I often write about PRICE is what you pay-VALUE is what you get- a famous Warren Buffett quote.
I believe it is of great importance to keep this in mind particularly now as it appears that we are nearing the end of a gruesome experiment that has tainted all price discovery for decades now.
The problem that we are currently running into is that the cure for the 2008 debt crisis- which was to issue more debt- has become an albatross for the economy and now even for the government which is finding it harder and harder to fund the massive deficits.
We are getting near the point where so much is owed that all else suffers as we are forced to service the debts we have run up at the expense of many other much needed projects. Of course, there is always enough “money” for wars and freebies to those in favor today. Don’t forget that with each handout from the government more debt is issued and we-all of us- become more impoverished because of either higher taxes or “printed” money which drives the price of goods higher. Inflation.
How bad is it? Let’s see what the numbers are saying:
Personal debt in the USA has risen to $17.7 TRILLION and delinquencies are rising according to the New York Federal Reserve. Household debt has increased 25% in just the last 3 years. This shows that this debt is getting harder and harder to service as we are seeing lower real wages, higher prices and debt being used to pay other debt. Auto loans and credit card debt appear to be entering into a hockey-stick trajectory for delinquencies.
Our national debt- which does NOT include off-budget items like wars, etc. is poised to breach $35 TRILLION for the first time in a matter of days or weeks. With rising interest rates, we are now paying more for our interest expense than we spend on Veterans services, Transportation and Education COMBINED. As a matter of fact, we spend more servicing debt than on national security (Defense) and Medicare. (US Treasury). Add in the unfunded liabilities for social security, Medicare, prescription drugs, etc. and our actual debts are nearly unimaginable at over $200 TRILLION.
In my opinion we are IN a debt death- spiral which will be obvious to us all in the near future. Elon Musk has said that unless steps are taken to slow down the national debt the dollar will become worthless. Actually, it really already IS worthless but because there is still demand for it in international trade it has PERCEIVED, if not real value.
Analysts at the University of Pennsylvania- along with many respected economists like Ken Rogoff have shown that once you get to 100% debt to GDP it stifles growth. At 200% there is no way to stop default. According to USDebtclock.org our debt to GDP is 122.26%. The reason this is grossly misleading is that GDP includes government spending (debt listed as growth) and also that “money” gets spent into the economy. I have seen reports that this accounts for nearly 34% of GDP.
If we take the $28.45 TRILLION GDP number and take that 34% phantom spending out it would reduce GDP to 18.8 TRILLION- and that is likely still too high but would make our debt to GDP actually 185%. Not pretty.
In the meantime, anyone who thinks higher taxes will help keep this in mind. While those “in charge” pretend that taxing the rich would help, the top 1% already pays 45.8% of all taxes, the top 10% pay 75.8% of all taxes. The top 50% pay 97.7% of all taxes. Let’s also realize that every dollar taken from us in taxes in one less dollar that can be used to spend on anything thus reducing economic activity even more.
As the economy craters and even successful people earning good incomes have a hard time making ends meet, we are told “all is well!” We hear about STRONG jobs numbers even though we have LOST millions of full-time family-supporting jobs and added millions of part-time jobs. These are the jobs that are likely temporary, transitory and provide NO BENEFITS.
I have often written about how with each manipulation the difference between PRICE and VALUE gets wider and wider. I have also said that with each intervention it has to be larger than the last one to get the same impact. The interventions are so large at this time that the numbers are mind numbing.
The reason all of these numbers are so important is that when the music (issuing more debt to manipulate all prices and continue the façade of a vibrant economy) stops, real price discovery WILL take place- stunning most but for those prepared could offer an opportunity to create life-changing wealth.
Below is what has been taking place for decades but is at a point right now where the anticipated “cliff” that I have been writing about for years is now coming into view.
I also believe that is imperative that you know that just as those “assets” being artificially propped up for decades are re-priced to reality the same will go for those assets being artificially suppressed but in the OPPOSITE direction. This should give those positioned correctly an opportunity to purchase assets that could appear cheap because you will likely have purchasing power when most will likely not.
As hockey great Wayne Gretzky used to say- you don’t go where the puck is now but where it is going to be. Keep that in mind. The situation is getting more clear day by day as the constant beatdown in the metals markets are clearly still evident on the charts but are not having anywhere near the impact that we have seen in the past as central bank buying is now overwhelming the manipulation attempts. The physical market is, in my opinion, in the process of restoring price discovery from a system that uses a derivative (paper gold contracts) to manipulate the price of the real asset. This is done in full view of all and with very few consequences because it is done to further the illusion of US dollar strength. You can tell “dollar strength” is an illusion when you look at what you are paying now versus just a couple of years ago. It was also just reported that the Fed has added over $400 BILLION to the money supply in just 2 months.
While the Fed and their cronies at the major banks keep metals prices FAR lower than supply and demand would suggest the other central banks are more than happy to have the price suppressed as it allows them to buy more for less cost.
Without the trillions of dollars (and other fiat currencies) being conjured up out of nowhere to give the illusion of prosperity and a thriving economy the general population would be keenly aware that we are in a full-blown economic implosion. The Trillions- and in some cases hundreds of trillions (Japan as an example) have been being used to keep the populace content and clueless.
It appears that when reality strikes it will be a historic event. I believe it will be quite a cautionary tale.
Be Prepared!
Securities offered through Raymond James Financial Services, Inc. member FINRA/SIPC.
Please visit https://www.raymondjames.com/legal-disclosures/social-media-disclaimer-icd for Additional Risk and Disclosure Information. Raymond James does not accept private client orders or account instructions by email. This email: (a) is not an official transaction confirmation or account statement; (b) is not an offer, solicitation, or recommendation to transact in any security; (c) is intended only for the addressee; and (d) may not be retransmitted to, or used by, any other party. This email may contain confidential or privileged information; please delete immediately if you are not the intended recipient. Raymond James monitors emails and may be required by law or regulation to disclose emails to third parties.
Investment products are: Not deposits. Not FDIC or NCUA insured. Not guaranteed by the financial institution. Subject to risk. May lose value.
This may constitute a commercial email message under the CAN-SPAM Act of 2003. If you do not wish to receive marketing or advertising related email messages from us, please reply to this message with “unsubscribe” in your response. You will continue to receive emails from us related to servicing your account(s).
Without the trillions of dollars (and other fiat currencies) being conjured up out of nowhere to give the illusion of prosperity and a thriving economy the general population would be keenly aware that we are in a full-blown economic implosion. The Trillions- and in some cases hundreds of trillions (Japan as an example) have been being used to keep the populace content and clueless.
It appears that when reality strikes it will be a historic event. I believe it will be quite a cautionary tale.
Be Prepared!
Any opinions are those of Mike Savage and not necessarily of those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information in this report does not purport to be a complete description of securities, markets or developments referred to in this material. The information has been obtained from sources deemed to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
Commodities are generally considered speculative because of the significant potential for investment loss. Commodities are volatile investments and should only be a small part of a diversified portfolio. There may be sharp price fluctuations even during periods when prices are overall rising.
Precious Metals, including gold, are subject to special risks including but not limited to price may be subject to wide fluctuation, the market is relatively limited, the sources are concentrated in countries that have the potential for instability and the market is unregulated.
Diversification does not ensure gains nor protect against loss. Companies mentioned are being provided for information purposes only and is not a complete description, nor is it a recommendation. Investing involves risk regardless of strategy.
