything the post-WWII history of US monetary and fiscal policy should teach us, it should be that when it comes to growing the money supply and the federal debt, Washington DC is run by a single branch of government, a single party and a single point on the left-right spectrum. And this branch, the party that controls it and its political orientation is not something that changes with elections. It is a national political pathology.


But remember, the US debt is denominated in dollars. The Fed can assume a growing portion of the debt with incremental monetisation (QE3, 4 … X) and, Vóila! the debt can be devalued to whatever level that branch, that party, deems desirable. While this might imply that government salaries are also being devalued along with the debt, no matter, they can just vote themselves more of those periodic salary increases and all will be well in DC and also some rather nice Virginia and Maryland suburbs.


Those not in a position to vote themselves pay rises should consider buying some gold instead. Diluting dollars are not a store of value. Gold is.

Full report here (pdf):


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I think I need to buy a gun's picture

I cant wait for fuckin 2013,,,,,,end of times

bdc63's picture

It's a 'debt trap' ... it's a suicide rap ...

bigdumbnugly's picture

we gotta get out while we're young...

bdc63's picture

who would have ever thought that decades after high school I would still be quoting the boss as a metaphor for my life ...

Pladizow's picture

"I am an enemy to all banks discounting bills or notes for anything but coin. But our whole country is so fascinated by this Jack o’ lantern wealth, that they will not stop short of its total and fatal explosion". Thomas Jefferson

“It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world.” – Thomas Jefferson

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner, as the result of a voluntary abandonment of further credit expansion, or later, as a final and total catastrophe of the currency system involved."-  Ludwig Von Mises

"When a government is dependent upon the bankers for money, they and not the leaders of the government control the situation, since the hand that gives is the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain. - Napolean Bonaparte

bankruptcylawyer's picture

I'll trade quotes with aphorisms.

"to the victor go the spoils" is never fully fleshed out. because to the borrower goes victory. militaries will pay for advanced weapons with borrowed money.  And why would they choose to lose a war without wealth lacking today, when they can fight it with promises their civilians and vassals will pay for in the future ---if only they win the war. 

war---winner take all competition-----explains the long term persistence of bond rollovers for centuries. it explains the european city-state financing mechanisms. It explains a lot. 

Prolonged wars, such as COLD wars , which result from strategic weapons (nukes) that prevent opponents from winner take all tactics ----result in LONG term expensive arms races which can produce enormous debt burdens on countries. these burdens routinely force inflationary money printing cycles , depriving the populations of their savings and purchasing power in order to 'pay off' the debt , or otherwise eradicate it by simply defaulting on the debt backed currency and redenominating the currency/and bonds as it then becomes worthless. 

SO-----these cycles of 'long war' require persistent inflation and high debt burdens. 

whichever countries go broke first have the disadvantage of being financial targets for looting by solvent countries at large, even 'friendly' nations. However, the countries that go broke second, face the disadvantage of facing enemies that have already consolidated and learned their lessons.  Perhaps, the bigger they are, the harder they fall kind of thing. 


many 'collapse' academics have pointed out that america is far less prepared as a society to deal with the sort of financial collapse that russian society had to deal with in the 90's. I'm not certain how realistic many of their comparisons are. Psychological comparisons aside, their main point, that the United States is so reliant on such an expensive manner of providing oil intensive transportation, that it might find the economic and political whip lash of an oil shock far harder to deal with than Russia. I , however, have faith that the U.S. government can be far more effective at nationlist-fascist organization, than Russia was post collapse. 

It remains to be seen .



duo's picture

give Von Clauswitz his due.

engineertheeconomy's picture

According to Shadow Stats, the M3 is currently $879,357,318,192,692,341,445.13

Thamesford's picture

That's a long "shadow"; the sun must be setting on something.

dbomb12's picture

How about 10 years after

Everywhere is freaks and hairies
Dykes and fairies, tell me where is sanity
Tax the rich, feed the poor
Till there are no rich no more

I'd love to change the world
But I don't know what to do
So I'll leave it up to you

Population keeps on breeding
Nation bleeding, still more feeding economy
Life is funny, skies are sunny
Bees make honey, who needs money, monopoly

Alvin lee was a visionary


Beastmanager's picture

When I think of goldfinger I visualize someone buying gold and giving incompetent leaders the finger. What an age of incompetence that force entrepreneurial people to buy gold.

ZerOhead's picture

... all over the map ...

Stoploss's picture

I believe it is the dollar that is "over valued" simply from a paper assignation standpoint. Rather than gold being "undervalued" in relation to a paper ponzi with assigned values made by school children. How exactly, do you value something that existed before this planet did?

Oh, right..

duo's picture

Where's Admiral Akbar?

Bastiat's picture

Think of the stimulus of the 550M rounds of just .40 cal recently ordered by DHS!  Then there will be the coffins and funeral services.  Pure Keynesian genius.  Krugman must be behind it.

youngman's picture

That will be a good investment for them ..if they sell it....if they use it..probably not

caconhma's picture

The U.S. Army is preparing to suppress the riots

Manual of the U.S. Army Military Police for "Operations in the Civil Disturbances," has recently become known, describes how to use military resources in the country to suppress the rebellion, confiscation of firearms, and even murder of Americans in the United States during the massive civil unrest.

From this document, released in 2006 and designed for self-study in the military and police schools of the U.S. Army, it becomes clear that the operations described in the manual include CONUS and OCONUS, that is, the continental United States and the territory beyond its borders. The manual describes how military means can be used to "help local and state authorities to restore and maintain law and order" in the event of riots, civil unrest, or the declaration of martial law. Military means will be used mainly to break up unsanctioned meetings and patrolling areas to prevent violations of the unlawful acts, written in the document and stated that during the recovery operations of the order of the military may resort to a show of force, creating roadblocks, breaking up the crowds, to use poison gas for police operations, patrol, use of force or security provisions, and if necessary perform other operations. Guide also describes the procedure for placing prisoners in temporary internment camps under the instruction of the U.S. Army FM 3-19.40 "internment operations / movement" and "re-education" for the internment of 'positive assessment of U.S. policy "with the contents of the camps in the United States. The document contains a list of weapons for use against the rebels or protestors, including the police grenade. It requires the military to carry weapons in a safe position - the psychological tactics of the rebels for a show of force. It also provides non-lethal weapons and water cannons. This guide explains how the military may be involved in espionage and gathering information about dissidents to identify individuals, groups and organizations, particularly threatening or creating a disturbance. Toxic chemicals are also used for the purpose of suppressing the resistance. This suggests the troops and confiscating firearms. "Restrictions on the sale, transfer and storage of critical materials such as gasoline, firearms, ammunition, explosives, police forces will help to minimize some forms of violence" - the document says. In December 2008, "Washington Post" reported on plans to deploy another 20,000 employees of American troops in America, for the purposes of internal security after the September 2011 and expand the militarization of the country by means of Northern Command (NORTHCOM) in preparing for possible civil unrest following the total economic collapse or a massive terrorist attack. Released in the same year, the report of the Institute of Strategic Studies, U.S. Army War College warned that in a series of crises in the country may experience massive civil unrest, called a "strategic shock." "Widespread civil unrest within the U.S. defense establishment to reorient the force priorities in extreme situations to protect the basic domestic order and human security '- according to the report, signed by Lt. Col. Nathan Freyr. He adds that the military may be required to suppress purposeful domestic resistance.

El Oregonian's picture

Lt. Col. Nathan Freyr???

That light bird better "STAND DOWN!". I'm sure no one wants to see anybody start pigeon hunt'in...

DosZap's picture

The U.S. Army is preparing to suppress the riots



No doubt they will, IF the call out is legit.

The Military has a death bound oath,to Protect the Const and the BOR's.(not to obey illegal EO's/PDD's)

IF an illegal order is given, look for mass defections to the peoples side.

They will be in many cases going against their own families, and I for one do not see that coming down.

Bastiat's picture

Immigrants serving a tour to get citizenship would be good candidates for riot suppression.

Temporalist's picture

Holy shit that is an amazingly cynical observation so it is probably exactly what will happen. 

I can see it now.

"If you love America, and want to be an American, you must first shoot those Americans over there who are protesting against your new home."

Bastiat's picture

Noncoms will be drugged up, burned out Iraq/Afghan vets selected for demonstrated sociopathy. 

Bringin It's picture

I read that the armour units squashing people in TienAmen Sq. where from Inner Mongolia - different language, ethnic group, from way out in the boonies, most likely with little education.

4horse's picture


Fast'n'Furious, whose militia is being armed . . .

gnomon's picture

The U.S. military would split much sooner and harder than what we saw in Syria.  I guarantee that.

(Smoke that in your pipe anybody who seeks to usurp what is left of LIBERTY via permanent Martial Law such as Chavez has instituted on a de facto basis.  We may look a lot like a Banana Republic, but half of the people are not there yet.  There are a lot of pissed-off Americans at the moment and many of them are military.  This is not a sure deal for ANY future President, not now anyway, maybe in 15 years).

Hobbleknee's picture

"IF an illegal order is given, look for mass defections to the peoples side."

That didn't happen when the were ordered to confiscate guns after Katrina.

Joseph Jones's picture

Good point.

Obummer used a drone to murder the American citizen, age 16, son of Anwar Al-Awlaki.  Some scum of the earth CIA employee had no problem doing the deed for Obummer.     

grgy's picture

DosZap, I sure hope you are correct. In that respect, the military would behave differently than the police in Oakland, Anaheim, New York etc.

drivenZ's picture

"From this document, released in 2006"


tell me again how this is relevant? I guarantee thev'ye always had some form of this doc for the past 100 years. means nothing. 


Bringin It's picture

Whiskey Rebelion - 1789?

Hannibal's picture

With the exception of a couple of "nutballs" here and there, Americans are Not going to take up arms and violently rebel against who or whatever (fill in the blanks here) in any significant numbers. NorthCom, DHS etc are grossly misreading the average US citizen who are simply way too nice or too dumb or too asleep or too scared and/or too fucking cowardice, take your pick (no pun intended).


BooMushroom's picture

Sure, now. But what about when they stop doing SWAT raids for pot and start doing it for "hoarding" food > 7 day supply?

secretargentman's picture

Well why on earth would anyone need more than a seven day supply of food? If people are hoarding, they're starving their neighbors' babies, and should be strung up.  /sarc


You know that's what you'll hear on the noose news, and a lot of people will buy it.

magpie's picture

'Shovel ready' was promised

I did it by Occident's picture

as in any troublemakers will be using the shovels in the re-education camps. 

I did it by Occident's picture

Anybody ever read the short story "and all the earth a grave" by MacApp?  Reminds me of that.  Coffins with be the next fashion thing.  Coffin is the new black  :)

gnomon's picture

Won't be no coffins and funeral services.  Instead there will be bulldozers and mass graves.  Go big Caterpillar and Bobcat.

Now for myself I am hoping for some friendly ditch out in the middle of nowhere, (after I have done all that I can).

Mesquite's picture

Coffins (plastic) already in stock..Check FEMA camps..

And I thought it was 450 mn rounds of .40 cal (hollow point)...

Now that workers are no longer needed as Big Corporations

moved most jobs offshore...(More n more profits, less environmental regs.)

...Home of the Brave" being transformed into "Land of the Elites, Home of the Insiders.."


zero19451945's picture


Any the rest of the world is going to say "Sure, print trillions of dollars, crank commodity prices to the moon, and cause riots in our own country. Oh, and by the way, please retain reserve currency status!"

There are severe consequences for printing the amount required to inflate the debt away. I'm not saying they won't do it, but you're not going to do all that and be fine at the end.

Ignatius's picture

"...reserve currency status!"

As in, 'Keep sending us free shit while you stack our promises'.  That system works right up until it don't.

SMG's picture

The article is absolutly true.   Although I wonder if in the next few weeks/months, will we not get some excellent buying opportunities for PM's and even the mining companies.

Northeaster's picture

I asked the same thing last week based on this:


August 6th would technically mean a massive sell off due to margin increases. Will it happen? I don't know, maybe this could be extended 90-Days again. However, like you, I'm looking for a good buy time. With deflation settling in, gold will take a hit, but it's the rise after that I'm looking at. With cash sitting on the sidelines, I'm holding on until August 6th, should a sell off ensue, I'm buying with both hands.

orangedrinkandchips's picture

"poor man wants to be rich....RICH MAN WANTS TO BE KING..."

hugovanderbubble's picture

Estimated colleague:


With Debt Haircuts Across the world in such private and public debt....

Gold will suffer (short mid term)

johny2's picture

with all due respect,


the financial system can hardly survive Greece to default on its debt, imagine if the debt haircuts get applied around the world. It is the same result always, default or devaluation, deflation or inflation, the fiat currency will lose against the real stores of the value. Dollar had a good run, and will be sorely missed by many crony unproductive fellow, but its fall is very near.

XitSam's picture

I'm ok with the financial system being destroyed as long as no on tries to bail them out.  Will it be a rough patch for everyone? You bet. Will we be better off? You bet.

Black Forest's picture

Perhaps if you nominate bullion in USDEURCHF.... In the medium term (>~ 1 yrs) it will surely help saving value - which was previously accumulated in paper. No chance to eliminate all that paper debt.


Ignatius's picture

"Diluting dollars are not a store of value. Gold is."

Nothing more need really be said.