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Metal Market Report March 2019 - Week 4 Edition

March 2019 - Week 4 Edition

Gold Predicted to Exceed $1,425 in 2019

Gold rose $10 per ounce last week while the Dow Jones index fell 350-points for the week, including a 460-point drop on Friday. The Dow continued down early Monday while gold added another $8 per ounce. The Dow has been treading water since setting its 2019 high on February 25, while gold and silver have been slowly rising. That’s partially because the Federal Reserve declared rather firmly that there will be no further interest rate increases this year, which should be bullish for gold, long-term.  Remember, Commerzbank predicted $1,500 gold in 2019 and Goldman Sachs predicted $1,425 gold by the end of 2019.  This would be great for the gold coin market.

The National Debt Will Soar as Politicians Ignore Spending Cuts While Promoting Massive New “Pork” Programs

Back in 1965, President Lyndon B. Johnson took silver out of America’s coins, partly because he didn’t want the discipline of any hard metals to stop his big spending plans. His Council of Economic Advisors was made up of “Keynesians,” disciples of the late British economist John Maynard Keynes, who told him (according to a new book, “Capitalism in America,” by former Fed chairman Alan Greenspan and The Economist editor Adrian Woolridge) that “the biggest problem facing the country was that the Treasury was raising too much money… and the government needed to find ways of spending money. Predictably, there was no shortage of ideas for doing the spending….”

As a result of that advice, LBJ added huge array of new Great Society entitlements – including Medicare, Medicaid, additions to Social Security, Aid to Families with Dependent Children (AFDC) and a War on Poverty, all on top of escalating Vietnam War costs. “Hell,” said LBJ at one point, “I’m sick of all the people who talk about the things we can’t do. We’re the richest country in the world. We can do it all.”

Now, more than 50 years later, Medicare and Medicaid alone are chewing up more than Social Security and all other entitlements combined, and the new crop of Democratic presidential hopefuls are calling for awesomely huge new spending programs of the size of FDR’s New Deal or LBJ’s Great Society.

For openers, there’s the Green New Deal, which would cost at least $93 trillion over the next 12 years (almost five years of GDP), including Medicare for all, free education and guaranteed jobs – not to mention retrofitting all our vehicles, buildings and even farm animals to be environmentally pristine.

To pay for this, there is a new Economic Theory called “Modern Monetary Theory” (MMT), developed by economist Stephanie Kelton, a follower of Bernie Sanders. MMT argues that governments which can borrow in their own currencies will never run out of money, because money is a promise, not a physical commodity. This sounds dangerously like “fiat” (printing-press) money, or what former Fed chairman Ben Bernanke called “helicopter money” (masses of money dropped from helicopters to make everyone rich). Hyper-inflation in Venezuela and Zimbabwe (or in postwar Germany or Hungary) doesn’t seem to bother advocates of MMT, but nations all over the world have over-printed money with disastrous results.

Writing in last Thursday’s Wall Street Journal (“The Debt Crisis is Coming Soon”), the chairman of the Council of Economic Advisers under Ronald Reagan, Martin Feldstein, wrote that “the most dangerous domestic problem facing America’s federal government is the rapid growth of its budget and national debt.” This year’s debt, according to the Congressional Budget Office (CBO), will be $900 billion, reaching $1 trillion by 2022, and this is during times of robust economic growth (+2.9% GDP growth in 2018, the best year of growth since 2005). What will happen to the deficit if a recession strikes?  This debt increase also comes at a time of historically low interest rates on the debt. What if rates were to rise?

The solution has always been to cut spending, but that is something no Congressman wants to discuss. In election campaigns, the only popular promise is to spend MORE on some pet project in the district or on some grand new plan for the nation. Nobody was ever elected on promising to bring home less bacon.

The only real solution is to stop the growth in entitlements with bold moves like raising the retirement age or slowing the growth in benefits, but that will also be a difficult sell for any politician in an election year.

Due to bad economic advice in the 1930s and 1960s, we are saddled with entitlements we can’t afford to pay, and now most politicians want to add more entitlements. There seems to be no way out but the fool’s gold of modern alchemy – printing more money to deliver these benefits. That will make gold and many gold coins winners over the long term.  Put simply, gold is (and remains) the insurance policy for the rest of your portfolio.


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