We have been so busy reporting on the spreading calamity in cryptocurrencies, watching investors sell stocks and try to redeem funds from real estate investment trusts, and writing about the Federal Reserve’s rush to create its own total surveillance digital currency, that you might think we have taken our eye off Washington’s fiscal irresponsibility.
Not for a moment!
The ruination of a national currency always begins with the government spending more money than it has. Printing money is only a follow-on effect; if the government had sufficient revenue to cover its spending, it wouldn’t resort to money printing.
Throughout modern history, bankrupt nations often wind things up with a furious flurry of money printing because they can no longer borrow.
So, with this Gold Watch commentary, we want to bring you up to date on the fiscal condition of our country, since that is where it all starts.
Our Current Fiscal Condition
In November, the most recent reporting month, the U.S. government spent almost a half-trillion dollars. It had to borrow about half of that, almost a quarter of a trillion dollars. At that rate, Washington would be running a $3 trillion annual deficit.
Here are the actual numbers for November. It’s not a pretty picture.
Outlays: $499 billion (an increase of $27 billion over the prior November)
Revenue: $251 billion (a decrease of $30 billion from the prior November)
Deficit: $248 billion (a 29 percent increase in the deficit from the prior November)
The cycle of spending could be halted. It’s conceptually easy to do so, as Senator Rand Paul points out. “If we passed 2019’s budget, a budget from three or four years ago, if we passed that today, the budget would balance.”
Was the government so starved of revenue, were expenditures so miserly in 2019, were needs so unmet that the United States could simply not survive limited to what it spent that year?
In the view of Washington, both the House and the Senate, and Republicans and Democrats alike, apparently that is asking too much. It’s draconian. It’s unthinkably severe. So instead, says Senator Paul, “We are bankrupting the country. We’re adding debt faster than we have ever added it in the history of the country.”
Which means the Fed will have to print money. Aren’t you glad you own gold?
The Omnibus Spending Bill
As we write, Washington is whipping up a 2023 fiscal year “omnibus” spending bill that clocks in a $1.7 trillion. Heritage Foundation senior fellow Stephen Moore says that it “Christmas-wraps hundreds upon hundreds of billions of congressional spending in one giant gift box to special interests—all with a bright red bow on top.”
As is the way in Washington, no one really reads the bills.
Moore writes, “Few read what’s actually in the omnibus. And that’s the whole point. No one knows what’s in it. This way, the Congress critters can claim plausible deniability….”
“Congress has approved some $5 trillion of debt spending since COVID-19 hit these shores. That’s more money adjusted for inflation than Washington spent to win World War II. Worse, COVID-19 is long over, but the debt spending isn’t slowing down a bit. Biden has spent at a more financially ruinous pace than any president in modern times. But even with COVID-19 long over, Congress isn’t pulling back. The new pandemic in America is runaway spending debt.”
The Government and Money Printing
When the government spends money it doesn’t have, it can borrow the money or print it. But rising interest rates are creating a brick wall for the borrowing option. As you can see from this chart, federal interest expense is already spiking.
It hit $724 trillion in fiscal 2022. For now, the average interest rate on the government’s $31.3 trillion debt portfolio is just over 2%. Over time, the higher interest rates the Fed has been engineering of late will be applied to more and more of the U.S. debt portfolio, driving borrowing costs up even more sharply and forcing the alternative of more money printing.
Of course, there is more to the debt picture than government debt. Private debt—corporate debt, mortgage lending, credit card debt, and auto loans—is subject to higher rates as well. And they are feeling the pain. Together, they create a powerful constituency for the Fed to crank up the inflation presses and drive rates down.
We will finish with a quote from Ernest Hemingway’s The Sun Also Rises that captures our national moment:
“How did you go bankrupt?” Bill asked.
“Two ways,” Mike said. “Gradually, and then suddenly.”
About half of all federal spending today is borrowed. The cost of that borrowing is going up. We are past gradually. Aren’t you glad you own gold?
And if you don’t, maybe it’s time you start to consider it.
If you’re interested in investing in precious metals, let us provide you with a free one-on-one consultation.
The opinions, beliefs, and viewpoints expressed in this article do not necessarily reflect the opinions, beliefs, and viewpoints of Red Rock Secured LLC or the official policies of Red Rock Secured LLC. Red Rock Secured LLC is not a financial advisor, is not licensed to provide investment advice and neither provides investment nor financial advice. Red Rock is a product specialist that can help evaluate your precious metals purchase options.