By Patrick A. Heller
Commentary on Precious Metals Prepared for CoinWeek.com
As we come to the end of the calendar year, it is good to do an overall synopsis of what the US government will unleash on the American people in the coming year.
No matter the temporary wrangling in Washington over the “fiscal cliff,” the federal budget deficit on the more accurate accrual basis of accounting will be at least $5 trillion. That will be about one-third of US Gross Domestic Product, a level that cannot be sustained.
It is not possible for the US government to keep piling more debt upon more debt indefinitely, yet maintain the interest rate on that debt at virtually zero. The Federal Reserve Bank has lately been reported to be buying about 90% of all of new US Treasury debt issues, which makes it possibly to heavily manipulate the interest rates. But something has to give eventually. Significantly higher interest rates in 2013 are a possibility.
Taxes are going up no matter what the politicians in Washington say. I have already heard that the higher Medicare co-pays taking effect in 2013 under the new health care law are exceeding the cost of living increase in Social Security for at least some people. What this means is that the net Social Security payments received by some senior citizens are declining from 2012 levels.
A recent International Monetary Fund report states that even the smallest increase in federal taxes from current levels will have the effect of knocking down the US economy. You might think that politicians are supposed to be looking out for the best interests of the American people, but you would be wrong. For instance, President Obama has stated that some tax rates must increase, even though the federal government would lose tax revenues in doing so, because it is what he calls “fair.”
Beyond raising taxes, also expect the federal government to become more aggressive at enforcing tax collections. The huge expansion of Form 1099 reporting in the health care law that would have forced almost 40 million businesses, non-profits, and government agencies to file billions of extra forms starting in 2013 was repealed. But look for the IRS to start using more technology to compare credit reports against tax returns and other privacy violations.
One of the scariest stories that the US media seems to have buried is a major policy change at the International Monetary Fund (IMF). Over its history, the IMF has advocated unrestricted flows of money across national borders. Now the IMF has changed its policy to endorse the use of capital controls by countries in certain circumstances. One of these circumstances is where the federal government has already reduced interest rates so low that they cannot be cut further. Mexico imposed capital controls a few months ago. It wouldn’t be much of a stretch to see many more nations doing so in 2013, including some form of it in the US.
In the past decade or so, politicians in Washington seem to have latched onto the need to fight wars as an excuse to avoid blame for destroying the US economy. Unfortunately, there is a significant prospect that the US could be directly fighting wards in Iran and/or Syria in 2013, plus other possibilities. New wars will damage the US economy even more than the politicians are doing to Americans.
Even scarier, in 2013 look for more people to become dependent on the US government for entitlement payments. Michael Barone of RealClearPolitics.com has shared some sobering figures. From 1960 to 2011, the number of workers receiving disability payments from the federal government increased about 18 times. The percentage of economically active 18-to-64 year olds receiving disability benefits rose from 0.65% to 5.6%. Just form 1996 through 2011, while the private sector created 8.8 million new jobs, another 4.1 million people were added to the disability rolls. Further, more younger people are now collecting disability. In 2011, 15% of new disability recipients were in their 30s or 40s.
Finally, in 2013 look for more private investors to be defrauded of their assets held by brokerage firms such as was done by MF Global Holdings, with the federal judiciary letting the crooks get away with it.
What all this means is that you cannot count on the US government to take prudent actions to benefit the American people. It is up to each of us to take responsibility for our own wealth preservation. As each day passes, unfortunately, it seems like the available options are becoming more restricted.
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.
No, I do NOT think it will stay there, but as I type this, silver has plunged under the $30 mark again. Year-end selling by funds looking to lock in gains or losses, depending on when they went long. That’s now several years running with significant year-end moves that don’t square well with fundamentals.