I am often asked the above question several times each day. It looks like a triple bottom is shaping up in the near future. Gold is getting close to its cost of production. The gold/silver ratio is going higher indicating that silver is the better value of the two at present. But sitting back and taking a look at the big picture consider the following top 10 list:
- Growth of the Federal Government. The followers of Lord Keynes have the controls of power firmly in hand. A larger central government = larger central power (central planning) = larger drag on the real economy. Ask any small businessman (if you can still find one) about the costs of taxes, regulations and licenses.
- Federal debt. Extinguishing debt is mathematically impossible with our system of money / debt. The First Alert 2096DF Wat... Buy New $494.34 (as of 10:46 EST - Details) biblical Jubilee called for all debt to be cancelled every 50 years so that excess debt could be washed out; otherwise one person would end up owning everything with enough time. Our federal debt is officially listed as $18.2T based on a cash accounting system. (Based on GAAP the debt is estimated at $100T more or less.) Our entire yearly federal budget is only $3.8T. Our yearly national GDP is only $17.5T.
- Private / corporate debt. Since 2007 private, corporate & financial debt is down by about 50% of GDP. However, the federal government has increased their debt by about 33% of GDP. While most households and businesses are trying to get their financial houses in order the federal government debt is rocketing higher (classical Keynes reaction). All this additional public debt is causing a drag on the real economy. If interest rates rise from the present record low rates we will find ourselves in big trouble. That is a bet I would not make.
- Derivatives. Speaking of debts that I would not make concerning interest rates the worldwide derivative market is estimated to be around $1,000T. The top 5 US banks hold around $290T. Most of these derivatives (or bets) are based on interest rates. Just for the record, $1,000T is about 14 times the total world GDP. Hopefully all the counterparties will remain solvent if interest rates rise and it all unravels in an orderly fashion (LMAO).
- Casinos and Mega-banks. The local intra-county banks of my childhood are mostly all gone. Banking is a special privilege where money is created through the process of loaning it into existence. Therefore intra-county banking was only allowed because the profits from that magic were supposed to stay in the local economy. Mega-banks in New York suck the life out of local communities and transfer that wealth out of town at the end of every day. Casinos pretty much do the same thing in most communities. The house take on all gambling pretty much leaves town every night minus a Southwest Specialty Pr... Buy New $19.99 (as of 10:54 EST - Details) little local payroll and local taxes. Both casinos and mega-banks suck the lifeblood out of communities given enough time. The too big to fail banks are also now even bigger and have become too big for bailouts. Watch out for bail-ins in the future (as per IMF recommendations).
- Monetary policy. The current zero interest rate policy or ZIRP has allowed the federal government to expand its debt load, however, the unintended consequence is that savers have been forced into speculation. Years ago middle class workers saved at the local bank and received interest of 5% or so in passbook savings accounts and a little more with certificates of deposit in time accounts. The ZIRP has forced these savers into speculating in the stock market in search of yield. Furthermore the competitive currency devaluations between countries are a race to the bottom. No country in the history of the earth has ever achieved long-term prosperity by devaluing their currency. This is simply insane and will result in inflation or worse when velocity finally increases.
- Central bank balance sheets. The federal reserve balance sheet has ballooned to around $4.5T (no telling how much of that is worthless). The IMF (the central bank’s central bank with Christine Lagarde at the helm) can generate fictional SDR’s at will (currently worth about $1.5/each). Their balance sheet is only around $0.5T so there is room for expansion here it seems. Look for more money (not wealth) to be generated at the IMF in the future.
- US stock market. The p/e ratio of the Dow 30 is getting a little high which says a correction is in the air. This may take longer to come about since with all the trouble in the world the US is still seen as a safe haven and people in troubled parts of the world like to park their wealth here in times of uncertainty. Just for a better feel for the numbers the market cap or total value of Apple is $0.6T. The total market cap of the largest 50 US corporations is around $10T. Economics in One Lesso... Best Price: $2.43 Buy New $7.43 (as of 12:35 EST - Details)
- Foreign intervention. George Washington warned us against “entangling alliances”. Eisenhower warned us against the “military industrial complex”. General Smedley Butler said the US Navy should not be allowed more than 600 miles from the coast of the continental US and that we should have the strongest DEFENSIVE military ever to protect our shores. In an effort to prop up the USD we have ignored them all. At present it seems that we are trying to reignite the cold war with the Russians. Pipeline politics has become the mission of the State Department. The BRICS nations seem to be aligning against us economically as a result of our misguided foreign policy.
- But the number one reason to buy PM’s now is simply because you still can get them. During the 2007 / 2008 crisis the PM market seized up. Bullion dealers in the US had to suspend trading because orders had backed the system up and we had to wait days for it to clear before we could take further orders.
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