By Patrick A. Heller
Commentary on Precious Metals Prepared for CoinWeek.com ……..
In the previous two weeks, the US Treasury has been forced to pay out a net of $65 billion to cover US dollars and US Treasury Debt being repatriated. Some amount of this is almost certainly 1) in retaliation by the Russian and Chinese governments over sanctions related to the dispute over the Ukraine and Crimea, and 2) international uncertainty over the ability of the US government to enforce its will over this dispute.
The last I knew, there were about $12 trillion of US dollars and US Treasury debt held by foreign governments, central banks, and citizens. The US government has long since spent the funds received when this currency and debt were issued. Today, it has almost no ability to stop a run if these holders want to cash in en masse.
Although you probably won’t see it discussed in most of the US media, the US government is suffering a financial crisis as foreigners continue to reduce their holdings of US dollars and US Treasury debt. China still holds the largest hoard of US Treasury debt, but it stopped increasing its holdings more than a year ago. Instead, China has been slowly reducing its US Treasury debt holdings.
On the more accurate accrual basis of accounting such as required by large private companies, the US government is running annual budget deficits of $4-8 trillion. This is much larger than the numbers reported under cash flow basis governmental accounting standards. These massive budget deficits, coupled with America’s status as the world’s largest debtor nation, means that the US government no longer can defend the value of the US dollar as it could in decades past.
With annual accrual basis federal budget deficits running over 30% of Gross Domestic Product, total US government debt and unfunded liabilities now exceed 100% of the entire value of all assets owned by Americans.
That’s right! If the US government seized every asset of every American, that would not be enough to pay off its existing liabilities.
Does this matter? Absolutely. That means that it is up to each American to take responsibility for their own financial well-being because the government cannot do it.
In turbulent times (which includes most of history) the safest assets to own are tangible assets—those that in this national do not depend on the survival of the US dollar or US dollar-denominated stocks or bonds.
Will the US dollar collapse? The track record of every currency in history thus far is that they all have eventually failed. There is nothing magical about being the US dollar that would make it an exception to the pattern. The question really becomes a matter of when the dollar will fail. Right now, its long-term survival is a shaky proposition.
Since we live in a US dollar economy, Americans cannot avoid using dollars in day-to-day transactions. However, many people can acquire tangible assets whose existence will not end if, I probably should say when, the US dollar collapses.
Real estate will have value, but it is not portable. Physical precious metals like gold and silver are portable and have never failed as a money and store of value over thousands of years.
The number one reason to own physical gold and silver is for insurance against risk of future calamities crippling currencies, stocks, and bonds that you might own. According to one analyst, had you allocated about 15% of your total investments into physical gold or silver at the depths of the 2008 US recession and the rest into stocks and bonds, you would have enjoyed about the same return with greater security and less volatility compared to a 100% paper asset portfolio.
For more than three decades, it has been my pleasure to help thousands of customers protect their financial well-being through owning physical gold and silver. As measured against the US dollar, many are in a huge profit position.
When the Far East currency crisis hit in 1997, Indonesian citizens who only held paper assets were largely wiped out. On the other hand, those who owned gold saw their standard of living largely unaffected. As the US dollar continues to decline over time, what would you trust? A politician’s promise? Or an ounce of physical gold or silver in your immediate possession?
Patrick A. Heller was honored with the American Numismatic Association 2012 Harry J. Forman Numismatic Dealer of the Year Award. He owns Liberty Coin Service in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Numismaster (http://www.numismaster.com under “News & Articles) and at http://www.coininfo.com. His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com. He is also the financier and executive producer of the movie “Alongside Night” (go to http://www.tugg.com/titles/alongside-night for a list of scheduled theatrical showings across the country and to purchase tickets).
Great article, Patrick. While our official national debt to GDP ratio is over 100%, the current debt situation is actually much worse than most people realize. According to Dr. Kotlkioff from Boston University, the present value of future unfunded liabilities is over $200 trillion. A recent interview with Dr. Kotlikoff can be found at the following link: http://www.financialsense.com/contributors/laurence-kotlikoff/government-conspiracy-hide-us-debt-burden.
If Dr. Kotlikoff is correct, which I believe that he is, default is inevitable. As to how we’re going to default, that remains to be seen. It could be an inflationary default by devaluing our currency or an outright default. I have some other ideas as to how a default might occur, which I’ll plan on addressing in a future article.
In the meantime, keep up the good work and continue to spread the word on the importance of investing in gold and silver.