After years of mostly ultra-low interest rates, rampant money printing, reckless deficit spending, and, as a result, runaway inflation, the Fed raised interest rates considerably to address the high inflation, which has since gone down.
But when interest rates are at this level, it causes a serious dilemma.
Servicing the nation’s debt is growing more and more difficult—if not impossible—at the current interest rates. How can you pay off debt when you need to go deeper into debt to pay it off?
The more they borrow, print, and spend to help ease the debt payment burden and systemic stress, the heavier the debt burden and systemic stress become.
And the harder it becomes to fight inflation.
Round and round it goes.
We’ve all seen and felt the ripple effects:
After downgrading the outlook on US credit rating to “negative,” S&P Global Ratings warned they may “lower the US credit rating by another notch” if the US’s fiscal situation gets worse.
The national debt is ballooning past $36 trillion…
The interest payments alone have skyrocketed to over $2.6 billion per DAY…
And the Congressional Budget Office says those interest payments will become the biggest bill for the federal government behind only Social Security and Medicare by 2028.
So, where will they get enough money to pay the government’s growing debt tab?
According to the Peterson Foundation, tax receipts are too low to cover the bill.
This means the Fed may have to print more money.
If they do, the nation may face even more debt and inflation.
Round and round…
Hedge fund billionaire Ray Dalio warns of an “impending debt crisis,” and says “Such a crisis occurs when the constriction of debt-financed spending happens, like a debt-induced economic heart attack.”
And he is joined by Ken Rogoff, Harvard professor and former IMF chief economist, who told Goldman Sachs that “Today’s larger deficit on top of already-high debt levels is setting up for a crisis that will necessitate a significant adjustment.”
At this point, there are no easy solutions that don’t involve major pain to the country and to its citizens.
Fortunately, gold is shining bright behind the scenes.
Although it’s downplayed by some financial advisors and rarely mentioned in the mainstream media…
For centuries, gold has been a store of wealth and a preserver of purchasing power for investors who understand the challenging tendencies of printed currencies.
And for gold owners, this may be old news…
But it’s worth repeating:
The US dollar was backed by gold until Nixon ended dollar convertibility to gold in 1971.
Sandra Ghizoni of the Federal Reserve Bank of Atlanta says he did it to “address the international dilemma of a looming gold run and the domestic problem of inflation.”
Maybe so.
Since then, the dollar has been backed by the faith and credit of a government in debt, the dollar’s purchasing power has tumbled more than 85%, and though the Fed’s rate hikes have slowed inflation’s growth, consumer prices are still soaring.
What does this mean for the dollar’s future?
Nobody is certain.
But governments and central banks make real decisions that affect real citizens, and…
They are “The Smartest Money”
Central bankers have their fingers on the economic pulses of their respective nations.
And right now, they’re hoovering up and hoarding gold in record amounts.
The US dollar has historically been their main reserve currency. They know gold tends to benefit when the dollar’s purchasing power wanes. So, they’re buying as much gold as they need to hedge against lost purchasing power and growing economic uncertainty.
Remember:
Physical gold can act like insurance for your money because its price tends to rise as the dollar’s purchasing power falls.
And with so many global economic and geopolitical challenges converging at once right now…
It may be time to pause, reflect, and ask yourself, “Are my finances prepared for what may be coming our way?”
If the answer is unclear…
Give us a call. Speak with a gold specialist and get the clarity you need to diversify with confidence.
May you be safe and well during these uncertain times.
Todd Sawyer, Director of Client Education
Colonial Metals Group