I’m convinced – we can’t escape debt and taxes. Essentially all currency is created as debt, and our financial system creates more debt and more currency into circulation every day. Taxes are insufficient to pay the massive expenditures that our politicians deem essential, so our national, state and local governments fall deeper into debt every year. I think we can all agree – expect more debt and more taxes.
National debt has increased from $3 Billion in 1913, to $398 Billion in 1971 to about $17,700 Billion ($17.7 Trillion). Debt and taxes – much more debt – are in our future. Plan on it.
The population of the US slowly increases (203,984,000 in 1970, about 322,500,000 today). Take the national debt and divide by the population to calculate a per capita national debt. Now divide the annual price of gold (annual price is the average daily price for the year) by per capita national debt and graph it.
The gold to population adjusted national debt ratio has increased, on average, for about the last 25 years. You can see the gold bear market (1981 – 2000) and the bull market (2001 – 2011) and the correction (some will call it a bear market) since 2011.
But the point is:
Population adjusted national debt is increasing – inexorably. The gold to population adjusted national debt ratio will decline only if gold falls more rapidly than the national debt grows.
Will that ratio decline? It would take a further large decline in the price of gold to make the ratio decline. But will gold prices collapse even further?
Look at the following graph of the ratio calculated back to 1971. Does the bubble in the gold to national debt ratio in 1980 look similar to the increase in the ratio into 2011? Clearly not! Gold bubbled up from about $100 to over $800 in about 3.5 years back in 1976 – 1980. The rally from the October 2008 lows in gold to the August 2011 high was impressive but not similar to the 1980 rally. You can see from the graph of the ratio that the 2011 high was barely a “blip” on the graph compared to the spike upward in 1980.
Alternatively, congress could pass a budget that drastically cuts spending, reduces the military, slashes spending on Social Security, Medicare, presidential golf excursions, White House staff, congressional staff, CIA spending, and 1001 other governmental expenses.
If you find that scenario unlikely, consider buying gold and silver while the prices have been smashed down by our favorite High Frequency Traders.
Courtesy: Gary Christenson – The Deviant Investor
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