Miles Franklin sponsored this article.
Wars, defense expenditures and Medicare do not create gold, but they increase debt, devalue currency units and indirectly increase the prices for everything including gold.
What is the history of military and Medicare expenditures? Data from the St. Louis Federal Reserve shows both military and Medicare expenditures have increased exponentially for decades. The military expenditures data are probably low because some military costs are buried in other budgets, hidden, off the books and not included. However, the St. Louis Fed numbers show the trends, even if not complete.
Official military expenses show an exponential increase of over 5% per year, on average since 1971. Assuming annual expenses are $700 billion to $1 trillion in 2018, we can expect $1.4 – $2 trillion in the early 2030s at the rate of increase since 1971.
Official Medicare expenses show an exponential increase of about 7.5% per year since 1983. Assuming expenses are about $700 billion per year in 2018, we can expect Medicare expenditures over $1,500 billion annually in 2030.
The “machine” that runs the military-industrial-security complex is influential in congress, the media, the administration, Wall Street, all states and most cities and counties. Expect expanding military budgets along with urgent calls for more resources.
The same is true for the Medicare-Sick Care-Big Pharma Welfare budgets. Millions of individuals and businesses depend upon these systems for their jobs and income. Expect expanding Medicare budgets.
MEASURE IT IN GOLD OUNCES:
Graph thirty-five years of military expenses measured in BILLIONS of ounces of gold. They have averaged the equivalent of about 700 million ounces of gold every year for the past 35 years. The official U.S. gold stockpile, that has not been audited since before Eisenhower warned Americans about the dangers of the “military-industrial-complex,” contains about 261 million ounces of gold. Military expenses consume the equivalent of about three times the official U.S. gold stockpile each year.
Numbers are similar for Medicare expenditures when measured in gold.
U.S. Government revenues cannot fully fund government expenses. The government pays for general administration, military, Social Security, interest expenses and Medicare with taxes. It funds the inevitable shortfalls with borrowed dollars.
SO WHAT? DEFICIT SPENDING HAS WORKED FOR YEARS. MAYBE IT WILL CONTINUE FOREVER.
- I doubt it. Do we think debt will increase forever, dollars will devalue every year, military and Medicare expenses will increase 5% to 8% per year, while revenues only increase 4% per year?
- The financial system nearly collapsed in 2008 because of excessive debt, “too big to fail” institutions, derivative losses, unsustainable debt and other instabilities. Since 2008 official national debt has more than doubled, stock exchange margin debt is much higher, banks are larger, and instabilities are more dangerous.
- Believing debt can increase forever is like announcing that the falling man remains confident as he passes the 40th floor on his rapid journey toward the hard concrete below.
AND HOW DOES THIS RELATE TO GOLD?
- Military and Medicare expenses measured in gold have been roughly constant for over 30 years. Dollars devalue and gold prices increase.
- The military and Medicare “machines” will ensure massive and increasing government expenditures for their programs, even as debt increases to crazy levels. Gold prices will follow.
- The equivalent of the official U.S. gold stockpile is spent every four months by the military.
- Conclusion: gold is either not important or underpriced. I believe it is underpriced.
- But if gold is unimportant why are Russia, China and India adding to their gold stockpiles every year? Russia and China mine gold, import gold and prohibit exports of gold. They hoard gold and understand its value.
- When U.S. sanctions prevent transfers of currency units via SWIFT and international banking systems, countries use gold to bypass the sanctions. If gold were unimportant, would such transfers occur?
CONCLUSIONS:
- Congress will not control spending and the Fed will not prevent the dollar from devaluing against commodities. The dollar and fiat currencies will devalue further.
- Military and Medicare expenditures increase more rapidly than government revenues. This is unsustainable, but occurs because of the huge expansion in national debt.
- Gold is underpriced in 2018. A reset higher will come from a devalued dollar. Expenses and debt will continue toward financial chaos.
- Asia imports gold while western vaults move closer to empty each year. Governments and central banks can create the debt, but they can’t create gold.
- When the dollar loses “reserve currency status” (in years or decades) what will take its place for international trade? Gold backed foreign currencies, SDRs from the IMF, a new currency, gold bullion backed notes, government backed crypto currencies or something else?
- While the world waits for an inevitable financial system reset, gold and silver bullion and coins are a prudent way to preserve purchasing power and protect your assets.
Miles Franklin sells gold and silver. Call them at 1-800-822-8080.
Gary Christenson
