The Debt Ceiling and the Ticking Time Bomb

Gold Market Discussion

“We are right now sitting on a bubble that’s going to explode and it’s going to be a real bad situation, and we better get rid of the debt and we better straighten ourselves out because we have debt on debt on debt.”

Presidential Candidate Donald Trump, April 2016

The debt bomb is ticking.  

That’s because nothing will stop Washington’s spending.   Nothing.

Watch the Democrat debates.  They don’t even mention the debt.

Not a word.  Not one.

Nor do the moderators of their debates, the Democrat’s media allies, mention it.

Not a word.  Not one.

So, Washington will be raising the debt ceiling again soon.  

But, of course, it’s not just the fault of Democrats.  The Drudge Report just prominently featured a Daily Caller report that not only do the websites of the Democrat candidates not mention the debt, “The ‘Promises Kept’ section on President Donald Trump’s reelection website makes no mention of the national debt.”

There was a time when there was a Capitol Hill constituency for fiscal responsibility.  It was small, but at least it made some noise.  

There’s not much of a constituency like that today.

Some debt ceiling backstory:  In early 2018, the debt ceiling was suspended by Congress until a few months ago, March 1, 2019.  At that time the debt limit was reset to just over $22 trillion.  Since then, US government debt has officially stayed at that level.  How is that accomplished, since the government still spends more than it collects?

Since the beginning of March, the Treasury has used money shuffling techniques, “extraordinary authorities,” to pay its bills.  The Treasury believes that it can keep this shell game going until October.  As we pointed out last week here, Nancy Pelosi thinks that may not be able to keep it up longer than August.  After that some programs would be scaled back, some payments would go unmade.

Either way, Congress will be forced to raise the national debt ceiling soon.  

The debate on the debt ceiling increase comes at a time of the most divided Congress and the polarized electorate in recent memory.  The debate could be rancorous and bitter. That would involve some horse-trading on votes and even agreement on new government spending programs, come more crony deals, to corral the votes necessary for passage.  

Or lawmakers could just close their eyes and hope the issue will go away.  One proposal is to simply suspend the debt ceiling for 2 ½ years – to take the issue off the table during the elections season in 2020.  After all, the nation’s solvency takes a back seat to the real issue politicians care about on both sides of the aisle:  REELECTION!

The net effect of another suspension or of a protracted fight “solved” with new spending initiatives that are unpaid for, will be serious questions about US solvency in financial centers around the world.  Already foreign central banks are moving away from the dollar and to gold.

New questions about US solvency cannot be comfortably answered.  In fact, the only real answer to how debt that comes due today can possibly be paid is by issuance new debt tomorrow.

Or by printing more money of no intrinsic value.  

That is why gold marches up in lockstep with the rising debt ceiling.  

The historical correlation between the rising debt ceiling and higher gold prices is very strong.

The dollar is backed by nothing but debt.  But gold is real money.


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