US Gov't Needs to Borrow $2.7 Trillion and why a Can of Coke is headed for $2

Martin Weiss, a noted economic adviser, is now predicting that the US Gov't will need to borrow a minimum of $2.7 Trillion during the next year to fund its bailout plans, and even that may not be enough. He then predicts that interest rates will rise and bond values will fall because of this "oversupply" of bonds and borrowing.

I believe he is right, that the Gov't needs this money, but I think he has the endgame wrong. Neither the US Economy nor the Gov't itself can afford to pay 10, 15 or even 20%, the rates that would be required to lure that money out of the hands of the rest of the world. Instead, I believe the Federal Reserve will simply purchase the debt directly, meaning that this is the equivalent of the Treasury just printing $2.7 trillion and spending it, rather than borrowing it from the rest of the world and retaining some sense of keeping the supply of dollars in line with the economic production of this country.

I just don't believe there are enough dollar holders in the world who want to buy all this planned debt. The Chinese are using their reserves to stimulate their economy, the ruble is cratering, the Arabs have to be wondering what happened to the price of oil and their own cash reserves and not feeling excited about lending the US even more money. Where will the US get all this money then?

I believe that the Fed will have to buy this debt and thus create this money out of thin air. When it does, the resulting inflationary cycle is going to be at first stimulating to the economy, but in the end result in a round of stagflation, a stagnant economy with inflation.

This is an important turning point in our country, investments and economy. Is Weiss right and a person should short bonds because rates are headed higher due to borrowing demand? Or am I right in predicting the Fed will buy the debt, initially keeping rates down but eventually leading to inflation and eventually higher rates?

A third viewpoint can be found in advisors from Deutschebank who advise buying long term treasury debt because rates will be falling! I was astounded when I saw this prediction on the news a few days ago. They say because we have a recession, the US dollar is going to strengthen and go up in value as the prices of all commodities continue to drop.

This is what makes horse races and why you can find someone to bet against.

Who is right?

Well, I think I am, the only way out of this recession/depression is for the Fed to create more and more money, and I firmly believe they are going to end up buying US Gov't debt directly as a buyer of last resort when rates start to climb because the gov't needs to borrow so much during the next year. I'm betting on higher gold and silver prices and a destructive tsunami of inflation as jobs are created in this country and our economy recovers. Eventually the gov't is going to have to deal with people trying to get their money out of this country as people have done in the past in Argentina etc., where inflation raged out of control when the gov't found itself in the same position and created too much money.

But, that's a different set of problems and much more politically acceptable, because at least people have jobs and have money, the problem is, the money is getting worth less each day! But who can argue against deferring pain for a few years? Hardly anyone.

I don't think you can go wrong in betting that this country's currency will continue its long downward spiral in value. My nickle coke in 1950 is now a dollar, a 20 to one increase in price, and headed for $2 a can.

Oh, and by the way, the CFTC has publicly admitted that several banks massively shorted silver earlier this year, to the tune of nearly 25% of annual world production, and that is what made the price drop to close to $10 an oz. Nothing will be done about it in all likelihood, but I have to believe the price of silver isn't going to be at this level much longer.