Wenzel notes that the scale of the US government's debts and off-balance sheet liabilities exceeds anything that is realistically amenable to a political solution. He pays particular attention to the social security trust fund, which as of 2010 has been running a cash flow deficit for the first time ever. This means the fund is making more payments to retirees ($49 billion in 2010 and $45bn last year) than it is taking in in tax revenue.
Though these sums are a drop in the ocean at the moment in comparison with total US government borrowing -- $1.3 trillion in fiscal year 2012 -- Wenzel says that this will develop into a serious problem, likely by 2017, as even more baby boomer retirees finally start looking to social security for assistance. At this point the Federal Reserve will likely be forced into even more money printing to help fund the social security deficit, leading to skyrocketing inflation and interest rates.
As far as inflation is concerned, Wenzel comments on the importance of growth in excess reserves held at the Fed. Most of the money created by the Fed during QE1 and QE2 -- close to $1.5tn -- is merely sitting in excess reserves. But if economic statistics show signs of improvement, the banks will start to lend these reserves out -- which could then lead to a dramatic surge in inflation, as the money multiplier effect kicks in.
All of this makes hard-assets such as gold and silver must-have protection from the runaway dollar devaluation that Wenzel foresees. He says that using these metals as money could "save civilisation" in the event of one or more fiat currency collapses.''
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