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!
Ho-Hum!
Really? Do you believe the above is a fair and accurate representation of our economic world? If so, how do you explain the following?
1.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.
2. The economic 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.
3. 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.
4. National debt – the official debt of the U.S. government exceeds $20.4 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.
5. Interest paid on the official national debt is approximately $500 billion per year and climbing. An irresponsible Congress will not manage within a balanced budget, therefore the U.S. will pay more interest each year.
6. US. 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.
7. 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.
8. Debt and currency in circulation rise far more rapidly than growth of the economy which must support the debt. HENCE PRICES RISE. Do you remember prices in 1970? If you don’t, examine the following overview.
WHAT COULD IMPROVE OUR FINANCIAL WORLD?
- Balanced budgets and honest accounting at all levels of government. Not likely.
- Honest currency units – currency units created from productive effort, not central banking and commercial banking fractional reserve conjuring out of “thin air.” Not likely.
- 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.
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 as central banks are forced to “print” an almost unlimited number of currency units to address their self-created financial problems.
- Tax increases, retirement asset confiscations, and “bail-ins” where individual and business bank deposits are taken to repay other liabilities. Example: Cyprus. Laws are in place in western countries to enable bail-ins.
- Derivatives implosion (remember 2008), nuclear war, electromagnetic pulse weapons, and global plague.
PROGNOSIS:
The world will muddle through its problems in spite of 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 … 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 exponentially increasing national debt for 25 years, and are currently selling for multi-decade lows compared to 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 25 years of history, silver prices are inexpensive compared to the exponentially increasing national debt and stock market prices. Silver prices will rise compared to both, perhaps soon.
CONCLUSIONS:
- Debt and government expenses are excessive and too large for the economy to support. Regardless, they exponentially increase.
- Change is always 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.
- You can purchase silver (my first choice), platinum (second choice) and gold (third choice) from Miles Franklin. Call 1-800-822-8020.
Gary Christenson
