Leaders of Both Parties Agree on $480 Billion More Debt

Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.

As Congress finally came to an agreement on Thursday to temporarily lift the debt ceiling, investors breathed a sigh of relief. The stock market bounced, and commodity indexes ran up to new multi-year highs.

Precious metals markets, meanwhile, staged modest advances after showing virtually no reaction to the preceding debt drama in Washington.

For the week, gold prices are essentially unchanged to trade at $1,766 per ounce. Silver shows a weekly gain of 1.1% to bring spot prices to $22.88 an ounce. Platinum is higher by 4.9% to come in at $1,035. And finally, palladium is rallying 7.1% this week to trade at $2,090 an ounce.

As metals markets try to turn the corner for a fall rally, other raw materials are moving relentlessly higher. Energy commodities including crude and natural gas are leading the charge.

Also pushing higher are agricultural futures. Rising food costs are hitting consumers’ pocketbooks whenever they shop at the grocery store or go out to eat at a restaurant.

Especially noticeable is the soaring cost of meat – as seen in everything from strip steaks to sliced bacon. Beef prices have risen 14% this year. Pork prices have jumped 12%.

Well, speaking of pork, politicians in Washington are going to be bringing home a lot more of it now that the debt ceiling is being lifted once again. There was never any real doubt about whether the government would find a way to keep borrowing. The only question was how it would go about doing it.

In this case, Mitch McConnell, the Republican Leader in the Senate, folded. After months of insisting he wouldn’t help Democrats raise the debt limit, he finally agreed to do just that. McConnell’s deal with Democrats enables the government to borrow another $480 billion through December 3rd.

Leading up to that date, another debt showdown may loom. The political maneuverings that may occur are uncertain, but the ultimate outcome isn’t.

Even if Congress failed to push another debt limit extension through in time, the Treasury Department and the Federal Reserve have emergency backup plans in place.

One of them entails minting a trillion-dollar platinum coin and depositing it at the Fed. A former director of the United States Mint has confirmed that it would be a quick and easy process to retool the existing Platinum Eagle mold for the lofty new denomination.

Treasury Secretary Janet Yellen pooh-poohed the idea when asked about it during a CNBC interview this week. Obviously, it would be embarrassing for officials to have to resort to such a maneuver. Doing so would make the Fed’s role in monetizing government spending far too obvious.

Janet Yellen: I trust the Fed to make the right decisions. The platinum coin is equivalent to asking the Federal Reserve to print money to cover deficits that Congress is unwilling to cover by issuing debt. It compromises the independence of the Fed, conflating monetary and fiscal policy.

I trust the Fed to make the right decisions. Supply bottlenecks have developed that have caused inflation. I believe that they're transitory, but that doesn't mean they'll go away over the next several months. I trust the Fed to make the right decisions.

Former Fed chair Yellen wants us to trust current Fed chair Jerome Powell when he says inflation is “transitory” and merely the effect of supply disruptions.

She doesn’t want us to focus on the fact that the central bank is now buying well over 50% of all new Treasury debt. Nor does she want us to be concerned that the M2 money supply is growing at a 13% annual rate.

Sure, let’s trust the Fed. What the Fed can absolutely be trusted to do is continue inflating.

But that means investors can’t trust fiat dollars to hold their value. Debt instruments denominated in U.S. currency will almost certainly return less than the inflation rate. Over time, bondholders risk an enormous loss of purchasing power even if the issue never results in formal defaults.

All financial assets entail some amount of trust in counterparties to make good on their promises. By contrast, hard assets have intrinsic value that doesn’t require any trust in counterparties, institutions, or governments.

Gold and silver coins are the only forms of money that have endured throughout the ages as empires have come and gone and as all fiat currencies have eventually failed. In a true flight to quality, precious metals will be the most sought-after asset class.

For the time being, investors still trust the Fed to keep stimulating the stock market and propping up the bond market. But when they realize they can no longer trust central bankers to maintain price stability, they may begin to dump vulnerable paper assets.

Before concluding for this week, I’d like to make a quick product announcement.

As a result of their high popularity, an expanded lineup of Valcambi CombiBars is now available through Money Metals Exchange – minted of gold, silver, or platinum.

These versatile bars are produced by Valcambi, one of Switzerland’s largest and most reputable refiners and come in a variety of sizes:

• 20 gram, 50 gram, and 100 gram gold bars – with each bar easily broken into 1-gram sections carrying the Valcambi hallmark and markings for its weight and purity (.9999).
• 1 ounce gold bars that can be broken into 1/10 oz bars.
• 100 gram silver bars that can be broken into 1 gram or 10 gram bars.
• And 50 gram platinum bars that can be broken into 1 gram bars.

All this flexibility comes with far lower cost than purchasing equivalent quantities of smaller bars. And the relatively low premiums make these CombiBars a great option for buyers desiring to own fractional gold, silver, or platinum.

Prudent investors who have already spotted the coming crisis in fiat currency are making preparations to have precious metals on hand to use as money if necessary. CombiBars were designed for that purpose.

Recent events in Venezeula are a good example of how a currency crisis strikes suddenly, leaving citizens scrambling to find alternatives to the official fiat money (the bolivar) – an extraordinarily difficult situation.

Just remember, the Valcambi brand name, tamper-evident packaging, and assay carry some additional value. That’s why you should maintain your Valcambi CombiBars in their original packaging unless you need to separate some portion to complete a trade.

When it is time to re-sell your bars, any reputable bullion dealer will be happy to buy them, on-the-spot, and at a fair price.

Of course, Money Metals is always eager to buy your precious-metals coins, bars, and rounds and generally pays the highest amounts as compared to the rest of the industry.

Well, that will do it for this week. Be sure to check back next Friday for our next Weekly Market Wrap Podcast. Until then this has been Mike Gleason with Money Metals Exchange, thanks for listening and have a weekend everybody.