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An Overlooked Piece of the Puzzle

Sigma Investment Counselors

August 2, 2011

In light of the highly charged commentary regarding recent progress made in Washington, we believe it is critical to consider all potential risks pertaining to the country’s current financial woes. While similar topics and themes continue filling up news venues, a large piece of the puzzle is being overlooked; the effect on the value of the US dollar. United States obligations are measured by a dollar denominate (meaning payment on government agreements is a predetermined dollar amount) for items such as direct debt and the ever-popular social security. Representing an enormous difference between the US Government and other sovereign debtors is our ability to print the money we owe while others (generally) do not have this luxury. The governments’ capability to print money to service their debt is where the potential for further financial distress may lie. If we do not have the physical dollars to pay, will the government simply print more? United States Government obligations will pay 100 cents on the dollar, but (this being the real issue) how much will the dollar actually be worth?

Your thoughts and comments are welcome.

Walter J. Kirchberger, CFA

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