Death, Debt, Devaluation and Taxes April 06 2017
Death: It comes to all of us, including empires, paper currencies and countries.
Debt: The world is drowning in debt – $150 to $200 trillion. The U.S. government is sinking into a black hole of debt – $20 trillion official and another $100 – $200 trillion in unfunded obligations. Total U.S. debt securities exceed $40 trillion according to the St. Louis Federal Reserve.
Devaluation: Given unpayable debt and unwillingness to face the insanity, the remaining option is devaluation.
Taxes: Governments need more revenue. It will come from taxes and “printing.” Both are poor choices.
Since 1913 debt has been a necessity for bankers, governments, and businesses. More debt = more currency in circulation = higher prices, including gold and silver.
There is practically no chance that debt will stabilize or decrease. Consider total U. S. government debt in 1972 (roughly $400 billion) versus today (roughly $20,000 billion = $20 trillion).
Total U.S. debt securities in 1972 were roughly $850 billion versus today, roughly $41,000 billion = $41 trillion. The following graph uses a log scale and shows that total debt securities have increased about 9% per year since 1971. The gold scale matches the debt scale.
Gold prices have increased along with debt and currency in circulation. Gold bubbled higher in the stagflationary 1970s and then languished in the “great age of paper” from 1982 – 2000. Gold will probably catch up with debt as central bankers rapidly “print” currencies, which will cause accelerating devaluations in the next several years.
Are higher gold prices guaranteed?
- Of course not. But higher gold prices, given the monetary systems in place, along with overwhelming debt and inevitable devaluations, must rally much higher.
- The debt junkies of the world, including governments, central bankers, congress, leaders, corporations and individuals will increase debt to continue buying votes, boosting stock prices, and living in excess of revenues. Yes, debt will increase as it has for over a century.
- How many politicians or Presidents have asked congress to cut spending and balance the budget? Debt will increase.
- If total debt were to be reduced the current system would spiral downward into a horrible depression. What politician or central banker desires that outcome? Bet on increasing debt and devaluation.
- Debt will increase, currencies will devalue, and central banks will “print” to keep the financial systems moving and markets rising, if they can. How much more debt can the system accommodate?
- Bonds have rolled over from a 35 year bull market. Is a ten year bear market from 2016 – 2026 unlikely?
- Mortgage interest rates are rising, which are restricting real estate sales and refinancing. Commercial property is weak. How many newly printed “out of thin air” dollars will be needed to inflate that bubble again?
- Regardless of the “official” statistics the U.S. economy acts weak and poised to fall further. An excess of debt, rising interest rates, and the “blowback” from decades of bad policy, poor decisions, wars, and excessive expenditures are a drag on growth. Expect a slowing economy, higher consumer price inflation, recession or depression.
- Rising interest rates, higher consumer price inflation, slowing economy, bond bear market and stocks rolling over indicate — STAGFLATION. Welcome to a return of the 1970s, but probably worse.
- Gold rose from about $40 to over $800 in the 1970s and into January of 1980. Silver rose from under $2 to over $50 during the same time. They will bubble higher again, sooner rather than later.
But you might say, “I doubt it.” You could be right, but consider:
- The “smart money” bet on Hillary. How did that work out?
- Brexit? That wasn’t supposed to occur either.
- Who wins the ongoing currency wars as all countries devalue? Answer – nobody.
- Will the euro survive another “exit?”
- Gold has been real money for thousands of years. How long have unbacked debt based fiat currencies survived before their governments and central banks devalued them to worthlessness? Answer: usually only decades.
- When the euro and dollar have become distant memories, gold will still be valuable.
- Fiat currencies have crashed before while gold and silver have retained their value, rising in nominal currencies to unbelievable price heights. Fading currencies and rising metals are likely in our near future.
The Deviant Investor