Extreme Ratios Point to Gold and Silver Price Readjustments / Commodities / Gold and Silver 2021

Kickingthe can down the road is the new national pastime. Every time the government’sbills come due, officials at the Treasury Department find creative ways ofpaying them with money they don’t have.

Onemeasure of just how overextended the United States has become financially isthe debt to GDP ratio. For most of the country’s history, excluding temporarywartime blips, net general government debt tended to be less than 50% of theeconomy.

Asrecently as the early 1970s, debt as a percentage of GDP came in at under 25%.By the early 1980s, it grew to over 30% and fiscal hawks became concerned. Inthe 1990s, it climbed to over 40% and concern started morphing into alarm.

Lastyear, the U.S. official debt to GDP ratio topped 100% (1:1). In other words,taxpayers owe more than the value of everything they produce.

Thatspells doom for most countries. The International Monetary Fund issues direwarnings to Third World countries whenever they exceed a threshold of 70% ofGDP.

TheU.S. is different, apparently, thanks to the status afforded to the FederalReserve Note as world reserve currency. Up until 1971, that status was backedby a promise to redeem dollars held by foreign governments in gold.

Goldalso served to restrain spending and borrowing at the federal level.

Butever since President Richard Nixon rescinded gold redeemability, politicianshave been given a green light to run up debt without limit.

Ifthe Joe Biden White House gets all its spending proposals pushed through, anadditional $9 trillion will be added to the national debt. Barring a miraculouscorresponding surge in GDP, the debt ratio can be expected to continue trendingin the wrong direction.

Howlong officials in Washington can keep kicking the can down the road beforekicking it off a cliff is unknown. These are, after all, unprecedented times inwhich the “lender of last resort” Federal Reserve has virtually unlimitedpowers.

Butthe central bank can’t bail out Uncle Sam perpetually without unintendedconsequences. Staving off a debt crisis may mean triggering a currency crisis.

GoldIs Poised to Outperform the Stock Market

Duringmajor financial crises in history, gold has vastly outperformed paper assets.

Forexample, both the deflationary Great Depression and the inflationary late 1970ssaw the gold price reach a 1:1 ratio versus the Dow Jones Industrial Average.

TheDow trades at over 35,000 today, about 20 times the gold price.

Were the Dow:gold ratio torevert toward 1:1, either stocks would have to crash, gold would have to launchinto a super-spike, or some combination of both.

Giventhe tremendous inflation pressures currently exerting themselves in theeconomy, the late 1970s may be the best model for what to expect going forward.

Itwould mean rising price levels combined with a weak economy (stagflation).

Andgiven that our debt load today is more than four times greater as a share ofthe economy than it was in the 1970s, investors should brace for the potentialof a far greater financial crisis.

Inthe event that plays out in the form a crash in the value of the U.S. dollar,gold will obviously serve as a premier safe-haven asset.

SilverIs Poised to Outperform Gold

Stefan Gleason isPresident of Money Metals Exchange, the national precious metals company named 2015"Dealer of the Year" in the United States by an independent globalratings group. A graduate of the University of Florida, Gleason is a seasonedbusiness leader, investor, political strategist, and grassroots activist.Gleason has frequently appeared on national television networks such as CNN, FoxNews,and CNBC, and his writings have appeared in hundreds of publications such asthe Wall Street Journal, Detroit News, Washington Times, and National Review.

© 2021 Stefan Gleason - All Rights Reserved
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