We are talking with our clients about the debt ceiling every day now, because March 15 is coming up faster than many investors realize.
Newly-appointed Treasury Secretary Steven Mnuchin has his hands full to avert financial chaos and a severe correction in the markets in March. Hard to believe only 15 months have gone by since Congress last raised its credit limit to save America from a market meltdown.
You can see the staggering pile of American government debt piling up at the top of our website. At the rate it is going, we could soar past $20 trillion in debt any day now.
The debt ceiling is the country’s legal borrowing limit set by Congress. Lawmakers have fought for years over whether and by how much the ceiling should rise. On March 15, our current debt limit will need to reset above $20 trillion. If Congress won’t raise the debt ceiling, Mnuchin will be forced to employ special accounting measures to pay the country’s bills without violating the borrowing limit.
Since 1940, there have been 95 measures passed to increase the debt ceiling. As you might suspect, most of the time when the debt ceiling is raised, gold prices go up. It isn’t hard to imagine why, when the inevitable result of our nation’s debt addiction can only be the destruction of the dollar and the bankruptcy of our country.
On a personal level, next month could be very painful for retirement investors with the stock market already at extreme highs. There are billions in IRAs and other retirement plans that are at risk right now.
If gridlock over the U.S. debt ceiling happens, the next key event in a possible debt-ceiling crisis is the “x” date, when the special accounting measures are used up. After that, the U.S. Treasury could only pay bills with incoming revenue and would certainly be forced to default on some of its debts. That could cause the markets to crash, send interest rates climbing and cause massive economic dislocation. Past debt ceiling standoffs have caused U.S. borrowing costs to rise in advance of the “x” date too.
After fifteen months, Congress is gearing up for another round of a self-inflicted budget crisis that demonstrates the government’s dysfunctional nature. Bitter partisanship and a divided electorate will only make matters worse.
If another debt ceiling battle is brewing, safe haven assets like gold and silver will surely benefit. Both political parties have employed the mandatory borrowing cap as a negotiating chip in many legislative battles. Remember the summer of 2011 when the U.S. Treasury almost defaulted on the debt for the first time in history?
Even though the Republicans control both White House and Congress, the usual uncertainty surrounding the debt limit will still be heightened this year. Mnuchin says making Treasury debt payments is a critical commitment, while Trump’s pick to head the Office of Management and Budget (Mick Mulvaney) has argued against raising the debt limit.
EXPERTS: GOLD IS BOTH A FEAR AND INFLATION PLAY
Zachary Karabell, head of global strategy at Envestnet, thinks that gold is now both an excellent inflation play and a fear play as well, and says there are no signs that those trends are ending anytime soon.
Bank of America Merrill Lynch’s Michael Hartnett has recently stated he believes that inflation expectations have risen considerably thanks to the election of Donald Trump as well as the Fed’s decision to raise rates in December. Higher inflation almost always means higher gold and silver prices.
Precious metals expert and author Paul Mladjenovic expects gold and silver will perform strongly in 2017 because of the Trump transition and all the uncertainty brewing in Europe. According to Mladjenovic, gold and silver will not only gain ground as safe-haven assets but also as inflation hedges.
$20 TRILLION AND COUNTING
Our national debt is $20 trillion and climbing, which breaks down to approximately $60,000 in federal debt per U.S. person. It is just simple math any 3rd grader could understand: the more the government prints paper money, the less it’s worth over time.
The three largest U.S. federal budget items are Medicare/Medicaid, Social Security and defense. We can either cut these programs or raise taxes. If we don’t, the national debt will continue to climb and eventually strangle prosperity for us all.
Owning physical gold and silver is the perfect hedge against uncertainty and protects you from the ravages of inflation and recession. Washington, D.C. is broken and the debt ceiling issue underscores the need to safeguard your assets in gold and silver. No politician or political party seems to have the courage to tackle our growing national debt.
Read More: The Benefits of Investing in Precious Metals
