Thursday, November 15, 2012

Obama's Win Will Skyrocket Debt, Gas & Gold

Written by Damon Geller

Obama won the election.  Obviously, the two sides won’t be spending the next four years on any sort of honeymoon, hugging and loving each other, so you can expect a carbon copy of the last four years.  After all, one side got the House and one side got the rest, so the stagnation and head-butting will resume.  What does this mean?  Gridlock, debt, over-spending, QE-ing, debasement of money and back-door bank bailouts for starters.  Basically, more of the same.  “Zero change."  That’s about what you’ll have left in your savings in 2016 unless you prepare your own wealth-preservation strategy now.  Because Obama's reelection guarantees gas is heading for $9, food is skyrocketing, and gold is surging to $3800.
As a gold guy and fiscal historian, my focus is fiscal policy, economic policy and monetary policy – not politics.  Gold and debt don't play politics, so neither do I.  So instead of getting caught up in political mudslinging, let’s recap the last four years from a fiscal, economic and monetary perspective.  Then, let's examine the expert projections for the next four years in order to protect your wealth from another four years of debt, fiscal cliffs, Fed easing, money debasement and inflation.

What Will Not Happen is Just as Important
There are a couple of things we know for certain, given the election results.  First and very importantly, Ben Bernanke, the fearless head money-printer-in-chief and Chairman of the Federal Reserve, appointed by Obama, will not be going anywhere.  This means his policies will not be going anywhere either.  Romney talked about getting rid of this man and his policies, but Obama is his friend.  Unfortunately, unless you’re holding lots of physical gold (or gasoline), he’s not YOUR friend, nor is he a friend of the U.S. dollar.  I have discussed The Fed’s QE-Infinity money-printing policies at great length, including crunching the data and math behind the latest round of money debasement known as QE3.  In a nutshell…

Ben and the Fed will decimate the dollar and your savings by keeping interest rates in the basement until 2015,  keeping their fingers on the Ctrl-p buttons and inflating prices of everything from food to gasoline to heat for your home.  The Fed has already said many times that they will not be raising interest rates for years, “at least until 2015”.  That means your money in the bank, savings account, CD, annuity or any other dollar-based account will not be paying a dime more than it has for the last four years.   Don’t expect anything to change regarding interest rates, the Fed’s QE programs, or the direction of the dollar.  The Fed’s mandate may read “stable prices and maximum employment,” but it should read “save too-big-to-fail banks and punish savers."
The Fed does not care about you, your savings or your ability to eat or heat your home.  They care about saving their banker friends, inflating asset prices for a few ultra-rich buddies, and keeping rates low in order to continue servicing the interest on $16.5 trillion of debt – because there is simply no way to pay it back.  The Fed effectively kills the dollar and debases trust.  Remember, economic activity is no more than an exchange between strangers. It depends, therefore, on a degree of trust between strangers. Since money is the agent of exchange, it is the agent of trust. Debasing money therefore debases trust.  Debasement of trust forces people to invest in a wealth preserver (or real money) they CAN trust: They buy gold.
Debt Trends Will Not Change
Our country is on a very scary and completely unsustainable debt trajectory.  Not only are we already scraping up against the debt ceiling again right now, we will breach it many more times over the next four years.  The U.S. Treasury is already warning that we will breach the current debt ceiling of $16,394,000,000 before the end of 2012.  The fiscal cliff is fast approaching, when the terms of the Budget Control Act of 2011 are scheduled to go into effect.  And it brings with it an unsustainable combination of fiscal challenges.
The U.S. debt problem is one of the biggest issues plaguing our economy.  A huge amount of debt kills our ability to get back to growth, ability to raise interest rates and, ultimately, the value of the dollar and its ability to maintain a status as the world's reserve paper currency.  When Obama was elected in 2008, we had $8 trillion in U.S. debt, and at that time gold was $850 an ounce and gas was $2.90 a gallon.  The U.S. dollar bought TWICE as much these very needed assets just four years ago!  Twice as much!   Why?  Because in four years we doubled our debt liabilities.
While it may seem insane that we somehow managed to double an already huge national debt problem in four short years, the debt is expected to almost double again in the next four years.  As a matter of fact, the U.S. Treasury has projected this country's debt will balloon to $28T by 2018.  At the same time, while our U.S. debt liabilities doubled from 2008 to 2012, so did the price of gold and the price of gas.  Here is a historical perspective of debt, gold and gas data so you can very easily see the relationship:
All debt-data is January 1st and gold-price data is based on the monthly average for the month of January:
  • 2005 US Debt = 7.6T, Gold = $430/oz.                           Gas = $1.82/gallon
  • 2006 US Debt = 8.1T, Gold = $520/oz.                           Gas = $2.28/gallon
  • 2007 US Debt = 8.7T, Gold = $635/oz.                           Gas = $2.40/gallon
  • 2008 US Debt = 10.7T, Gold = $875/oz.                        Gas = $2.90/gallon
  • 2009 US Debt = 10.6T, Gold = $855/oz.                        Gas = $1.90/gallon*
  • 2010 US Debt = 12.3T, Gold = $1,100/oz.                     Gas = $2.80/gallon
  • January 2011 US Debt = 14T, Gold = $1,360/oz.         Gas = $3.15/gallon
  • June 2011 US Debt = 14.3T, Gold = $1500/oz.             Gas = $3.75/gallon
  • May 2012 US Debt = 15.6T, Gold = $1650/oz.              Gas = $3.90/gallon
  • Oct 2012 US Debt = 16.2T, Gold = $1750/oz                Gas = $4.25/gallon
*Artificially low as U.S. gas demand fell of the map as a result of the economic implosion in the fall of 2008.
So... we'll surge to $28 trillion in U.S. debt by 2018. Based upon the chart above, that will put gas at $9 and gold at $3800.
It's an alarming fact that the politically-neutral U.S. Treasury had already predicted U.S. debt to rise to $28T by 2018 regardless of who won in 2012 or who will win in 2016.  Treasury says that the accumulation of debt is not politically motivated; rather, it’s almost like something we can’t avoid.  While Romney alluded to reducing it, whether it was possible or not, Obama never has.
So gold is an absolute no-brainer.  Not just because it will rise more than your savings.  Not just because it will most likely outperform stocks with far less risk.  Not just because it allows you to remove some of your wealth from the “system” and gives you true diversification.  Or even because it hedges you against debasement of the dollar.  Rather, you need to own gold at this point in the game for ALL these reasons combined.
The simple truth is, you really have no other option if you're serious about protecting your savings.  And to look the other way from a wealth preservation asset like real hard gold is to put your full faith in the government and a corrupt banking industry.   To not have some wealth in a tangible asset that for 5000 years has been a proven wealth preserver – and protection against collapsing fiat currencies – is fiscal suicide.
And here's the clincher.  Gold becomes a tier-one asset January first, 2013.  That means it’s classified the same as cash and U.S. Treasury bonds.  Every major exchange is now taking hard gold holdings as collateral for margin trades and accounts.  Why is this important?  Because all the big exchanges, government vaults and bank holding companies are trying to accumulate gold.  Ask yourself why.  And then ask, why you are not doing the same?

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