A New Era For Debt And “Printing” Currency Units?

Market Analyst, Author, and Founder of The Deviant Investor
January 29, 2021

At a glance:

  • It’s a new era—or is it? Debt increases, QE continues, and the dollar devalues. This new era sounds like the past five decades of fiscal and monetary craziness.
  • Bubbles pop. We don’t know when, but they always pop.
  • Expect more of the same - lots of talk, rising food prices, and dollars devaluing. Gold and silver prices surge higher.

PRESIDENT BIDEN’S NEW POLICIES (a few…)

  • Large bailouts for cities and states and their pension plans. The bailouts will be funded by increased debt.
  • Extended unemployment benefits for many jobless workers. The benefits will be funded by increased debt.
  • Bailouts issued to Americans—another $1,400 per adult. These payments will be funded by increased debt.
  • Increase “food stamps” (SNAP) for poor families. This “giveaway” program will be funded by increased debt.
  • Free tuition, student loan forgiveness, and expanded Medicare. The extra expenditures will be funded by increased debt.
  • Raise minimum wage for Federal workers and contractors. The increased costs will be funded by increased debt.
  • Many bailouts, giveaways, boondoggles, payoffs, and D.C. crony business as usual, all funded with increased debt.

SUMMARY:

Agree or disagree, good policy or big mistake, nonsense or enlightened thinking, progress or disaster… All these “new era” policies will be funded by DEBT.

But the U.S. and the world are drowning in debt… no matter… we must do more of what created the fiscal and monetary mess, and… pretend the consequences will be good.

From the head of the IMF: “Spend as much as you can and then spend a little bit more.” A plan or utter nonsense?

HOW MUCH DEBT? HOW LARGE WILL THE DEFICIT BECOME?

To answer these questions, we make guesses about the future policies of our “leaders.”

a) More of the same. Democrat or Republican, left or right, the debt and deficits increase.

b) Bubbles Implode. When the stock and bond bubbles implode, history suggests the Fed and other central banks will panic and increase QE and “printing.” The debt and deficits increase.

c) Economic Crash. If the economy crashes into a new and greater recession/depression, history suggests government will respond with larger giveaways, stimulus, “new deals,” “green energy projects,” shovel ready programs, and other boondoggles. The debt and deficits will increase.

CONCLUSION: DEBT AND DEFICITS WILL INCREASE UNDER ANY LIKELY SCENARIO.

Examine five decades of annual increases in the national debt on a log scale. Average over three years to smooth the graph.

BREAKING NEWS:

  • The Dow closed at another new high on Inauguration Day, the beginning of a supposed new era based on the same policies that created massive and unpayable debt, consumer price inflation, large government, and bubbles in stocks, bonds, and Bitcoin.
  • Gold rose $26 to $1,856 for the week ended January 22, 2021.
  • Silver rose $.69 to $25.55 for the week.
  • The Dow closed on January 20 at 31,188, a new high.
  • Bitcoin fell to $28,989 from $41,969 on January 8. It closed at $32,952.

Summary:

a) The annual increase in national debt (the real deficit) increased exponentially over five decades. With policies that act like “more of the same” a $5 trillion increase for 2021 is likely and $10 trillion deficit per year is a few years away. “Emergency” spending could create $10 trillion deficits sooner than most believe possible.

b) Fed "printing" will fund the huge increases in national debt. Dollar devaluation will accelerate.

c) As dollars devalue, consumer prices rise. Governments will be forced to provide more giveaways, helicopter money, Universal Basic Income, and higher taxes. Can we solve an excessive debt problem by issuing more debt?

Calculate deficits priced in gold. Take the deficits and express them in millions of ounces of gold.

Deficits and national debt grew exponentially. Gold prices rose along with deficits. The above graph shows that deficits increased more rapidly than gold prices. Occasionally gold prices “catch up.” Expect larger deficits and much higher gold prices in coming years. Silver prices should rise more than gold prices.

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Gary ChristensonGary Christenson is the owner and writer for the popular and contrarian investment site Deviant Investor and the author of the book, “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.


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