We live in economically perilous times. The indicators are all around us.
Front and center today, corona virus fears have pushed the price of gold up to a 7-year high
. But there were already numerous other reasons for grave concern.
The world is drowning in debt
Global debt is now close to $253 trillion and it is expected to grow in 2020. It is called to rise to more than $257 trillion by the end of the first quarter in 2020. The main growth engine for all this debt is primarily the non-financial sector.
To put the most recent figure of roughly $253 trillion in debt into context, that represents a global debt-to-GDP ratio of over 322%. Debt has risen across households, corporations and governments alike, but that debt is climbing the most among corporations and governments [emphasis mine].
More specifically, just the national debts (“sovereign debt”) of most Western nations indicate that these nations are obviously/hopelessly insolvent. Here are the “official” debt-to-GDP ratios of the West’s biggest debtors (and most-insolvent economies).
Two comments need to be made here. First, once sovereign debt approaches 100% of GDP, that nation is generally deemed to be insolvent. At that point, actual debt repayment becomes virtually impossible.
Most Western nations now struggle simply to pay the interest on their gargantuan debts. And if Western interest rates ever return to historical norms, even that will become impossible (can you say “Greece”?).
The second comment is that while all these debtor nations ‘fudge’ on their debts to some degree, the U.S.’s national accounting is out-and-out fraud. The U.S. government is guilty of a multitude of accounting frauds that would all be illegal if perpetrated by U.S. corporations.
Government Accountability Office Refuses to Sign Off on Federal Cooked Books
The U.S. Government Accountability Office (GAO) recently revealed that, as the official auditing agency of record for the U.S. Federal Government, it could not sign off on the government’s consolidated financial statements for 2015. Even worse, because of the lack of properly prepared and thorough government data, the GAO says it may not be able to do so any earlier than 18 months from now, if at all.
The U.S. government claims
to have a total national debt of roughly $23.3 trillion [source: USdebtclock.org
]. However, as far back as 2012, its total unfunded liabilities
stood at over $222 trillion
, according to economist (and former Reagan economic advisor) Laurence Kotlikoff. Many trillions of these “unfunded liabilities” are actual national debts, fraudulently concealed as mere liabilities.
Borrowing on Borrowed Time
… The federal government has borrowed so much that there are few places left on the planet where it can borrow more. Take a look at who has loaned
the most money to the U.S. government. At the top of the list
are the Social Security, Medicare and various federal pension trust funds.
A succession of morally bankrupt U.S. administrations have looted the government’s own “trust funds”, to hide the actual size of annual deficits and hide the actual size of U.S. debts. They have left behind only IOU’s which the U.S. government will never be able to honor.
Compounding this financial/economic insecurity, the permanent, ultra-low interest rates across the Western world have generated urban real estate bubbles
worse than any other real estate bubbles in the history of our nations.
Also propped up by ultra-low interest rates are U.S. equity markets. After a 10+ year bull-market run, U.S. markets (in particular) are perched in precarious bubbles. Famed value investor, Warren Buffett, is currently terrified of U.S. equities.
The Oracle of Omaha is sitting on more than $128 billion of Berkshire Hathaway cash
. That’s roughly four times as much cash as Buffett has ever held at any other time in his 50-year investing career.
It’s too bad that Warren Buffett’s father
wasn’t still around to coach 89-year old Warren on what to do with all that cash.
Howard Buffett was a four-term Republican Congressman in Nebraska. A staunch libertarian, Warren’s father was known for being “unshakably ethical”
. Howard Buffett also had a passion for gold.
In a famous 1948 essay, Howard Buffett explained how and why gold was both a tool for financial security and a shield of economic liberty.
Human Freedom Rests on Gold Redeemable Money
Is there a connection between Human Freedom and A Gold Redeemable Money? At first glance it would seem that money belongs to the world of economics and human freedom to the political sphere. But when you recall that one of the first moves by Lenin, Mussolini and Hitler was to outlaw individual ownership of gold, you begin to sense that there may be some connection between money, redeemable in gold, and the rare prize known as human liberty…
Paper Systems End in Collapse
But first let me clear away a bit of underbrush. I will not take time to review the history of paper money experiments. So far as I can discover, paper money systems have always wound up with collapse and economic chaos
. [emphasis mine]
This may be confusing to some readers. In 1948, Howard Buffett was arguing for the return to a full gold standard in the United States, not the partial
gold standard in place at that time.
Instead, the U.S. government went in the opposite direction. It “closed the gold window”
and ended the last vestige of a gold standard in 1971. Howard Buffett’s warning [above] needs to be heeded.
Today, the global economy is a world of fiat currencies. In the 1,000 years since humanity began experimenting with this dubious paper ‘money’, every fiat currency has plunged to zero in value – or been removed from circulation before that could occur.
Indeed, in the little over 100 years that the Federal Reserve has been “protecting” the value of the U.S. dollar, the dollar has lost roughly 99% of its purchasing power. Roughly ¾ of that loss in value has come since 1971.
Howard Buffett’s warning appears more like prophecy today.
The world’s central banks, the manufacturers of all these dubious fiat currencies are now on a gold-buying binge
themselves. Central bank gold-buying is at a 50-year high. It is gold, not the U.S. dollar, that is the premier monetary asset in the global monetary system today.
Central Banks Are on the Biggest Gold-Buying Spree in a Half Century
Central banks bought more bullion last year than anytime since 1971, when the U.S. ended the gold standard.
Governments added 651.5 tons of gold to their coffers in 2018, a 74 percent increase from the previous year, according to a report from the World Gold Council.
Russia, which is "de-dollarizing" its reserves, was the biggest buyer, followed by Turkey and Kazakhstan...
How does gold provide financial security? How does it deliver economic liberty? The two answers are connected.
Gold: economic liberty and financial security
Outside of the gold-ignorant populations of the Western world, gold remains as much of a universal currency as the U.S. dollar. That equals economic liberty.
Whether held at home or stored abroad, gold provides the holder with as much financial freedom as with holding U.S. dollars. However, unlike the debauched dollar, gold retains its value.
In ancient Rome, with a one-ounce gold coin, the holder could be attired in the finest suit of clothing of the day. Five hundred years ago, with a one-ounce gold coin, the holder could purchase a tailor-made suit and accessories.
Today, with a one-ounce gold coin, the holder can still purchase a fine suit with accessories.
is financial security. Gold preserves our wealth
rather than allowing it to evaporate like when we attempt to store our wealth in U.S. dollars.
In the absence of the gold standard, there is no way to prevent confiscation of savings through inflation.
- (former Federal Reserve Chairman) Alan Greenspan, 1966
Even in the absence of a gold standard, we can
prevent our savings (wealth) from being “confiscated” (stolen).
We can do so by storing our wealth in gold. By swapping our paper currency for gold coins or bars, we can still insulate our wealth from “inflation” (i.e. fiat currency theft).
Since dipping below $1200 per ounce in August 2018, gold has risen by over 40% (to a 7-year high). Increasing numbers of market analysts are predicting that a new bull market for gold has begun.
Against this backdrop for the gold market, we have two famous warnings.
One from the father of Warren Buffett. Gold is essential for our economic liberty.
The other from one of the Federal Reserve chairmen who has overseen the debauchment of the U.S. dollar. Gold is essential for our financial security.
Gold = economic liberty. Gold = financial security.