21 Trillion Reasons to Own Gold

IMG Auteur
Published : April 06th, 2018
814 words - Reading time : 2 - 3 minutes
( 0 vote, 0/5 )
Print article
  Article Comments Comment this article Rating All Articles  
0
Send
0
comment
Our Newsletter...
Category : Gold and Silver

Do you know how much a trillion is (we refer here to the short scale)? A billion is hard enough to imagine, much less a trillion. But let’s try. We can write it as 1,000,000,000,000 – that’s a 1 with twelve zeroes. In other words it’s million million, or ten to the twelfth (1012). One trillion of dollars in $100 dollar bills would stack up to about 631 miles high. Given that the average annual income in the U.S. is around $50,000, Joe Schmo would have to save 20 million of years(and not consuming at all) to stockpile a trillion dollars. Sounds enormous, right? So now multiply it by 21 and you will obtain the new level of the U.S. federal debt (here you can watch a movie visualizing the U.S. debt of $20 trillion).

It escalated really quickly. In September 2017, we reported that the total value of U.S. national surpassed $20 trillion. In March, after just half a year, the U.S. federal government added another trillion of debt. And what is even more important, the U.S. indebtedness is not likely to decrease anytime soon. Actually, the Congress has just agreed to cut taxes and spend even more. It will add even more obligations on top of an already existing pile of debts.

Let’s look at the chart below. As one can see, the recent trajectory is rather unsustainable. The federal deficit increased from $587 billion in the last year of Obama’s presidency to about $665 billion in Trump’s first year of presidency.

Chart 1: The total U.S. national debt (red line, right axis, in $ trillions) and the gold prices (yellow line, left axis, London P.M. Fix, in $) from 1968 to 2017.

And according to the Treasury Borrowing Advisory Committee, the U.S. federal government will have to borrow about trillion in fiscal year 2018. It implies that at the current pace, the government is on track to add at least $10 trillion in the next decade, largely due to the soaring military expenditures.

What does it all mean for the gold market? Well, the worsening of the U.S. fiscal position could support the precious metals, as was the case during the 2000s. The fears about the twin deficits, combined with the commodity bull market, boosted the price of gold then.

However, the U.S. real GDP growth has also accelerated recently. Hence, the ratio of the country’s public debt to GDP has generally remained at the similar level since 2013, as the chart below shows.

Chart 2: The total U.S. national debt (red line, right axis, as % of GDP) and the gold prices (yellow line, left axis, London P.M. Fix, in $) from 1968 to 2017.

Hence, although serious, the U.S. fiscal position is not yet hopeless. What really matters is flows, not stocks. Surely, Trump cut taxes and increased spending, but the accelerated economic growth should support the revenue side of the equation. We don’t praise the current U.S. fiscal policy – what we’re saying is that the federal debt is not likely to explode during an economic boom. Just look at the chart above once more. The relative indebtedness had been increasing steadily in the 2000s, but it surged only after the Great Recession occurred.

To sum up, U.S. public debt has surpassed $21 trillion. Investors should remember that there is nothing special in that particular threshold. Default is still unlikely. The truth is that flows are more important than the stock – of course, the fiscal deficits are also rising, but as long as the expansion lasts, nothing wrong should happen. Having said that, a lack of any reforms during good times will take revenge in bad times. As a safe-haven asset, gold should benefit then. Actually, the U.S. public debt has jumped over $1 trillion in Trump’s first year, even though the real spending is still ahead of us. When the next crisis hits, the debt-to-GDP ratio will balloon. Given that it is already above 100 percent, and the interest rates are rising, the U.S. creditors could then lose their patience. When this happens, gold should shine – contrary to debt instruments, it bears no counterparty risk.

If you enjoyed the above analysis and would you like to know more about the effects of public debt on the price of gold, we invite you to read the April Market Overview report. If you’re interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts. If you’re not ready to subscribe yet and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign me up!

Thank you.

Arkadiusz Sieron, Ph.D.
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

Gold News Monitor
Gold Trading Alerts
Gold Market Overview

<< Previous article
Rate : Average note :0 (0 vote)
>> Next article
Przemyslaw Radomski is the founder, owner and the main editor of www.SunshineProfits.com. Being passionately curious about the market’s behavior he uses his statistical and financial background to question the common views and profit on the misconceptions. “Don’t fight the emotionality on the market – take advantage of it!” is one of his favorite mottos. His time is divided mainly to analyzing various markets with emphasis on the precious metals, managing his own portfolio, writing commentaries, essays and developing financial software. Most of the time he’s got left is spent on reading everything he can about the markets, psychology, philosophy and statistics. Mr. Radomski has started investigating the markets for his private use well before starting his professional career. He used to work as an informatics consultant, but this time-consuming profession left him little time for his true passion – the interdisciplinary market analysis. Establishing www.SunshineProfits.com gave him the opportunity to put his thoughts, ideas, and experience into form available to other investors.
WebsiteSubscribe to his services
Comments closed
Latest comment posted for this article
Be the first to comment
Add your comment
Top articles
Latest Comments
“Collapse Of Civilisation Is On The Horizon” – Attenborough Warns W...
11 DecJ.0
The Climate, it's complicated. Look up the 100,000 year problem. Basically, the Earth has been in an Ice Age about 70 - 80 % of the last one m...
“Collapse Of Civilisation Is On The Horizon” – Attenborough Warns W...
06 DecS W.0
It is difficult to argue with a person like D Attenborough. Who doesn't like his shows? In saying that I am wondering if he, and probably 99% o...
Columbia University Promotes Letting Students Grade Themselves
03 Decvictoriashores
Really who cares
Scientists: The Globe’s Food Supply System Is Broken
04 DecJ.
People need to stop following academics as if they know everything. Science is about continuously evolving your knowledge based on a process of te...
Scientists: The Globe’s Food Supply System Is Broken
02 DecS W.
Oh no! Wheeze all doomed. It is not a matter of eating less meat it is simply a matter of eating less. and eating less of garbage food in part...
How Private Banks Create Bubbles — with the Help of Central Banks
02 Decsneezy67
It appears that we as consumers pay a price for convenience. It is very difficult to haul 10 acres to market on your back or cart. Pieces of gold a...
Why It's Important to Define Money Correctly
29 NovACarr
Great quote!! This is incredibly true. Too many people get so caught up in fiat currency, when it's all about gold if you really look at it. I've g...
Thanksgiving - And Deliver Us From Evil
23 NovBarnsey
Dear Jesse, As much as I admire your journeys down biblical roads, I consider you have missed the point of that mystical journey. Beyond...
Most commented articlesFavoritesMore...
World PM Newsflow
ALL
GOLD
SILVER
PGM & DIAMONDS
OIL & GAS
OTHER METALS