Wealth Redistribution In turbulent times, changes that may have occurred over a generation or not
at all can quickly be written into law within a matter of days. The federal government
continues to print trillions of dollars in new money for stimulus spending,
health care and continuing resolution spending bills. The very nature of
running deficits is an additional form of stimulus spending. It’s obvious that the
governments' intention is to distribute our tax dollars in the form of bureaucratic
jobs, make-work projects and direct welfare payouts. Throughout history
whenever socialist policies have been imposed, inflation was soon to
follow.
Energy Dependence
Energy in the form of imported oil is the greatest segment of our trade deficit. The
high energy prices we pay are another force pushing up the cost of everything
needed to survive, from transports to heating and electricity. Since prices came
off the 2008 highs there has been little effort to develop domestic sources of new
energy supply. This failure on the part of our government is setting us up for a dangerous
economic situation down the road, should oil prices move towards $100
again. High imported energy prices will further weaken the dollar and send gold
prices higher. Instead of sending billions of our dollars each day to OPEC and the
petro-tyrants like Russia and Venezuela, we should be saving those dollars by developing
domestic solutions for our long term energy needs.
Diminishing Gold Supply
Less gold is produced each year and it is becoming more costly to find gold.
The miners have to dig much deeper into the earth for each ounce of new
gold. Furthermore many of the new sources of supply are located in unstable
or violent countries. It is very likely that the gold mines in these countries may
one day be shut down or nationalized, further disrupting the supply. And since
the collapse of Fannie and Freddie, gold coins have been experiencing supply
disruptions.
Government Debt
When you add up the costs incurred just from the bailouts of the auto companies,
AIG and the housing mess, we are now locked into trillion dollar deficits
each year for the next decade. The interest portion from this debt that we pay
out each year is now $600 Billion and is projected to rise to $1 Trillion in five
years. Without a thorough realignment of our national priorities it is unlikely
we can avoid a debt crisis in the near future.
Future Inflation
The supply of Dollars has been expanding at a rate above 10% for the past two
years. In normal times, the money supply would rise in lock step with economic
growth. But since the recession began the Federal Reserve has been working overtime just to create money. Once these extra dollars work their
way into the economy we can expect to see higher prices for food, energy
and all products that are derived from basic commodities (everything).
Currency Debasement
One solution to our excessive debt problem would be to monetize the
debt by expanding the money supply. The Federal Reserve has stated
its intentions to do just that with its policy of “quantitative easing”. When
the Fed buys Treasury Bonds, it is basically “printing” the money to do it.
The overall effect is currency debasement because the money used to
buy something today will buy less of it tomorrow. Unlike inflation, which
tends to creep up on you over a period of years, currency debasement
can hit you almost overnight. As the US and other governments around
the globe continue debasing their money through endless printing, gold
may one day become the only reserve currency.
More Bank Failures
The too big to fail policy created by the Federal Reserve is now part of
the Financial Reform legislation and will almost certainly guarantee future
bailouts for the large institutions at the expense of the smaller banks and
the taxpayer. So with the system rigged to favor the big banks, the number
of smaller banks in trouble is approaching one thousand. This will further
undermine confidence in our financial system and support the
conditions for higher gold.
Real Estate Crisis
The housing crash that began in 2007 has not abated and threatens a
sustainable recovery. Home ownership was once a source of wealth and
security for individuals, but now for many it has become a liability threatened
by lost value and foreclosure. As the deflation in housing prices
causes many of the more traditional assets to lose value, demand for
gold is surging while its price has reached new highs.
War on Terrorism
Wars cost money and the costs for the Iraq and Afghanistan wars will be felt
for generations. With America struggling to define the enemy, history is repeating
itself as a great power approaches bankruptcy while fighting a long
term far away war. The price tag up to now is thousands of American lives
and $1 trillion. As the costs keep piling up, our politicians and bureaucrats
will come to rely on what they understand and choose between debt monetization,
or defeat.
Deep Recession
Typical recessions last about a year. Our current downturn has been running
close to three years and with no jobs recovery in sight. The great depression
started out in 1929 as a financial panic, similar to what we had in
2008. But history from the period shows that when the federal government
became actively involved in providing “stimulus” to the economy, the recession
grew into a full blown depression by 1934. With our actual unemployment
near 18% and with the tax base deteriorating, the probability is
high that congress will raise taxes. Should some new castrophy strike, it
may cause a downward spiral which may take years to recover.