By Sean Kelly
The Drudge Report splashed the news in bright red letters across the top of the column:
Record Federal Spending and Deficit Intensifies…
It linked to a CNSNews story that reported,” The federal government set records for both the amount of money it spent and the deficit it ran in the first nine months of fiscal 2020 (October through June).”
We pay close attention to debt and spending because gold reflects instability in government finance. This gusher of red ink screams instability. It is a nine-month deficit of a heretofore unthinkable $2.744 trillion. Spending totaled more than $5 trillion in the same period.
To make clear what a big jump in spending that represents, CNSNews included this chart:
To state the numbers differently, for the nine months ending June 30, the government had to borrow almost a half-trillion dollars more than it collected in taxes.
The deficit for June alone was $863 billion.
That is not only a lot of money, it is a figure that puts the immensity of the US debt in an ironic perspective, according to David Stockman, who was the US Budget Director in the Reagan administration.
Stockman writes that when he joined the Reagan campaign in 1980, the total public debt was also $863 billion, “and it had taken 192 years and 39 presidents to get there.”
Now we have created that much additional debt in a single month.
“So during the last 30 days, the clown brigade which passes for a government in Washington has actually borrowed nearly two centuries worth of debt!”
But Stockman is just getting going, as he surveys, along with the explosion in spending and deficits, the Federal Reserve’s recent money-printing spree, as well as its interest rate manipulations that are clearly creating a stock market bubble.
“You can’t print $3 trillion of fiat credit in just four months as the Fed has done and get away with it. Nor can you spend $7 trillion and collect only $3 trillion as Uncle Sam will do this year and not expect dire repercussions down the road.
“And, for that matter, you can’t run-up the NASDAQ to an all-time high in the face of this fiscal, monetary and economic mayhem, and on the strength of just ten stocks, and not expect that a thundering financial collapse lies just around the corner.”
The evidence is that US public finance is beginning to circle the drain. In addition to the comments here about the growth in spending and the deficits, there are other shoes yet to drop that will trigger new and unforeseen federal spending initiatives, including rising bankruptcies, widespread defaults on residential rents and non-performing commercial leases.
No doubt we will be writing about all of those issues in the weeks to come. But for now, let us leave you with one more chart that brings our discussion back to precious metals and securing your future and your retirement.
The growth of the US money supply has turned sharply higher, up 3.8 percent in March, 6.7 percent in April, and 5 percent in May. An account from the Manhattan Institute on the growth of the money supply measure M2 says that it amounts to, “a stunning 83 percent annualized growth rate for three months. This lifted the year-over-year growth rate of M2 to 23 percent, almost double its prior fastest rate in the modern era.”
You can see the money supply line (in black) turning straight up this year on the right side of the chart.
Historically a spiking money supply precedes a rising cost of living. Attention-getting consumer price increase may not be far behind. In fact, almost like clockwork, the just-released Consumer Price Index for June shows an increase of 0.6 percent.
That’s the biggest jump in years, and while much of it can be attributed to higher gas prices, it is worth watching money supply growth much more closely in the months to come.
We have overlaid the money supply chart with the gold price. As you can see during the period of this chart, the price of gold has moved more or less at the rate of the growth of the money supply.
If the relationship holds, as we suspect it will, gold has some catching up to do.