Sprott then goes on to question how long this trade deficit can continue.
Exporting nations have willingly financed this $8 Trillion trade deficit by accepting US dollar dominated paper promises in exchange for tangible goods sold. But perhaps most important of all, they’ve continued to hold and accumulate these paper promises rather than exchange them for real assets.
Presumably, they have done so on the belief that one day they will be able to convert these paper promises for at least an equivalent value of goods and services. This requires faith that the purchasing power of the US dollar will not decline by more than the returns of their paper promises and that someone in the future will be willing to give up a tangible asset in exchange for them.
We believe that the growing US Budget deficit, the Federal Reserve’s “Quantitative Easing” Program and the ongoing US dollar decline has caused holders of US dollar reserves to question their faith, re-examine their desire to accumulate additional US dollar reserves and also look to convert their existing US reserves into real goods. Holders of US dollars had the chance to see how the Federal Reserve and the US Government would react to fiscal difficulties and we believe this ‘look behind the curtain’ has permanently altered their faith in US dollar denominated debt and sovereign paper promises, generally.
Foreign investors are not being properly compensated for the risk associated with holding US promises today. We believe they are beginning to realize that this exchange of real goods for paper promises is a
The move to diversify out of US dollar reserves by surplus generating nations may be the trigger that causes a complete revaluation of the risk associated with holding faith-based assets generally, and we believe that holders of faith-based will increasingly look to convert them to real assets as quickly as possible.
History has shown us that fiat based currencies always suffer the same fate and eventually become worthless. It is hard to predict exactly when people will awaken from this mass delusion in faith-based assets. But, it is certain that in these times it is wise to avoid gambling your wealth in faith-based assets when the system that you must trust has a clear history of being untrustworthy. We therefore advise you to question your faith and know what you own.
Interestingly... this is very similar to what Charles DeGaulle said in 1965.
The full Sprott article is below...
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