By Patrick A. Heller
Commentary on Precious Metals Prepared for CoinWeek.com
The magazine The Economist has just issued their annual economic review, this year titled The World in 2013. The issue does cover a number of social and political issues. Among the highlights are individual forecasts for economies of 79 of the larger nations.
A commonly repeated observation in issues of The Economist is that nations whose governments run budget deficits of 5% or more of Gross Domestic Product (GDP) for multiple years are not sustainable. Either the government fails, or the economy crashes, or the currency collapses.
Sadly this review forecasts that governments of 16 of the 79 nations will run budget deficits of 5% or more in 2013. Here is the list.
Nation Forecasted 2013 Government Budget Deficit As A % Of GDP
United Kingdom -7.8%
Sri Lanka -6.9%
United States -6.6%
South Africa -5.0%
Keep in mind that these projected budget deficits are calculated on a cash flow basis rather than the more accurate accrual basis of accounting that large privately owned companies are required to use. The accrual basis American budget deficit is likely to again exceed $5 trillion in 2013 instead of the cash flow deficit of just over $1 trillion. Therefore, the actual US Federal government deficit in 2013 will actually be at least 25% of GTP and may exceed 30%.
Obviously, that insane size of a budget deficit indicates that the US government, or the economy, or the US dollar is destined to collapse in the not too distant future. Perhaps all three will fail. The US government, on an accrual basis, currently spends about $7.5 trillion per year, as calculated and reported by USA Today in May 2012. In order to reduce spending to equal revenues, the federal government would have to cut expenditures by 70%.
In all the wrangling over the so-called fiscal cliff, no politician is discussing tax increases or cuts in spending anywhere close to these levels. Therefore, whatever last minute deal the Democrats and
Republicans will probably pull off will not prevent this looming catastrophe.
Beyond the horrible outlook, the simple fact that 15 of the other nations, including heavyweights such as Japan and the United Kingdom, are facing government budget deficits of 5% or more is a sign that financial crises could worsen around the world. For instance, three nations in the Eurozone are on this list, which puts the Euro currency in a precarious position.
By the way, the report identifies nine nations that are likely to have governmental budget surpluses of at least 1% in 2013. Out of these nine, seven countries derive substantial revenues from exports of commodities such as oil and silver. The other two nations experiencing surpluses are South Korea (2.6% of GDP) and Hong Kong (1.1%). Both South Korea and Hong Kong have tax levels far below those of the US. But don’t hold your breath hoping for the politicians in Washington to understand this.
When Americans and people around the world are scrambling to get out of US dollars, and this is already happening, you can be sure that owning gold and silver will be popular alternatives. If you don’t already hold an insurance position of precious metals, how long will you risk waiting?
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 (under “News & Articles) . 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.
Insurance? Yeah, sure, fine. I have insurance, but I don’t spend all I have on it. The hyperinflation boogeyman remains a figment of Heller’s (and other hard money ideologues’) imaginations. The predictions are always in the intermediate term, yet nothing ever happens. U.S. consumer prices FELL in November. No, the rate of increase didn’t fall, aggregate PRICES fell – for the first time in 6 months. For the last 12 months, inflation is 1.8%. OMG, where did I put my Ford administration WIN button?!?!? Surely the dollar is doomed. Pffft!
Keep selling Chicken Littleism to the unwary, Patrick. The pros are calling for a MAJOR correction in gold in 2013. They’re talking $1200 or lower SERIOUSLY. Some are serious about $800-900. Why? Higher taxes, which seem to be coming for some at the top, make inflating the currency less necessary and depress domestic demand for gold, while India’s and China’s demand levels continue to implode.
With all due respect, when you quote statistics, please quote them accurately and not through distorted rose colored glasses. The Bureau of Labor Statistics for the past several years has almost always quoted changes in US consumer prices by excluding food and energy costs. To be consistent, you need to acknowledge that the the BLS, omitting food and energy costs, reported that consumer prices actually increased in November. True, it reported the lowest increase in many months, but an increase nonetheless. Yes, the BLS buried this information in the fine prin. But, is it accurate for the BLS to put in a headline whichever number looks better for the month or should they report on the same basis from month to month?
Speaking about consistency, the BLS has a record of changing the methodology for calculating changes in consumer prices. Methodologies do need updating (who still buys tongue and groove flooring lumber?) but somehow every time the BLS updates the formula, it always has the effect of reducing consumer price increases. Using old BLS methodologies to current data always show higher consumer price increases.
Also, are you going to argue with the Federal Reserve Governor (sorry, I don’t have the specific one at the tip of my tongue at the moment) who explained in an interview about 2-3 months ago that if the soaring banks assets invested with the Federal government were instead dispersed to the public, consumer prices would soar from current levels?
It is true that the current sentiment towards gold is near record negative levels and has discourage demand in the past couple of weeks. But my company’s sales in September were the highest month thus far in 2012. October beat that, then November clobbered that easily with the surge in volume starting within 48 hours of the election. So, the question is, how much more negative can gold sentiment fall in order to accomplish any major price drop? Those who claim gold is headed for a 25% or more drop in price don’t provide the mechanism how that could possibly occur. Where will the supply come from to knock down the price?
You also need to quote correct information about India and China gold demand. India had lagged prior year numbers for a good part of 2012, but not over the past month. China has long since set an annual record high annual gold demand in 2012. What are your sources that allege otherwise?
My source is month after month of news stories from the very same magazine, The Economist, from whom YOU cherrypicked convenient information. I am an audio subscriber to The Economist, which I listen to during my train commute. You, as much as anyone, should be aware that they are NO FANS of neoconservative economics, and are ardent Keynesians.
By the way, Patrick, I FULLY agree about the impact of the proceeds of QE(whatever) getting outside the ultra-banks’ balance sheets – it would be HIGHLY inflationary, radically so. Two comments, though. 1) They seem unwilling to let go of those funds any time soon, if ever, and 2) If that event were matched with its countervailing lever, sudden tightening of monetary aggregates, interest rates on fixed income securities would spike and metals would suddenly look HORRIBLE by comparsion, sending their prices to the pits of h*ll.
And Patrick, there almost are no economists left that are NOT predicting a “hard landing” for China’s economy, along with a full-on collapse in gold demand coming from there. Not by tastes, no. They LOVE the stuff. The collapse in gold demand will be considerably “non-voluntary” and mandated by economic conditions. The “least ugly sister at the ball” right now seems to be the U.S. economy.
And yuppirs, the “market basket” of goods and services that make up the CPI is a constant “head scratcher”, for darned sure. There are multiple doctoral theses waiting to be written on getting that one thing correct. But what the inflation rate is FOR YOU depends on what you buy, right? I submit that for “eons”, the actual “felt” CPI for a 90-year-old and a 20-year-old are radically different things. How much of what belongs in there? If I commute by (electrified) train, does that much gasoline belong in my CPI? If I am an older male, which I am, do ob/gyn medical care costs belong in my personal CPI? It’s a vexing problem, but one thing I know for sure – for anyone who believes buying generic precious metals is a priority item in their lives, they’ve had a higher CPI than I have for over 10 years now.
Hold up this article as a “mirror” to see if the picture fits some of us in the ideological coin community – the “survivalist” element.
There is an element in our coin community with these fringe “survivalist” “prepper” tendencies. We need to be careful and circumspect about what crazy stuff we buy into.