by Bill Sardi
Recently by Bill Sardi: The Coming Economic Dictatorship
What happens to the price of gold if the US elects to abolish a debt limit?
An article in The Atlantic says the debt limit is a dead weight on the reigning political party. The Atlantic article cites a proposal by Timothy Geithner, Secretary of the Treasury, to give the President power to raise the debt ceiling arbitrarily unless over-ridden by a 2/3rds vote by Congress.
Good God, the government credit card would be in the hands of a monarch and Congress would cower at opposing him at the risk of losing votes. If anyone thought fiscal irresponsibility is rampant today, try tomorrow when the President can call his own spending (un)limit. This disturbingly alters the balance of powers outlined in The Constitution.
Even Republicans go along with the idea. Senate Minority Leader Mitch McConnell (R) suggested in July 2011 to permit the president to unilaterally raise the debt ceiling unless Congress affirmatively voted to stop him. And even if Congress did vote to stop him, the president could veto, and then Congress could overturn his veto.
But hey, Moody's, the credit rating giant, has warned "If negotiations fail to produce policies that lead to debt stabilization and ultimately reduction, then we expect to lower the US credit rating, from Aaa probably to Aa1." That would move the US credit rating from "prime" to "high grade." That means interest rates on debt would have to rise, and America is carrying $16 trillion of accumulated debt. Moody's recently stripped France of its Aaa rating to a Aa1 downgrade.
A recent article cites The Gold Council to say, that since 2000 increases in the U.S. debt have been accompanied by increases in the price of gold.
The spot price for gold is ~$1715/oz. at this current moment. Given the current political hijinks, a veteran metals analyst says his target price for gold in 2012 in $1920. Reuters speculates gold will rise above $2000/oz. in 2013. Other sources say gold could rise above $2700/oz. by 2014. Given that second-term Presidents have a penchant for going overboard on spending, another source predicts gold could soar above $3500/oz. by the end of 2013.
Gold would have predictably risen to unprecedented heights if documented manipulation had not occurred.
Don't think that untethering the Federal budget from a debt limit wouldn't have consequences internationally. What foreign country would have any confidence that the IOUs (US Treasury Notes) they now hold will ever be paid back?
Japan and China hold over $2 trillion of these IOUs. In Senator Tom Coburn's book DEBT BOMB he predicts a day in 2014 when Japan recognizes it is holding worthless IOUs and sells off US Treasury Notes, causing the US dollar to plummet in value. It sounds like politicians are hastening that day along.
Another survival tip: placing a lighted match to your paper money is a good way to start a campfire. Just think, paper money could be used as kindling and a renewable source of "green" energy :).
Of course, if you use dollars as kindling you are subject to a $100 fine. Title 18, Section 333 of the United States Code says "whoever mutilates, cuts, disfigures, perforates, unites or cements together, or does any other thing to any bank bill, draft, note, or other evidence of debt issued by any national banking association, Federal Reserve Bank, or Federal Reserve System, with intent to render such item(s) unfit to be reissued, shall be fined not more than $100 or imprisoned not more than six months, or both." Of course it's OK for the government to destroy its purchasing power.
But just imagine, print money endlessly and you could now afford to use US dollars to play the Monopoly board game in place of the play money :). And hey, get this, a nickel currently costs the US Mint 11-cents to make, whereas the value of the US dollar has shrunk in purchasing power from $1.00 in 1913 to less than a nickel today!