Robert Arnott, CEO of Research Affiliates is bringing a different element into the fiscal cliff conversation: what will happen to the US dollar if a deal is not reached?
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Since the Fed is now printing $85 billion each month as a result of closing its Operation Twist program and instituting was amounted to QE4, its balance sheet is now $3 trillion and is on slate to grow $1 trillion per year.
Printing money to purchase our own debt only works for so long. What happens when it stops working?
Arnott says we must get back to a balanced budget within 10 years and reinstituting pay-as-you-go.
He says we can either voluntarily make the necessary changes or the markets will force those changes on us.
Fierce political battles would make those of 2012 look like a party. If the markets lose confidence in our currency because we can no longer manage our debt, it won’t matter who is in the White House or which party controls Congress.