America Raises the Debt Ceiling ... As the World Turns to Precious Metals

by Lear Capital EditorialJanuary 24, 2013

The US House of Representatives just voted to raise America's Debt Ceiling again for the 95th time overall and the second time in the past two years. It appears likely to pass the Senate and capture the President's signature. The increase in the debt limit, which extends through mid-May, enables the government to continue to borrow money to avoid default and pay the bills that it has already incurred. The newly approved measure also requires both the House and the Senate to pass a budget resolution by April 15th or have their pay withheld which sets the stage for some interesting face-offs in the months to come.

So, with a quick up or down vote, Congress has agreed to issue and sell more US treasury bills, notes, and bonds ... creating a deeper re-payment obligation and a greater national financial liability. This is the world of modern debt. We create paper promises, backed by paper intentions, and signed by paper decree. But isn't this idea of incurring debt to pay bills analogous to taking out a new credit card to pay an old one or getting a short-term loan to pay a long-term loan? While we left ourselves little choice and had to avoid the shock waves of a government shutdown, there are serious consequences to our continued borrowing.

America's current public debt is now approaching $16.5 trillion with almost half held by foreign investors, the largest being China and Japan. The more debt we incur, the more uneasy our investors become and the larger the interest payments they seek. The US government currently borrows 46 cents for every dollar it spends.

So what does all of this mean to your financial portfolio, 401K, or IRA? There is perhaps no greater shout out to diversify into tangible assets than the deafening screech of the Debt Ceiling rising. It clearly translates to more government borrowing, more interest against that borrowing, and a weaker dollar. Simply stated, debt undermines confidence in our financial system and that sends investors flocking to the security of precious metals.

Demand for gold, in particular, tends to increase in response to the floundering of fiat currencies ... and since the dollar is the world's reserve currency, when it falters, monetary systems across the globe feel the fallout. Gold has a solid history of holding its value through economic hardship and remains one of the best wealth protection assets that the world has ever known.

So, we believe that the temporary extension of the Debt Ceiling merely lengthens the unfamiliar road that we all must walk into America's financial future. We expect demand for gold and silver to rise in response to this new round of fiscal uncertainty and for precious metals to continue to be the solid, tangible assets of choice for investors seeking to diversify their portfolio and provide a safe haven for their retirement and their future.

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