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ShareMumbai: The US's major structural problemis its tremendous debt. It came about because unlike the rest of the world, the US uses its own currency to pay for imports, and till recently this was financed by issuing bonds to people who exported to the US. It's a bit like borrowing money from your shopkeeper to buy his goods.
"The US is now carrying over $57 trillion in total public and private debt," says Jeff Nielson, editor, www.bullionbullscanada.com. This debt is roughly four times the annual GDP of the US ($14 trillion).
Also, as the US tries to spend its way out of the financial crisis, it is likely to keep borrowing more. "It is because spending by the US government is so totally out of control that it is forced to borrow record amounts," says GoldMoney founder James Turk.
"There is no way the US can ever hope to repay its debt in today's money. In other words, either the US will default (highly unlikely) or it will print (money) and inflate so that this huge mountain of debt feels much smaller in the future due to the loss of its purchasing power," says Puru Saxena, CEO of Puru Saxena Wealth Management.
Says financial columnist Bill Bonner, "For the first time in world history we have a situation where the reserve currency (the dollar) is fundamentally paper and the people running that paper are broke. Yet they have the power to create as much paper as they want. And sooner or later they are going to have to realise that it's a big mistake." This is what is worrying people who currently hold dollars.
