The Obama Budget, Inflation, And Gold
The Obama budget passed last week on a straight party line vote. The deficit for 2009 is projected to be close to $2 trillion. The deficits projected in later years are expected to be smaller due to an economic recovery. Proponents of the bill believe the deficit will be reduced due to increased tax revenues from the rich, corporations, and economic growth.
Call me a skeptic. First, I’ll believe economic recovery when I see it. Predicting economic recovery will just happen is the same sort of hubris Bush had when he believed Saddam’s weapons of mass destruction would be found. Both may never happen. With the anti-business attitude of Washington and the clear threat of higher taxes, true economic growth may never occur in the US again….and even if it does, it certainly won’t be the bullish 4% that Obama projects. Even when the United States was binging on cheap credit in a more business-friendly administration with lower taxes, economic growth was just 3%!
The US debt/GDP is about 80% right now. A $2 trillion deficit, with our GDP of $14 trillion, is about a 14% deficit. Assuming deficits of 14%, and then 12% over the next four years, the debt/GDP will be 143% in 2013 and 252% in 018. This doesn’t even take into account unfunded liabilities like social security and medicare. Also, remember that we have a record amount of consumer and business debt. In other high debt/GDP nations, particularly Japan, their people and businesses are net savers.
Our country will not be able to last with this sort of debt. There is only one cure for this sort of recordd debt: inflation. When the printing presses start rolling, our debt/income levels will drop drastically. When inflation kicks in, the best place to be is in commodities.
I don’t know when the inflation will occur. What I do know is that we, as a society, are in a state of denial right now. Will it be 10 years before the inflation occurs or just 6 months? I don’t know. No one knew when our overleveraged banking industry would blow up, but it did. The same will be said about our societal debt.