What the $ 7.8 trillion figure does not account for are items like the gap between the government’s Social Security and Medicare commitments and the money put aside to pay for them. If these items are factored in, the government debt burden for every American rises to well over $ 175,000. In 2005, the Methuselah of investment mavens, Sir John Templeton, then 93, said you should get out of U.S. stocks, the U.S. dollar, and excess residential real estate. Templeton believed the dollar would fall 40 percent against other major currencies, and that this would lead the nation’s major creditors - notably Japan and China - to dump their U.S. bonds, which would cause interest rates to run up, thus beginning a long period of stagflation. He was right.

Don’t let his age fool you - Templeton was still sharp in 1999 when the financial industry hacks in Florida were urging their customers to buy more tech stocks. Templeton warned that the bubble would soon burst. He was right; they were wrong. Of course, he was only 87 back then. He is almost certainly right again. Other great investors, too, are getting out of the dollar. For the first time in his life, Warren Buffett is investing in foreign currencies.

George Soros, who made a fortune selling sterling in the 1992 ERM crisis, warns that the U.S. system could ” blow up ” at any time. Richard Russell, the influential editor of the Dow Theory letters, speaking at the New Orleans Investment Conference, warned: “If ever there was a crisis that could shake the global economy - this is it.” Jim Rogers is teaching his daughter to speak Chinese. When old - timers nod their heads in agreement - especially when they happen to be the most successful investors in the world - their advice may be worth listening to.

American consumers, companies, the U.S. government, and the country as a whole owe more dollars to more people than ever before. But perhaps the greatest threat to the U.S. economy is its foreign creditors. There is - or should be - a limit to the number of dollars foreigners are willing to buy and hold and thus a limit to their willingness to service our credit habit. Why? Because the United States, while still the world’s number - one economic power, is showing itself to be an unreliable steward of its own currency.

Regards,

Addison Wiggin
The Daily Reckoning

P.S. If you haven’t purchased your updated copy of The Demise of the Dollar you can get this must-read here:

The Demise of the Dollar (And Why It’s Even Better for Your Investments)

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