Wednesday, December 14, 2016
WHY THE DEFICITS ULTIMATELY MATTER - ESPECIALLY TO GOLD
There a lot of talk about the ever expanding US - and Global deficit. Here it's about 20 trillion and counting.
But does it really matter? Haven't we gotten along fine so far?
AND: Why should we ever have to pay it back, if we owe it to ourselves?
The answer is simpler than you might think. The answer is that deficit spending borrows growth from the future.
The same way that cocaine borrows energy from the future. It feels great now. And it works for longer than anyone might expect. You just need larger and larger doses.
And if you use that growth or energy to build is a business, or write a symphony, then great, it may just pay that debt back in the long run. Maybe.
But if you use it to go on a gambling spree in Vegas, or in the derivatives markets, well it will probably all be wasted.
Some of the debt does go to building businesses. But unfortunately, because in the private sector the vast majority of it is acquired and used by Financial Institutions that are in the gambling business, most of it is used for gambling.
And in the Government most of it is used either to fund wars that build nothing and return nothing and mostly accomplish nothing, and in paying off massive bureaucracies that exist to fund themselves as well as the drug and insurance companies that are the major beneficiaries of their programs such as medicaire.
But - does it matter if we/they never have to pay it back?
Yes, it does matter, because all of it dilutes every dollar made in every productive enterprise. It makes everything more expensive for everyone. Until we get to where we are now. Where it takes a quarter of a million dollars to send one kid through college. Where it takes a million dollars to buy a little two bedroom apartment in Brooklyn.
And where it takes six dollars of debt to create one dollar of GDP.
And where no matter how much we borrow, GDP is only positive because we keep changing the metrics wherein inflation is calculated. Who could doubt if we included Education, Health Care, and Housing in the Inflation figures, that GDP would now be negative, by quite a bit?
What does this mean for Gold?
For all hard assets this means that the value goes up in direct proportion to the dilution of the currency. Gold is the only hard asset currency.
Right now as the dollar has become the global safe haven gold languishes. But when it becomes clear the US economy is in the same boat as Europe and Japan, gold will have its day.