Rickards warns of a ‘soft default’ by the U.S.

KW: Herewith from his latest newsletter to customers. However, other people like Rob Kirby https://usawatchdog.com/massive-secret-money-printing-will-shoot-gold-higher-rob-kirby/ warn that the real debt that Rickards refers to is much much higher than officially reported so with Trump himself making disturbing noises abot the strength of the U.S. economy and debt pile up is Rickards warning all the more pertinent?

Dear Reader,

We’ve all heard reports about how U.S. deficits are out of control and the U.S. debt-to-GDP ratio is heading toward a complete loss of confidence in the U.S. dollar.

These facts are true enough, but they beg the question of when the crackup will arrive. After all, many analysts have predicted a debt crisis for years, but it never seems to arrive.

Meanwhile, both Japan and Italy have higher debt-to-GDP ratios than the U.S. and they are still issuing new debt, despite recessions and other negative indicators.

Timing market events is never easy — there are far too many shifting variables. Estimating the timing of a debt default or loss of confidence in the dollar requires continual observation of events related to a default and the assessment of the probability of those events occurring if a default were or were not close at hand. But without a reasonable time frame, these forecasts are of very little use.

A recent article from Fox Business is one of the most dramatic indications yet that a default of some kind may be closer than most expect.

It describes what the author calls a “soft default.” This involves resetting the dollar to equal a basket of commodities, including oil, gold, natural gas and other key commodities.

The author argues that a default of some kind is coming regardless because today’s debt levels are simply not sustainable and can never be paid off. And a one-time soft default would be far preferable to a full default that would lead to chaos. Here’s an excerpt from the article:

Our leaders have dug us into a hole. And the best way out is a “soft” default on the national debt.

A hard default, where the government simply refuses to pay its debts, would cause a global economic meltdown. Dollar-denominated Treasuries and federal reserve notes are the lifeblood of the global financial system. But a soft default — a one-time devaluation of the dollar which enables the government to pay back its debts in full, albeit at a lower intrinsic value — needn’t be catastrophic.

This same general idea has been around for decades and is not unlike what John Maynard Keynes proposed at Bretton Woods in 1944 in connection with the creation of world money that he called the “bancor.”

What’s different is that the new peg would be at prices greatly in excess of current market prices. For example, gold would be valued at $10,000 per ounce (a figure I have predicted for years as part of an endgame dollar reset).

This gives the economy a massive one-time dose of inflation, which wipes out the real value of the national debt. After the debt devaluation, the dollar would remain stable based on the commodity basket at the new prices.

You might think such an idea is too radical. But something like it has happened before.

This is a variation of what FDR did in 1933 when he devalued the dollar by raising the price of gold from $20.67 per ounce to $35.00 per ounce. But here’s the real takeaway: Whether this peg and devaluation play out is less important than the fact that it is receiving high-profile consideration.

That alone tells you the dollar’s days are numbered as a store of value.

The best remedy for investors is to beat the government at its own game by acquiring gold today at comparatively low prices.

Below, I show you how the entire global economy is slowing down and why central banks have little power to prevent it. Read on.

Regards,

Jim Rickards
for The Daily Reckoning