Is an Economic Crisis Brewing? If so, Now is the Time to Get Prepared!
We were recently perusing an aggregated online news site and were struck by the amount of negative financial headlines. We’ve attached a screen grab of the website so that our readers can see exactly what we were looking at. Approximately a quarter of the headlines warned of unsustainable debt and deficits, which oftentimes leads to a recession or even complete economic collapse.
Considering that we haven’t had a true recession since 2008 – 2009 (2020’s recession was three months), and recessions on average occur every seven years or so, this next recession is likely to be a doozy and one that may surpass the Great Recession and possibly even reach Great Depression-type levels.
This is not meant as a scare tactic, but should be viewed as a warning that we may be on the precipice of an economic collapse. Historically, gold and silver have been among the best performers during crises or economic uncertainty, and there’s no reason to believe that this next go around will be any different.
This article will be a little different than most of our previous articles, as we’re simply going to comment on some of the headlines to provide a bit more perspective and commentary.
U.S. Credit Card Debt Hits Record High
Approximately 70% of gross domestic product (GDP) is driven by consumer spending. How is the consumer doing at the moment? Unfortunately, not very well. This headline is a stark reminder that the average American is struggling financially. In fact, so much so that credit card debt is now at a record high level of over $1 trillion.
This same article also highlights the current student loan debt of $1.6 trillion. As you may recall, there was a temporary moratorium on student debt payments, which is no longer in effect. Beginning last month, student debt payments resumed, which on average are approximately $400 a month.
If credit card debt is already at record levels, imagine how the student loan repayments will affect the average American. Not to mention, interest rates on credit cards are near an all-time high, which makes it that much more difficult for people to service their debt payments. Even if they’re able to do so, most people may only be able to make the minimum payment, which means that the principal will never be paid off.
David Stockman – There is nothing left in the U.S. National Treasure
If you’ve never read David Stockman before, you’re in for a treat. While we don’t necessarily agree with all of his political positions, he is absolutely spot on when it comes to economics. Here’s a link to one of his most recent articles explaining why we don’t have the money to fund multiple wars and how government spending typically increases during wartime.
He gives an example of the increase in spending during the last world war. Just prior to World War II, government spending in 1940 was less than 10% of GDP, but skyrocketed once we entered the war and reached levels as high as 40% of GDP during 1944 – 1945. Regardless of where you stand on the multiple conflicts that we’re involved in; the fact of the matter is that war is extremely costly and will only add to our debt and deficits. Considering that there’s no end in sight to the Russia-Ukraine and Israel-Hamas conflicts, we can expect to continue to incur billions of dollars in expenses for the foreseeable future.
U.S. National Debt to surpass $50 trillion by 2033. National debt grows by $5 billion every 24 hours
At the time of this writing (early November 2023), our National Debt is $33.7 trillion, which translates to a debt to GDP ratio of 125%. In other words, we’re spending more than we’re producing, which is never a good sign for the fiscal health of a nation. One other fact to consider is that this is occurring during what is perceived to be a healthy economy, as is evidenced by the recently reported third quarter GDP of 4.9%. Considering that the economy grows on average 2% – 3% per year, nearly 5% is an extraordinary figure and one that should feel like the Roaring 20’s, but unfortunately, that’s far from the case.
Bank of America, referencing data from the Congressional Budget Office (CBO) recently reported that we’re on track to reach or surpass $50 trillion in National Debt by 2033 – a short 10 years from now. Granted, GDP will grow between now and 2033, so our debt to GDP ratio won’t be 200%, but it’s a safe bet that we’ll be at 150% or higher, which is among the worst in the world. As recently as the 1970’s, we were the leading creditor nation in the world. In a short 50 years, we’ve become the largest debtor nation in the world. This same article mentioned that estimated annualized interest on National Debt beginning last month is now at $1 trillion, the largest line item in the government budget.
Bank of America also noted that we’re adding $5 billion to the National Debt every 24 hours. If that sounds like a lot, that’s because it is. To put things into perspective, our National Debt when the market crash took place in 1929 at the start of the Great Depression was $17 billion. Amazingly, it’s now currently only taking 3.5 days to reach what took hundreds of years to accumulate from the founding of our nation.
Watch National Debt Clock for 10 seconds – Economic Collapse Indicator?
The next headline also helps to put our debt and deficit situation into perspective. Here’s a link to the U.S. Debt Clock, which shows the astronomical amount of debt that is accumulated in a mere 10 seconds. Out of curiosity, we took the challenge and counted about $270,000 in debt over a 10 second period. Granted, we didn’t have a stopwatch, but we imagine that it’s pretty close to being accurate.
When you consider that the top 5% of the population earns this amount per year and the government is racking up this level of debt every 10 seconds, it’s almost inconceivable to imagine how this much money can be spent in the time of a 100 yard dash! Unfortunately, there’s no interest on either side of the aisle to pass a balanced budget amendment, or God forbid, ever consider reducing our National Debt.
In other words, we can expect more of the same until or unless there’s a catalyst. That catalyst may end up being a complete loss of confidence in fiat currency, which may usher in a gold backed currency.
Central Banks are buying gold at record levels
Speaking of gold, when countries are concerned about the strength of their economy and currency, they begin to add to their gold holdings. Of course, this doesn’t apply to the West because we believe that our position as the world’s reserve currency somehow precludes us from suffering the effects of a loss of confidence by the public.
According to Schiff Gold, central banks continue to add to their holdings at unprecedented rates. In September alone, central banks added 77 tons of gold, which brought third quarter purchases up to 337 tons, the second highest third-quarter total on record. Keep in mind that this is at a point in time when gold prices are up for the year, which means that central banks are anticipating that gold prices will continue to increase.
Leading the way in gold acquisitions in September was China at 26 tons. This brings China’s official gold holdings to 2,192 tons, which is 4% of their total reserves. However, it’s long been speculated that China has been secretly acquiring gold for years and may have actual holdings that rival the estimated 8,000 tons held by the U.S. government.
Needless to say, there’s no reason to acquire such substantial gold holdings if the global economy was running on all cylinders.
Interest on National Debt soars past $1 Trillion. Now the largest items in U.S. budget
We alluded to this earlier in the article, but it’s now estimated that our estimated annualized interest payment on US National Debt is over $1 trillion, making it the largest line item in the budget. To help put things into perspective, estimated tax revenue for the 2023 fiscal year, which ended in September was $4.44 trillion.
It’s estimated that tax revenue will increase for the 2024 fiscal year, but that’s questionable as we slowly cascade toward a recession. Let’s give the government the benefit of the doubt and assume that growth and tax revenues both increase by 3%. That means that tax revenue for this fiscal year will be in the neighborhood of $4.6 trillion. Even so, debt servicing costs will consume nearly 22% of all government revenue.
Granted, we’re more than likely to run another multi-trillion dollar deficit in the fiscal year, so assuming another $2 trillion in deficit spending, debt payments will still be 15% of the entire budget, which is an extraordinary amount. At some point in time, spending will need to be reined in or taxes will need to be increased so we can reduce the rate at which we’re accumulating debt.
In conclusion, if the above scenario concerns you, it should. We need to get our fiscal house in order before we experience an economic and possible currency collapse.
What is the rest of the world doing to help soften the blow of an impending global economic collapse? They’re acquiring gold hand over fist. If the people in the know are buying gold, then you should be as well.
We never recommend a specific amount or percentage of assets. Rather, we believe you’ll know you have enough when you’re able to sleep soundly at night.
Since Covid, we’ve seen a run on gold nearly annually. Considering that the physical gold market is relatively small, inventory dries up quickly, so we recommend that you take advantage of the lull in the market and buy gold coins or bars while supplies last.
The experts at Atlanta Gold & Coin Buyers can help you to identify the products that best meet your needs and circumstances. We look forward to hearing from you and earning your business!