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Tom Winnifrith, founder, T1ps

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Comment: US debt deal is a ‘pathetic compromise’

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Tom Winnifrith (pictured), manager of the SF t1ps Smaller Companies Gold Fund, has described the proposed US debt ceiling deal as a “pathetic compromise which will not convince anyone and which must cause US debt to lose its AAA rating very soon indeed". And he predicts that this will help drive gold to USD2100 oz before Obama faces re-election in November 2012…

Under the proposed deal the debt ceiling will now be increased to USD17.7 trillion from today’s USD14.3 trillion. In return Obama will work out how to cut spending by USD1 trillion over the next decade and in December proposals to cut it by USD1.5 trillion more over the next decade will be agreed.

The addict has been given another big fix. It is still an addict and a hopeless one at that. It’s clear that the deficit is not under control. Even if the budget cuts are found and implemented the US will still run a vast budget deficit and so by 2013 the US will hit the new debt ceiling.

The whole world can see that all that has happened is that the can has been kicked down the road but that unfortunately this road is a cul-de-sac. And the bright lights on the house at the far end of the cul-de-sac are now very much visible. Only those inside the Washington beltway cannot see this.

The problem is that people are stopping to be fooled by official data – they just know the numbers do not stack up even if the credit agencies will not dare to admit it yet.

On the basis of official GDP figures (which are overstated since about 16% of US GDP is fictional items) then US GDP/debt levels will in two years be where Italy’s are now," he says. "And I am being charitable in that I am ignoring vast off balance sheet items for the US such as Freddie and Fannie. On the basis of real GDP numbers the US in two years will be where Greece is now – a debt/GDP ratio of 150%.

And yet the credit rating agencies (who as recently as two years ago had Greek debt – now junk rated – down as AAA rated) still afford US debt AAA status.

On August 1st 2011 the US dollar officially lost its place as the world’s safe currency as a store of value. In the absence of an alternative, the only currency whose value is not being systematically destroyed by politicians remains gold and if you think recent increases in the gold price were startling you ain’t seen nothing yet. USD1615 today. USD2100 before Obama faces the voters again next year. Do not say that you were not warned.

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