Investing.com - The Global Debt and Gold Solution

Article by Andrew Lane in Investing.com

Monday marked the day that the Treasury Department began conducting emergency cash-conservation steps to avoid breaking the Federal borrowing limit after a two-year suspension of the debt ceiling expired at the end of July.

These “extraordinary” measures will allow Treasury to pay off the government’s money without floating new debt for a period of two to three months. Following this, Congress will need to either raise or suspend the borrowing limit or risk the U.S. defaulting on its obligations.

So that leads us nicely on to what also happened in the last few days which has been the long tabled Infrastructure Bill, a plan by the Biden Administration which has come to near fruition. It is alleged that the document containing the information is north of 2,500 pages; so don’t expect it to be settled in the morning. The figure is muted to be in and around the $1 trillion level.

It is worth pointing out that this bill does not include funding for climate change and social initiatives. Democrats have included this in a separate $3.5 trillion package, which they will aim to pass without Republican support. Putting to one side the politics, these are staggering numbers that the US doesn’t have. Coupling this with the many trillions spent since the pandemic in stimulus, which shows little sign of stopping any time soon, and the question remains how will the US fund it?

Basic stats don’t make for good reading: The US has a budget deficit the thick end of $3 trillion, a debt to GDP ratio of 129% and a national debt approaching $29 trillion. The world debt to GDP has surpassed 300% so really the US numbers don’t look so bad! But they are. They are really bad.

The blasé way that debt seems to be just shrugged off is so brazen. Alan Greenspan’s claim the US will never default, as they will just continue to print money seems to be the blueprint for Treasury Secretary Janet Yellen who appears of the same ilk. But how does it end? Well if history is anything to go by, badly.

You don’t need an economics degree to understand that you cannot borrow more than you can afford to pay back. This becomes known as insolvency. Unless of course there is a plan to pay it off.

So what have the world leaders and central banks been doing for the last few years? Borrowing more and buying gold, respectively.

So ask yourself this: Why are the US (and other major countries) spending ludicrous amounts of money they don’t have in such an audacious manner? Why was Basel III introduced and why does gold play such a key role?

The answer no doubt lies ......

To read this article in Investing.com in its entirety, click here.