Economist Shayne Heffernan takes a look at where to be invested as a safe guard against the growing Global Debt Crisis.

My position in relation to US Debt is set out below, but firstly let’s take a look at what to be invested in should you accept the premise that the US Debt level is now terminal.

The danger to your total net worth from the US Debt level is severe where ever you are, a dramatic devaluation of the US dollar, a severe US depression are events that you can not hide from anywhere.

How to protect yourself?

Buy true scarcity, Gold, Metals, Prime Real Estate, Rare Art, Agricultural land.

The theme is essential items that have true rarity in the market place, food of course leads that sector, so agriculture is an important part of your portfolio. That investment should be well spread and cover North America and Asia. There are many listed companies trading at low valuations that you should be considering, you should also be attempting to gain exposure to the RMB, the Singapore Dollar and the Japanese Yen.

Gold is a little more tricky, should we have a true economic catastrophe many 3rd world nations will increase the nationalization of mining, so holding equities in Gold producers in Safe Zones is important.

If you are buying Gold do not keep it in the USA, defiantly hold that gold in Asia where it is still considered currency, on April 5, 1933, by U.S. President Franklin D. Roosevelt past an emergency law “forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates within the continental United States”. The order criminalized the possession of monetary gold by any individual, partnership, association or corporation, do not keep your gold in the USA.

We have built a fund around wealth protection information for those interested is available from:

My thoughts on US Debt

Terminal debt is the point at which the payments on the interest of a debt surpass the revenues of the debtor (i.e. the debt becomes fiscally unstable.)

Hyper-inflation is the terminal stage of any fiat currency. In hyper-inflation, money looses most of its value practically overnight. Hyper-inflation is often the result of increasing regular inflation to the point where all confidence in money is lost. In a fiat monetary system, the value of money is based on confidence, and once that confidence is gone, money irreversibly becomes worthless, regardless of its scarcity. Gold has replaced every fiat currency for the past 3000 years.

The United States has so far avoided hyper-inflation by shifting between a fiat and gold standard over the past 200 years.

The 2012 edition of the Pocket World in Figures published by The Economist lists the World’s gross domestic product (GDP) at about $63 trillion or approximately $11,000 per person in 2011.

Since America’s GDP approximated $15 trillion at the end of 2011, this means that the United States is responsible for about one quarter of the sum of economic activity in the world, or about $48,000 per U.S. citizen.

The Eurozone, which now includes seventeen European countries, is roughly equal to the United States in total and per person GDP. China has a GDP of approximately $5 trillion, which is now in excess of Japan’s.

Nevertheless, China’s GDP per person is estimated at only $6,800 because of the enormity of its underutilized population. Looking at the ten-year average annual growth rate by country through 2009, China is indexed at 10.3 percent and India at 6.9 percent, because both countries are trying to boost their domestic economies as well as their exports.

The United States has a projected growth rate of about 2.2 percent, although this rate is projected by many economists to increase as long as the country does not slide into a “double dip” recession. Against the backdrop of this global perspective, the U.S. economy plays and will continue to play an important role in the future.

Europe is also facing a debt crisis of enormous proportions. Greece has technically defaulted on its debts. The extent of the problem was made clear when we learned in the spring of 2011 that Greece’s debt equaled 150 percent of its GDP.

Meanwhile, although the United States has a recognized “debt-ceiling-limited” national debt of almost $16 trillion, the real debt is much larger. Actuaries have computed pension and entitlement liabilities on a present value basis for the United States as of September 30, 2011, as follows: $8 trillion for Social Security and $37 trillion for Medicare Parts A, B, and D. When this $45 trillion total is added to almost $16 trillion in outstanding Treasury securities, the national debt of the United States exceeds $60 trillion, which is an amazing 400 percent of America’s GDP.

America’s fiscal vulnerability is becoming more evident with an economy built much more on debt, consumption, and imports than on investment, production, and exports. Because of the recent concern that major bond rating agencies could again downgrade the credit rating of U.S. Treasury securities, members of the House and Senate (and even State Comptrollers) are now recognizing that a government has to consider unfunded pension obligations and actuarially computed liabilities, on a present value basis, for all entitlements that, in the past, were not considered to be part of the national debt.

Publicly-traded companies have always been required by the Securities and Exchange Commission (SEC) to calculate and report all of these obligations in order to fairly report to corporate stockholders. The question today is: Will the U.S. government do the same to protect American taxpayers, even those in future generations whose inheritance and future taxation is being determined today without their representation in Congress?

The problem will only grow, because the U.S. government must raise the debt ceiling limit again at the end of 2012 in order to operate. (Under U.S. law, when our borrowing limit runs out, Congress cannot spend more money until it passes a law raising the statutory debt ceiling.)

In the past, Congress has not been serious about the consequences of raising the debt ceiling. Every time the government ran out of money, Congress simply raised the debt ceiling in order to avoid any restraints on its spending and, in the process, increased the national debt.

To make matters worse, Congress only takes into consideration the bonded debt when raising the debt limit—not obligations for unfunded entitlements like Social Security and Medicare. This is also true in many other countries, and this is why we need to develop better global accounting standards for governmental entities.

International accounting standards are now emerging to insure that publicly-traded corporations accurately report on their finances to global shareholders, but they have yet to emerge in the public sector. These standards are necessary to gauge which countries are fiscally sustainable and can continue to borrow money to cover their annual operating budget deficits and to pay out on promised retirement and healthcare benefits.

A weak economy and political gridlock in Washington have prevented meaningful debt reduction in the United States, which has run budget deficits topping $1 trillion for three straight years.

The issue has become a central theme of the U.S. election campaign with Republican candidate Mitt Romney accusing President Barack Obama of fiscal mismanagement, and the White House slamming Republicans in Congress for blocking government efforts to get the U.S. fiscal house in order.

Last year, U.S. lawmakers reached an 11th hour deal to increase the Treasury Department’s borrowing authority, which had bumped up against a legal limit, averting an unprecedented default.

But Treasury Secretary Timothy Geithner has said the United States is likely to hit a $16.4 trillion borrowing limit by the end of the year.

The Paris-based Organisation for Economic Cooperation and Development (OECD) has warned against a sharp fiscal retrenchment in the United States, saying this could derail the fragile recover there.

Unless politicians agree on a plan, a wave of U.S. spending cuts and tax hikes – dubbed the “fiscal cliff” – are set to take effect in January, within months of the November 6 election.

Shayne Heffernan

Shayne Heffernan oversees the management of funds for institutions and high net worth individuals.

Shayne Heffernan holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reached a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.Read the Terms of Service

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