Graham Summers on Fed Policy and the Inevitable US Deficit Crisis

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“The United States is trying to maintain a kick the can approach to our fiscal problem,” observes Graham Summers, chief strategist at Phoenix Capital Research. The problem in question is, of course, our towering deficit. And unfortunately US financial authorities are more than willing to break the rules to buy more time. “What's really shocking about [the deficit crisis] is that the Treasury is now raiding pension funds to continue to supply the US debt,” says Summers. Major media outlets have played down the unsustainable policies of the Fed and Treasury in an attempt to preserve market stability.

For Summers, the deficit problem boils down to a reluctance to let major banks fail. The largest US banks remain unable to function without government aid and exposed to a derivatives market that “isn't necessarily any smaller than it was in 2008," and the Fed continues to prop them up with a policy of continuous dollar-printing. The only possible resolution seems to be some kind of restructuring of US debt, a scenario that would likely result in a financial crisis of unprecedented scale.

Download the full podcast for more on the US debt crisis and Summers' strategies for hedging risk in light of the dollar's uncertain future.


 

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