10-Nov (USAGOLD) — Gold remains under pressure, weighed by rising stocks, yields and the dollar. The yellow metal slipped to three-week lows as the great Trump recalibration continues.
Investors continue to speculate on the prospects of a tax cut, borrow and spend Trump administration. Stocks obviously love it. Bonds not so much. But what seems to be getting lost in the calculations — at least initially — are the implications for inflation. If inflation surges above the Fed’s 2% target, it will send the central bank scrambling to raise rates to cool price pressures.
If fiscal spending is to be the new order of the day, and we’re prepared to borrow in a rising rate environment to make that happen, higher deficits and a higher national debt will be the result. That, along with higher debt servicing costs on the expanding debt, could be terribly problematic in the longer-run.
Given the stance Congressional Republicans took during the Obama administration each time the debt butted-up against the ceiling, what do you suppose is going to happen when the debt ceiling is reinstated two-months into the Trump presidency?
You may recall that Republicans wanted spending cuts as a concession and threatened a government shutdown, risk a lowering of the U.S. sovereign debt rating and even default to make that happen. The Democrats on the hand pushed for an unconditional debt ceiling hike, because Congress had already approved the spending levels. Look for those roles to be completely reversed in March, when the national debt should be above the $20 trillion mark!
I don’t think the GOP controlled Congress will be able to deny the new President a debt ceiling hike. Nonetheless, the rationalizations should be delicious. How much of a bump will they ask for, or will they just suspend the debt ceiling again for some period? And again I ask; what will be the implications for inflation?
