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 [I will be out of the office the week of July 11-15, so this page
will be updated less frequently]
In Mike Kosares' latest
edition of News & Views, we are reminded once again about some of the
"stuff that just kind of sneaks up on you": Like debt.
We invite you to subscribe to News & Views, so you
never miss another issue, by clicking here.
In the first eight months of the fiscal year, the federal
government has added more than a trillion dollars to the national debt. Now,
everyone knows that the U.S. has a massive debt overhang. Arguably this
oppressive and ever-growing debt is a primary contributor to the current
state of lackluster growth.
We have borrowed prosperity from the future with such abandon, that without
extensive (and painful) fiscal reforms, a prosperous future no longer seems
possible. And yet, the realities and implications of the debt burden are
largely ignored, until the national debt reaches some big round number; at
which point, the financial press trots out all the requisite headlines,
concerns are expressed, and within weeks everyone goes right back to ignoring
the debt.
Well, one of those big round numbers — $20,000,000,000,000 — is fast
approaching. As the numbers get bigger, going back to sleep after those
thresholds are reached should become increasingly difficult.
— National Debt Tweets (@NationalDebt) July 7,
2016
Here's a chart of total credit instruments, relative to
U.S. GDP. It comes from an enlightening video presentation from Grant
Williams, one of my favorite analysts and co-founder of RealVisionTV.
"This is the chart to rule them all," says Williams. "This is
story about debt, or credit or leverage, call it what you will; there's
simply too much of it."
Note the ever-so-brief pause in credit creation during the financial crisis.
As evidenced by the subsequent resumption of the uptrend, how quickly we do
indeed forget . . .
In his video, Williams takes a broader, global look at debt, monetary policy
and the hubris of policymakers the world-over. It's positively chilling and I
encourage you to take the time to watch it in its entirety.
The aforementioned hubris is also reflected in an
article in The Wall Street Journal by Jon Hilsenrath and Bob Davis, that
begins thusly:
When U.S. economic leaders in April 2000 gathered in the
White House to mark a decadelong expansion, the consensus was clear. Trade,
technology and a wise central bank had helped fuel an era of rising
prosperity.
Stick to that model, Alan Greenspan, then Federal Reserve Chairman, told the
assembly, and “I do not believe we can go wrong.”
Much did go wrong...
Wrong indeed! And everyone should be at least a little
concerned that things are going to get worse. In fact, Mr. Greenspan himself
concluded in a recent
interview that the western world is headed for "a state of
disaster." Again, watch Grant Williams' video!
I would suggest that the reality of just how wrong things have gone since
2000 may well have contributed to Mr. Greenspan's reemergence as a gold
advocate. If you are one of the seven in ten Americans that believe the
nation is on the wrong track, you might consider nudging yourself back toward
at least the right investment track with a gold allocation.
"Most importantly, it's vital to preserve your capital, and right now I
believe Treasuries and gold are the two best ways of achieving those
aims," says Grant Williams. Yep, Williams thinks Treasury yields are
headed lower. In a low/no/negative yield environment, the yellow metal tends
to really shine.
It talking about Japan's particularly dire situation, Williams makes the
analogy that Japan is an old rusty car, corroding away day after day. He then
draws the rather brilliant connection to BoJ governor Haruhiko Kuroda as
being the "corroder." Clever.
But it's not just the policies of the BoJ and the Abe government in Japan:
The extraordinary monetary and fiscal policies being implemented by much of
the western world (and China!) are gradually corroding away the underpinnings
of the global economy. One might reasonably wonder when the wheels will
simply fall off.
When you find yourself faced with an agent of corrosion,
it's extremely important to understand that what you need to do is to find
yourself something for which corrosion is thermodynamically unfavorable. —
Grant Williams
He's talking about gold of
course. Gold is the least reactive of all the metals. It does not corrode.
If you want to protect your portfolio from the dangerous and corrosive
effects of debt, and the responses of global policymakers, build that
portfolio on a foundation of gold.
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