What storm? The Dow Jones Industrial Average (DOW) reached another all-time high. Interest rates in the U.S. are yielding multi-decade lows, some say multi-century lows. Trillions of dollars in global sovereign debt have negative yield and European junk bonds yield less than 10-year U.S. treasuries. “Official” unemployment is low. Borrowing is inexpensive. Things are good, so they say!
I Doubt It!
Do you believe the above is a fair and accurate representation of our economic world? If so, how do you explain the following?
- Global debt exceeds $200 trillion and is rising rapidly. This massive debt will NOT be paid back in currencies with 2017 purchasing power. Debt MUST be rolled over in continually DEVALUING dollars, euros, yen, and pounds.
- The financial system rolls over maturing debt, adds more, and pretends repayment will not be problematic. Those who hope this will remain true ignore the lessons of history, including sky-high interest rates in the late 1970s, the Asian and Long Term Capital crises in the late 1990s, many defaults and hyperinflations in the last century, and the credit-crunch-recession-market-crash of 2008.
- Official inflation statistics show that consumer price inflation is low – supposedly in the two percent range. However, if you pay for health care, hospital bills, prescription drugs, Obamacare, beer, cigarettes, college tuition, fresh vegetables, processed food, auto insurance, and many other necessities, you know better. The Chapwood Index agrees with your experience. Their statistics show consumer price inflation is much higher than official numbers.
- National debt – the official debt of the U.S. government exceeds $20.5 trillion – more than the U.S. Gross Domestic Product. The debt has increased exponentially (straight line on a log scale chart) for the past century.
- Interest paid on the official national debt is approximately $500 billion per year and climbing. Congress is influenced by the financial elite and will not operate within a balanced budget. Therefore the U.S. will pay more interest each year.
- U.S. government expenditures increase every year. Since annual revenues are less than expenses by a trillion or so, the shortfall is borrowed. Hence national debt rises every year and interest must be paid on ever-increasing debt.
- Debt, out-of-control expenses, and economic craziness are universal in our current system. Race, gender, and political party make no material difference. Why should they? Corporations, politicians, lobbyists, military contractors, Big Pharma, and individuals want more dollars to spend every year and the government satisfies everyone by adding to the debt load.
- Debt and currency in circulation rise far more rapidly than the growth of the economy which must support the debt. HENCE PRICES RISE.
- Rising consumer prices are essential to a financialized economy. Do you remember prices in 1970? If you don’t, examine the following overview.
What Could Improve Our Finance World?
- Balanced budgets and honest accounting at all levels of government. Not likely.
- Honest currency units, currency units created from productive effort, not units conjured out of “thin air” by central banking and commercial
- Global peace. Military and defense expenses could be reduced to a fraction of current levels. Redirect those resources toward more productive purposes. All but impossible!
- Political honesty, absence of corruption, and effective, non-intrusive government. Hmmmmm. Maybe we should write to our congressmen.
What Could Make Our Economic World Worse, but We Hope Does Not Occur?
- Wars with North Korea, Iran, Russia, China, and others.
- Hyperinflation in Western countries, because central banks will be forced to “print” an almost unlimited number of currency units to address their self-created financial problems.
- Derivatives implosion (remember 2008), nuclear war, electromagnetic pulse weapons, and global plague.
The world will muddle through its problems despite wars, pestilence, corruption, central bankers, and self-serving politicians. Based on centuries of economic history, we should expect increasing financial trauma, periodic market crashes, devalued currencies, debt defaults, and … that someone else will be blamed.
What Can We Do for Self-Protection?
- Realize that markets rise and fall. The stock markets have enjoyed a long bull market while many commodities are relatively inexpensive. Expect a reversal, perhaps soon.
- Buy silver and gold. Why buy metals? They have been real money and a store of value for centuries. They are currently undervalued compared to total debt and the stock market. See below.
Graph silver prices divided by the official U.S. national debt. Silver prices have increased less rapidly than the exponentially increasing national debt for 25 years, and are currently selling at multi-decade lows compared to the national debt. National debt will increase 8 – 10% per year and silver prices will rise more rapidly in coming years.
Graph silver prices divided by the S&P 500 Index. Silver prices are currently near a two-decade low when compared to the S&P 500 Index. Silver prices will rise and the S&P will correct, possibly soon.
Based on decades of history, silver prices are inexpensive compared to exponentially increasing national debt and stock market prices. Silver prices will rise compared to both, perhaps soon.
- Debt and government expenses are excessive and too large for the economy to support. However, they exponentially increase.
- Positive change is possible but given the massive economic resistance from debt, central banker intrusion into markets, and over-valued stock markets, significant improvement in revenues, debt loads and balance sheets seems unlikely.
- Expect a reversal in stock market prices. Expect gold and silver prices will rebound much higher in 2018. Guaranteed – no! Likely – yes!
- Silver and gold will protect your savings, retirement assets, and purchasing power from continual currency devaluations, central bank policy errors, and excessive government debt.
About the Author:
Gary Christenson is the owner and writer for the popular and contrarian investment site Deviant Investor and the author of several books, including Fort Knox Down! and Gold Value and Gold Prices 1971 – 2021. He is a retired accountant and business manager with 30 years of experience studying markets, investing, and trading. He writes about investing, gold, silver, the economy, and central banking.