The U.S. Might Default, If This CEO Is Right, Just Don’t Bet on It

1 | By Shah Gilani

Lots of bears and perma-bears warning that the nation’s debt will sink the economy and markets might be right, maybe inevitably right.

The U.S. could default on its national debt and the economy could nosedive taking markets down with it.

Just don’t bet on it.

Because if you do, if you’ve been scared to jump into the stock market any time since 2009, because of fearmongering about the nation’s debt, imbalances in the economy, or the pumped up stock market, you are going to be on the wrong side of ever becoming rich.

Here’s what the bears have right, why you shouldn’t listen to them, and what you should be doing instead…

What’s Been So Wrong with This Picture for So Long

In a Business Insider article published November 9, 2019, Peter Schiff, the “outspoken” CEO and president of Euro Pacific Capital, said he thinks “the US’ frivolous spending and money-printing is going to culminate in a cataclysmic scenario.”

And in his podcast Off the Chain he said, “The economy is getting sicker,” and central banks by cutting rates and printing money are “actually making the underlying economy sicker, even though it doesn’t look sicker because they’re just measuring the spending that goes on and they’re ignoring the debt that’s behind it.”

Schiff, the libertarian economist and money manager, has been warning anyone and everyone for years and even decades that the U.S. economy was being mismanaged, that hyperinflation is inevitable, and that America will default, one way or another, on its ever-increasing public debt.

He isn’t alone. There are hundreds of money managers, analysts, and economists who’ve been predicting the demise of American capitalism, of the economy, and of the country’s equity and bond markets.

The truth is they are all right, at least in theory. In practical terms, they’re probably right too.

A lot of bad “stuff” is likely to happen to the economy and to markets.

America’s capitalist system is fundamentally broken. Free markets aren’t really free.

Unhinged government spending, manipulation of interest rates, compromised capital markets, and crony capitalism aren’t just confirmations that America’s once rich and simultaneously inclusive and egalitarian brand of capitalism is broken.

They’re the reasons why it’s broken and proof that our free markets aren’t free anymore.

But the thing that the bears, perma-bears, and fearmongers don’t take into account when theorizing about where we’re possibly headed is that the very same players who’ve put the country in the position it’s in are the ones who can and have been putting off what many fear are eventualities.

The Game Is Called “Extend and Pretend”

Simply put, the game’s objective is to extend debt maturities and repayment schedules and amounts, to indefinitely if necessary in some cases, and pretend the day of reckoning is somewhere out on the infinite horizon.

The game is made possible by central banks, in the case of the U.S., the Federal Reserve System, America’s private central bank.

As the master manipulator of interest rates, hence manipulator of the economy and markets, the Fed makes the “extend and pretend” game possible.

There doesn’t have to be any fiscal discipline, and theoretically for as long as the emperor appears to have clothes on, any need to pay back the nation’s debt or think much about deficits, because the Fed can “print” money to either give to its crony banks to buy government issued debt, or the Fed can simply buy it themselves, as they did to the tune of more than $4 trillion under their save-the-economy policy obtusely named quantitative easing, or QE.

Of course, central bank manipulation extends not only through the economy, but also it directly impacts bond and equity markets.

That’s why while bears and fearful analysts and economists are right about potential outcomes, they’re also your worst enemy if you follow their dire prognostications and don’t play the game.

How to Play the Game Now You’re in on the Act

Playing the extend and pretend game is better than the lottery, where one state’s lottery’s marketing slogan is “You gotta be in it to win it!”

You’ve got to be in the game, meaning in the stock market, if you want to win, if you want to make real money, and if you want to become rich like so many other people who’ve made fortunes in the stock market.

Even if you don’t go all in, even if you are conservatively invested in the market, you’re going to make more money being in the market than anywhere else, including investing in residential real estate.

The extend and pretend game isn’t going to end any time soon precisely because the economy would implode, interest rates would skyrocket and both bond and equity markets would tank.

In other words, it’s a protected game.

The bears aren’t wrong. Naysaying analysts and economists aren’t wrong. They might be right. But one thing’s for sure: they’re wrong about timing. They have no-timeframe in sight.

Meanwhile, as far as the future is concerned, there’s no end in sight to the extend and pretend game.

That’s why you gotta be in the game in the stock market to win your economic future.

So, what are you waiting for?

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One Response to The U.S. Might Default, If This CEO Is Right, Just Don’t Bet on It

  1. Bob P. says:

    Shah, I agree mostly with your analysis… However, the one exception I have is the presumption that the Fed has “control” of the situation and can dictate the outcome. They can’t and they don’t.

    What happens if (and when) a bank like DB implodes and a country like Germany defaults? What control will the FED have on the EU? What if a major war breaks out in the Middle East? There are literally 100’s of black swans out there!!! and the FED cannot control those events. Not even trillions of dollars printed can stave off every possible event. You still need some “insurance” as gold and silver.

    The Fed has predicted 0 of the last 9 recessions. According to Bernanke, everything was alright in the real estate bubble in 2007-2008. They didn’t see nor predict what came!!

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