SGM Metals: US Debt @ $23 TRILLION, Up $8T in 3 Year Period!?!

Jan. 26, 2012 - PRLog -- goldseek.com reports: [Based on official estimates, America’s debt is projected to reach $23 trillion in 2015 and, if the correlation remains the same, the indicated gold price would be $2,600 per ounce. However, if history is any example, it’s a safe bet that government expenditure estimates will be greatly exceeded, and the gold price will therefore be much higher.

And it’s not just the US. Most Western economies have reached unsustainable levels of debt that will be impossible to pay off. It’s worth noting that the US Federal Reserve, unlike the European Central Bank, can create currency without restriction. The US dollar has been the de facto world reserve currency for over half a century; the rest of the world’s currencies are essentially its derivatives. Whether global debt is in euros or Special Drawing Rights issued by the IMF, the Fed, and thus indirectly the US taxpayer, may become the lender of last resort.

There are four possible ways to reduce government debt:

One: Grow out of it through increased productivity and increased exports. This is highly unlikely, as Western economies, and even China, are poised for recession. Two: Introduce strict austerity measures to reduce spending. This has the unwanted short-term effect of increasing unemployment and reducing GDP, resulting in even higher deficits. Three: Default on the debt. This will make it difficult to raise future bond issues. Four: Issue even more debt, and have the central bank in question simply create whatever amount of currency is needed.

Most politicians will select option four, since few have the political will to choose austerity, cutbacks and full economic accountability over simply creating more and more currency. Almost inevitably, they will choose to postpone the problem and leave it for someone else to deal with in the future.

In order to compensate for slowing growth, governments attempt to devalue their currencies and thus improve export competitiveness. This can lead to a global currency war that author and Wall Street/Washington insider James Rickards discusses in his bestselling new book, Currency Wars. This process is now well underway.

A recent Congressional Budget Office report predicted the US federal government’s publicly held debt would top an unsustainable 101 percent of GDP by 2021. Currently, the official US debt is an astronomical $15 trillion. Yet this is only the current debt. If the US government used the same accrual accounting principles that public companies must use, unfunded liabilities like Social Security and Medicare make the real debt more than $120 trillion. This represents over $1 million per taxpayer. Obviously, this amount is impossible to repay. ]

Sometimes a picture is worth a million words, or 15 trillion dollars! Notice how the national debt of the United States turns straight up like the face of Mt. Everest, and notice how gold mirrors that vertical ascent with precision. Option #4 of the ‘ways to reduce govt. debt’ is the current trajectory the FED has opted to exercise. Knowing that this choice will continue the vertical ascent of the debt load, what do you think will happen with the correlation of the price of gold as this solution moves forward? It will continue to the mirror the climb but with one twist, the confidence game will be lost by the dollar at some point. At some point the rejection of the US dollar abroad due to the hyperinflationary threat will leave the USD without much of a market and this development will all but convince those aware of the instability of the fiat money system to chose to simply hold their wealth in gold rather than risk wealth destruction in the paper currency itself.

Let’s get one thing straight, just because the talking heads on the boob tube tell you all is well it doesn’t mean that there isn’t a real threat to the viability of the US monetary policy. You must ask yourself the question: I have never seen anything as economically dangerous as what I am seeing now, is there a real threat that the world might turn it’s back on the US dollar and leave all of the US tax payers holding the bag? Once you allow yourself to ponder that point, you then can begin to consider what might happen to the investment dollars that are stuck inside your IRA and your 401K if this scenario plays out. Rest assured that the threat of a nationalistic rejection of the US dollar has already begun in China, Japan and Russia. If global players as large as these are willing to begin to defend their economies against the inflationary nature of the dollar, it is not that far off to see some of the smaller ‘emerging economies’ following suit. As more and more of these nations insulate their economies from the dollar we will find ourselves immersed at home in surplus dollars that will only drive up consumer prices and make the personal economic recovery that much more unlikely. This often becomes a vicious cycle that breaks the consumers back with higher prices and higher taxes as the govt. tries to simply collect more tax revenue through policy changes rather than reduce the budget itself. The ONLY way you can insulate yourself is to begin to move into the very assets that rise in tandem with the amount of money the FED is printing, gold & silver. Get ahead of this monetary crisis by using alternative currencies in gold & silver. Know in your heart that when the dollar is incrementally rejected the price of gold will incrementally rise and silver will slingshot beyond your wildest dreams. Tick, Tock.

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SGM Metals strives to offer not only wealth preservation precious metals investments to offset weakness in the economy, but to help educate our family of clients to better identify the threats to their financial security.