Congress has averted a default by the US feds. But only for another few months.

A default by the United States would be the first default by a major economy since Adolf Hitler’s Germany declared that it would not pay its bills. That was in 1933.

You’d think this would have investors sweating, right? You’d expect that they’d be nervously guessing which way it would go… bidding stocks up one minute and selling them the next.

Nope. The volatility index – the VIX – shows the market to be surprisingly calm.

Yesterday, the Dow rose 205 points. Gold rose modestly too – plus $9. The VIX dropped nearly 20%.

Something Wicked This Way Comes

What does it mean?

Well, it implies that no one is taking the threat of default seriously. Everyone expected a last-minute deal. When the chips were down, they reasoned, the pols would get their act together. One way or another, they’d shake hands… and continue marching, arm in arm, toward a real debt catastrophe!

Except that hardly anyone sees a catastrophe coming. The gold price is probably the best measure of that. And gold has been on a losing streak for nearly three years.

Never before in history have so many central bankers worked so hard to degrade the world’s money. And never before have they failed on such a grand scale. Not only have consumer prices not yet broken out to the upside, the CPI has actually tended to drift down.

How can this possibly end… but badly?

“I don’t know what will happen,” said our favorite economist in Buenos Aires. Rob Marstrand is the chief investment strategist at our family wealth investment advisory service Bonner & Partners Family Office.

Living in Argentina has turned him into a connoisseur of financial disasters. And now… he sees one coming.

“I don’t know what… and I don’t know when. But I make sure I have a few gold coins on hand, just in case.”

But that’s the strange thing. Whether the world faces an imminent monetary collapse or not, we don’t know. But it certainly faces something. And it’s not likely to be pleasant.

The advanced economies are heavily in debt – more heavily than at any other time in history. All their economies are having trouble growing, adding jobs and boosting wages. All face social welfare bills that – given reasonable assumptions – they will be unable to pay. All have aging, dependent populations who will resist cutbacks. And all now rely on some form of manipulation by the central bankers in order to keep the party going.

A Deficit of Nearly 50% of Revenues

By the way, the problem has little to do with stubborn Republicans, the Tea Party, continuing resolutions, debt ceilings or bipartisan co-operation.

The problem is too much spending and not enough income… and its inevitable, toxic waste product: debt.

Every year, the feds spend about $1.2 trillion more than they collect in taxes. That is reported in the press as a deficit equal to 7% of GDP. But it’s better understood as a deficit of nearly 50% of revenues.

Over the last five years, deficits have added more than $5 trillion to the national debt. Suppressed interest rates have probably added another $2.5 trillion to the nation’s private debt (the number is not calculable; this is just a wild guess). And now, under the leadership of arch-meddler Janet Yellen, the Fed is prepared to do even more.

Without it, the economy as we know it will fall apart.

Yet, even with these facts staring him in the face, the typical fellow has no insurance. He has no vegetable garden. He has no wood stove, with a stack of wood behind the house. Most important, he has no gold coins.

Again, we don’t know what will happen. But the odds of a major breakdown in the financial system must be greater than zero. And yet, there is nearly zero interest in the one and only sure protection – gold.

One for the history books…

Regards,

Bill