Kicking The Can Down The Road (As Usual)
Congress has reportedly reached a deal to avoid a debt crisis as the U.S. approaches the point it runs out of cash. Democrat Chuck Schumer announced today that Democrats and Republicans had reached an agreement on raising the debt ceiling by $480 billion. The agreement hikes the government’s borrowing authority until early December at which time a long-term deal must be reached or a stop-gap measure put into place.
The removal of the immediate threat to the U.S. fiscal situation is driving a rally in equities today, with the benchmark Dow Jones Industrial Average up by 500 points in mid-morning trade. The gold market is slightly lower today as the threat removal may deter some from buying gold and may fuel desire for higher risk assets such as stocks.
The question, however, is whether Congressional leaders will be able to reach a long-term agreement that works before the December deadline. With the debt ceiling already approaching the $30 trillion level, one has to wonder if the government even cares about it at this point. $30 trillion is, after all, a lot of money. Some might even say that the deficit is insurmountable and can only possibly be repaid through currency devaluations or other major methods of action. Whatever the case may be, the U.S. Government certainly has an issue on its hands and that issue will need to be dealt with at some point-the sooner the better.
Deficits have become a way of life for the U.S. and many other governments across the globe. These deficits have been a major component of much of the wild market speculation seen in recent years, even decades. Once the bill becomes due things are likely to take a major turn, however, and that turn could rock global financial markets to an extent that has not been seen before.
The debt crisis is exactly that: a crisis. When the crisis comes to pass, it is going to hurt. That makes now the ideal time to acquire and build a portfolio of assets that may outperform during such a period. Assets that can not only hold their value but may increase in value are ideal. Assets that can be held in your hand and cannot be manipulated
by the government. Hard assets such as physical gold, silver and other metals may provide relief from the debt crisis once it hits. These assets cannot default, declare bankruptcy or otherwise disappoint their holders. Their value is determined by the laws of supply and demand and cannot be manipulated through central bank magic.
The price of gold has been and may continue to be sideways for some time. Current prices may not be seen again, ever, however. Once the market takes off, it could make fresh all-time highs that far exceed current highs. With no upside chart pressure on the metal, it could easily run higher to $3000, $5,000 or even $10,000 per ounce or more in a matter of weeks.
Let the government kick the can down the road, but keep the long-term consequences in mind and invest accordingly.