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Gold Prices to Soar on Fears of a Highly Overdue Currency Collapse
Article in Commodity Trade Mantra
Why are gold prices soaring? Have gold prices peaked or is there more to this rally than has been seen till now? Is the US Dollar on the verge of a collapse? Read further to find an answer to all your questions…
The problem with being the envy of the world is that it changes your behavior. You start believing that you are very special for reasons that are not grounded in reality. You start believing that bad things happen only to other people and nations because they are not as special as you. You can do anything you want — borrow and spend as much as you like — and nothing bad will happen to you. This behavior in turn starts to undermine the core reasons why people trusted your country and currency to begin with. – Market Watch
This is what is now happening to the U.S. In 2020 the ratio of U.S. debt to the output of the economy (debt to GDP) is likely going to exceed 120% (and might be as high as 130%). You can blame the coronavirus pandemic for some of that, but the national debt has been going up steadily. The U.S. has run huge budget deficits in bad times and in good, long before the virus.
In 2000, U.S. debt was $6 trillion — a 30% debt to GDP ratio. It was $14 trillion in 2010 and $23 trillion in 2019, increasing $1 trillion a year while the U.S. economy was booming. Or maybe this is why the economy was booming. The U.S. was charging $1 trillion a year, year after year, on its national credit card to buy things and to engineer this growth.
By 2019, 10 years after the Great Financial Crisis, the Fed was still running its policy of quantitative easing. Debt to GDP at that time topped 100% — eclipsing the EU’s ratio of 86%. (Yes, the capitalist U.S. is more indebted than the “socialist” EU). We have not acutely felt that debt burden, because interest rates declined over the last two decades.
Then COVID-19 arrived. The U.S. has spent 12% of GDP (so far) to keep its economy afloat during the shutdown — twice as much in terms of GDP as the rest of the world, four times as much as the largest European countries, three times as much as Japan.
Our debt has skyrocketed by perhaps another $6 trillion — it’s too soon to tell. The Fed already owned $2.5 trillion of U.S. government bonds in 2019, and now it owns $3.7 trillion worth and is a buyer of U.S. corporate bonds and ETFs. Stocks are likely to be next.
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