Record High Debt And Record Low Yields Are A Boon For Gold

For the 2020 fiscal year, the federal budget deficit is expected to hit a massive $1 trillion—the first time in U.S. history that it will have expanded so rapidly in a time of peace and prosperity.

The most recent estimate by the Congressional Budget Office (CBO) puts total federal debt at a whopping 144 percent of gross domestic product (GDP) by 2049. This level of debt is not only unprecedented but also unsustainable. It puts everyone’s financial security at risk.

U.S. Public Debt as  Percent of GDP

And if you’ve been keeping up with the Democratic presidential debates, things could get even worse. Medicare-for-all, the Green New Deal, reparations—these programs, while admirable and potentially beneficial, would add trillions more to the already-ballooning national debt.

Remember, it’s the policies that we should be paying attention to, not partisan politics.

Years ago, it might have taken $1 trillion to move the U.S. economy by 2 percent of GDP. What is that number today? It might take $10 trillion or more.

U.S. Trade Deficits With Top 10 Trading Partners, July 2018 vs. July 2019

Low, Low Corporate Bond Yields Encourage Record Borrowing

Speaking of debt, you may have heard that a record number of companies last week sought financing in the bond market. It’s no coincidence they rushed to the trough all at once. Average yields for investment-grade corporate debt are near an all-time low right now, making borrowing very inexpensive and attractive. Apple, Deere, Walt Disney and Coca-Cola were among the record 49 companies that issued as much as $54 billion through this past Wednesday. Apple alone sold $7 billion, its first bond deal since 2017.

U.S. Investment-Grade Coporate Bond Yields Are Nearing Record Lows

Historic Currency Debasement Calls for a Shot of Gold

Yields are at historic and near-historic lows, and they could be heading even lower sooner rather than later. The question you must ask yourself is how you will be positioned going forward.

In a recent blog post, Rick Rieder, chief investment officer at BlackRock, writes that we could be at what he calls the “monetary policy endgame.” In recent years, central banks have deployed nearly everything in their arsenal, including zero and negative interest rates and quantitative easing (QE). The last stage could very well be extreme currency debasement. For that to happen, rates would need to be taken deeper and deeper into negative territory as economies compete for the weakest currency.

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Linda Willis 1 week ago Member's comment

You really think #gold will hit $10,000 an ounce? When do you think that would be?