The Inevitable What…

After a bit of a pullback, it seems that metals may be resuming their uptrend after last week’s price action.

Given the state of world finances, the massive amount of government debts and monster operating deficits I expect that metals will be a good place to be with some of your assets moving ahead.

The math behind the deficits and the debt can lead to no other reasonable forecast.

Despite the political demagoguery that would have you believe otherwise, these financial problems cannot be solved through tax increases; there is simply not enough money in existence to do so.

I’ve stated this previously in my posts, but given the size of the national debt and the underfunded liabilities of Social Security and Medicare, confiscating 100% of household wealth will not solve the problem.

That includes all the wealth of the 500+ billionaires that call the United States home.

The venomous politics of Washington is taking attention away from the real problems – unmanageable debt and out-of-control deficits.

And, while we all have our political preferences, this is a problem that has been getting progressively worse with each new administration.

Here are the facts.

When George W. Bush left office, the official national debt was $5.849 trillion more than when he took office.

When Barack Obama left office, the official national debt was $8.588 trillion more than when he took office.

Under Donald Trump, deficits have continued to be ‘normal business’.  This will continue to the case until the financial realities of Social Security and Medicare are addressed.  However, politicians have been and will continue to be reluctant to seriously look at these issues since the only viable solution is massive program cuts.

There are some that would argue raising taxes could be a solution, namely higher Social Security tax on high-income earners.  The numbers say otherwise.  Any higher taxes would still have to be coupled with significant cuts to provide a solution.

Despite these economic realities, BOTH Republicans and Democrats this past week agreed to a $320 billion spending increase as part of a bill to keep the government funded (Source:  This despite the fact that revenues for the first two months of fiscal 2020 were $471 billion and outflows were $814 billion.  That’s a deficit of more than $340 billion – over just two months!

Medicare and Social Security spending is increasing at 6% per year.  Those spending increases are ‘auto-pilot’ increases.

But other increases are totally discretionary.  Military spending is up 7%, education spending is up 25% and spending on Medicaid is up 9% to name just a few of the many examples.

Continuing to add to the debt through huge operating deficits, will eventually catch up with us.  As the old farmer said, “the rooster always comes home to roost”.

This one will too.  And, when it does, we will all have to deal with the consequences.

Sadly, politicians in both parties are collectively not interested in getting budgets under control.  As I just noted, there is agreement on more spending but with no thought on where revenues to support that spending will come from.

Without that agreement, the only option to deal with this problem is money creation.

That’s the road on which we’re traveling and this road will ultimately lead to ugly consequences. 

Massive debt levels are stagnating economic growth and central bankers are responding by attempting to create more debt. 

One of my past RLA Radio guests, John Rubino commented on this last week citing the example of Japan (Source: (emphasis added):

Japan is preparing an economic stimulus package worth $120 billion to support fragile growth, two government officials with direct knowledge of the matter said on Tuesday, and complicating government efforts to fix public finances.

The spending would be earmarked in a supplementary budget for this fiscal year to next March and an annual budget for the coming fiscal year from April. Both budgets will be compiled later this month, the sources told Reuters, declining to be identified because the package has not been finalized.

The package would come to around 13 trillion yen ($120 billion), but that would rise to 25 trillion yen ($230 billion) when private-sector and other spending are included.

Japan’s economic growth slumped to its weakest in a year in the third quarter as soft global demand and the Sino-U.S. trade war hit exports, stoking fears of a recession. Some analysts also worry that a sales tax hike to 10% in October could cool private consumption which has helped cushion weak exports.

Such spending could strain Japan’s coffers – the industrial world’s heaviest public debt burden, which tops more than twice the size of its $5 trillion economy.

Two takeaways here:

First, pushing interest rates into negative territory and not getting an epic debt-driven boom screams “end of the interest rate road.If paying people to borrow doesn’t induce them to do so, then paying them more probably won’t generate much new action.

Second, running massive deficits and then raising sales taxes to offset the stimulus is the kind of policy mix that’s too stupid to bother discussing.

Most all world central banks and world governments are on the same path. 

Massive government spending not supported by tax revenues.  And central bank policies that attempt to solve a debt problem by creating more debt.

It doesn’t take a Ph.D. in economics to figure out that both policies are utterly and completely unsustainable.

You can’t spend more than you have in income for an extended period of time.  And, anyone who’s ever maxed out a credit card will tell you that it’s a lot of fun until you hit the limit.  Then, reality sets in.

That’s where we are presently – getting close to the point where reality sets in.

Money creation will continue until it doesn’t.  No one knows precisely WHEN that will be, but if we can all agree that the current path is unsustainable, the WHAT is certain. 

And whenever the WHAT hits, if you’re not yet holding tangible assets with at least part of your portfolio, you could find yourself unprotected.

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