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we might get massive defaults on that debt. If so you will get a deflationary collapse instead. How's gold going to do then?
I don't discount the prospect of high inflation. If we do get high inflation gold sorta works, but common stocks TIPs and series I savings Bonds work better.
http://inflationdata.com/inflation/images/charts/Gold/Gold_inflation_chart.htm
This is misleading. Yes debt, public and private, has increased in the last several decades. So has the price of gold. That gives them a high correlation coefficient. But we all know correlation does not mean causation.
we might get massive defaults on that debt. If so you will get a deflationary collapse instead. How's gold going to do then?
I don't discount the prospect of high inflation. If we do get high inflation gold sorta works, but common stocks TIPs and series I savings Bonds work better.
http://inflationdata.com/inflation/images/charts/Gold/Gold_inflation_chart.htm
Why does this graph assume 5% when the true number is 2.4%? Again, this is misleading
Much of that debt is fixed rate securities and will always be at 2.4%.
Economics is a balance of supply and demand. We have much more debt because it's so cheap to borrow presently. If rates go up to 5 % or 10% we will borrow less while continuing to pay off our current outstanding debt.
That will lower outstanding debt, not increase it.
So either taxes will have to go from 18% of GDP to 25% of GDP, or we will have to cut entitlement costs, or we will borrow money to pay the difference. Or maybe a combination of all 3.
If one of those doesn't happen, then I suggest you start stockpiling food water and ammunition in your basement.
I have always felt that Gold bugs are the conservative equivalent of socially responsible investing. Their politics cloud their judgement.
Alternatively, the USA loses its status as the world's reserve currency. What happens then? Instead of defaults, the USA just issues more and more debt at higher rates; if so, Gold surges in price. We don't know what the future holds so an allocation to precious metals at today's prices makes fiscal sense.
IMHO, the USA won't allow any "massive defaults on debt" but will instead keep printing money to avoid chaos; this leads to a devalued currency at some point but since many nations are also printing money at a rapid pace (European Union, Japan, etc) I have no idea when this will occur. The majority of Fiat Currencies are being propped up by their Central Banks.
We might very well fault on our entitlement promises. Massively downsize our military, defaulting on our security commitments to our allies. Let them talk to china and russia. Let our allies in the middle east deal with ISIS and Iran, massive cuts in social programs and infrastructure.
In short, default to our promises to our citizens.
Doze,
I use your method of investing these days. Gold miners (stocks), Gold the metal and Silver the metal are part of my portfolio. I keep a 5% allocation to all of the above and add to my positions when price declines occur (10% drop in the price or a 1% drop in my allocation). I fully expect to sell these same things when they occupy more than 7% of my portfolio.
Not going to happen. We can agree to disagree but both parties won't allow it to happen.
If I had any money whatsoever, I would move to Australia. I'm willing to bet in the future the U.S. government won't allow anyone making money to leave the country until they have "paid their portion" of the debt. Forget about securing the border at this point, you should want to get out before the government imprisons you for not enslaving yourself to paying off the debt. Don't be surprised if this happens in the not too distant future. Also, don't be surprised if the government forces you to incorporate a % of medicaid and obamacare into your annual caseload or risk losing your license to practice medicine. I can just see this system failing and no doctor accepting it after it's in full effect and then the government dropping the hammer.
It's hard to cut entitlements and raise taxes. It's much easier to debase your currency. Each dollar buys less but you "keep your promises" to the masses.
That said, I see taxes going up along with deficits. I do not see entitlement cuts (or any real cuts) in the near future.
LOL it's not easy debasing your currency. It's political suicide. You really think destroying the U.S. Economy and runaway inflation are easier than raising taxes?
I agree with all of your points. I was referencing to what happened in Massachusetts when Romneycare was enacted and every doctor was forced to take it or could not practice medicine. Imagine people signing up for insurance, regardless of how ****ty it is, and then not being able to use it because no one will take it. Their senators and congressmen will be getting a litany of angry phone calls and there will be a borderline riot for them to do something. Hence, force doctors to accept it in order to retain their license. The two tier health care system will be inevitable and I think universal healthcare is in the not too distant future. There was speculation that Obamacare was a Trojan horse for universal health care because he knew it would fail. I don't even know if primary care will get a pay raise when they can just expand the practicing rights of ARNPs. If anything these mid levels may put pressure on primary care doctors to be paid the same or less. Any field with a mid level in it will see a pay cut... it only makes sense. It follows the basic rule of economics... if someone can do the same job for less, the person willing to do it for less will win out. Period. The only wild card is in anesthesia where patients' lives are literally on the line so deaths may save anesthesiologists if CRNAs are proven to kill people at a higher rate. That would incentivize hospitals and insurance companies to pay the anesthesiologists the same or maybe even better if it gains enough traction with the public.