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Gold and Silver Won the U.S. Elections!

While many people in the world were focused on the US elections, the US Dollar quietly fell in value, observes Patrick Heller, editor, Liberty’s Outlook newsletter.

March 19, 2020 is a significant date for two reasons. First, it was the day that the US Dollar Index reached 103.605, its highest level since August 2003.

Through November 9, the US Dollar Index has dropped 10.5% from its March 19 peak.

March 19, 2020 is also significant as the day it became clear that the US Congress and President Trump had reached a consensus on the terms of the CARES Act (formally signed into law on March 27).

This was the largest expenditure ever made by the federal government. Nominally, it appeared to commit to $2 trillion of bailouts, loans, and subsidies. But, the fine print meant the potential expenditure could grow to as much as $6 trillion.

The US Dollar has been declining in value against almost every other world currency and against assets ever since March 19, 2020, though not in a straight line.

The price of gold reached its 2020 low on March 19 at the COMEX close of $1,470.75. Silver’s lowest 2020 COMEX close was on March 18 at $11.74.

While the US Dollar Index has sunk since mid-March, gold and silver prices rose from those lows.

Not only did the US Dollar decline against almost all currencies we track and precious metals, it also generally fell against other commodities.

Metal and energy prices have increased significantly year to date. This confirms and explains the larger-than-normal increases in US consumer prices especially since July. It also documents a decrease in the purchasing power of the US dollar.

Fed, IMF Confirm Dollar, Economy Are Vulnerable

In mid-September 2019, the Federal Reserve began injecting hundreds of billions of dollars into the overnight bank loan market for the benefit of the 24 primary trading partner banks of the Federal Reserve Bank of New York.

Initially, the Fed tried to pretend that this was just a temporary liquidity problem, which therefore meant that the Fed was not required to disclose the details of these transactions to Congressional committees.

However, these liquidity injections have continued ever since, now totaling many trillions of dollars.

Back in September 2019, Liberty Coin Service (LCS) issued a news release warning that the US banking system was vulnerable. In recent weeks, both the International Monetary Fund and the Federal Reserve Bank have confirmed the accuracy of LCS’s alert.

A few months ago, the Fed revealed the positive results of “stress tests” of 34 banks, using former standards. On September 17, the Federal Reserve announced that a new round of stress tests would be conducted by the end of this year on all of these banks to check for their ability to manage a severe economic downturn and high unemployment continuing into 2021.

Further, 13 of the banks (Bank of America, Bank of New York Mellon, Barclays US, Citigroup, Credit Suisse, Deutsche Bank USA, Goldman Sachs, HSBC, JPMorgan Chase, Morgan Stanley, State Street, UBS, and Wells Fargo) will be subject to an even more rigorous test: “these firms will be required to estimate and report the potential losses and related effects on capital associated with the instantaneous and unexpected default of the counterparty that would generate the largest losses across their derivatives and securities financing activities.”

This is not the sign of a strong banking system, as Fed Chair Jerome Powell had been claiming for most of 2020.

Then, in mid-October the International Monetary Fund released a report acknowledging that looming financial problems pre-dated the appearance of the Covid-19 coronavirus pandemic. A MarketWatch column on October 13 stated, “Some banking system vulnerabilities that were elevated before the coronavirus pandemic have continued to rise in recent months, setting up a major test of the resilience of the global financial system, the International Monetary Fund said.”

In early November, the Fed released its latest its latest Financial Stability Report. Here are three key excerpts from the Overview section: “Given the high level of uncertainty associated with the pandemic, assessing valuation pressures is particularly challenging, and asset prices remain vulnerable to significant declines should investor risk sentiment fall or the economic recovery weaken.”

“Household debt was at a moderate level relative to income before the public health shock, but many households have lost jobs and seen their earnings fall. As many households continue to struggle, loan defaults may rise, leading to material losses.”

“Some households and businesses have been substantially more affected to date than others, suggesting that the sources of vulnerability in these sectors are unevenly distributed.”

While the Fed is busy trying to deceive the public into thinking the economic lockdowns are responsible for America’s and the world’s current economic woes and future risks, the IMF explicitly acknowledges that the problems existed before the beginning of 2020.

What neither institution acknowledges is that massive government spending and deficits in the US are the largest danger for the future of the US economy.

Soaring Deficits Doom US Economy

The Congressional Budget Office projects that the US government, for the fiscal year ended September 30, 2020, spent $6.55 trillion and will experience a deficit of $3.1 trillion.

Both figures are fake.

This data does not include any increase in the net present value of Social Security or Medicare benefits that were incurred during the fiscal year.

In years past, as reported annually by USA Today in a June issue and confirmed by David Walker, the former US Comptroller General, these additional expenditures added $3-5 trillion to annual budget deficits.

For the fiscal year just ended, this extra spending will be even higher because falling interest rates increase net present values of future liabilities. Conservatively, figure that the US government spent at least $11.5 trillion in the last fiscal year! This makes the deficit at least $8 trillion. It could easily be at least $10 trillion.

The general history of the United States is that prosperity grew when government spending as a percentage of Gross Domestic Product was smaller. When it was larger, times were less prosperous, even downhill.

With the US Bureau of Economic Analysis reporting that 3rd Quarter 2020 GDP was just over $21 trillion, that indicates that federal government spending is now higher than 55% of GDP!

How does that compare to the past?

According to the US Office of Management and Budget, total federal expenditures during the Great Depression, an era of huge government spending increases, never exceeded 11% of GDP.

Even during World War 2, peak federal spending was just over 40% of GDP!

From 1947 into the early 1970s, federal spending was below 20% of GDP every single year!

In order to obtain the resources to pay for the CARES Act and the follow -on spending programs, the government will be forced to raise taxes, borrow funds that will be paid by future taxpayers, or inflation of the money supply (meaning reduce the purchasing power of the US dollar).

Soaring government spending absorbs resources that would otherwise be used by businesses to create jobs or by consumers to purchase goods and services. Soaring government spending also creates uncertainty in the economy. This uncertainty is compounded right now with the economic lockdowns from the pandemic.

Yes, the pandemic did accelerate the increase in government spending and deficits. But, out-of-control spending and deficits by governments at all levels in America (and repeated almost everywhere else in the world) already existed.

Government fiscal mismanagement dooms the US dollar to losing value in the future, whether or not the pandemic ever occurred. That the pandemic has happened only speeds up the pace of the dollar’s downfall.

Why Gold And Silver Won The US Elections

The prices of gold and silver are effectively report cards on the US government, the US economy, and the US dollar. When the dollar used to be “as good as gold,” it was a strong currency because people could exchange their currency for specie any time they wanted. The restraint on government overspending that a tie to gold or silver imposed has been gone entirely since August 1971.

From the birth of the US up to August 1971, the value of the US dollar was propped up by its convertibility into gold. It suffered a 41% decline to gold in 1934 when the federal government reduced the value of the US dollar from 0.0483792 of an ounce of gold to 0.0285714 of an ounce. From then to August 1971, the value of the dollar under a gold-exchange standard slid about another 17%.

Since August 1971, the dollar has plummeted another 98% against gold. Other world currencies have also fallen sharply.

To keep the purchasing power of the dollar from falling even further (or at least slowing down the decline), the US government would need to sharply cut expenditures. Instead of spending at least $11.5 trillion in a fiscal year, total spending plus the increase in the net present value of Social Security and Medicare liabilities would need to be $4 trillion or less.

Did either of the two major political parties in the November US elections campaign on a promise to sharply reduce expenditures? Not at all. Instead, the politicians argued about the size of further increases in spending on bailouts, loans, and subsidies, only some of which had any tie to the pandemic.

The controversy over this year’s elections and their eventual resolution will impact several areas of life in America. Unfortunately, the one certainty is that there will not be any major reductions in government spending.

Consequently, the value of the US dollar is destined to keep falling in the coming months and years. In this year’s elections, there will be winners and losers. Unfortunately, the financial well-being of Americans will suffer, no matter who is elected. As a result, gold and silver prices are destined to keep rising, eventually by multiples of today’s prices. Those who acquire their physical gold and silver sooner rather than later will find themselves better prepared for what is coming.

Editor’s Note: Patrick Heller is editor of Liberty’s Outlook, 1 year, 12 issues, $159, published by Liberty Coin Service, 400 Frandor Ave., Lansing, MI 48912. Liberty Coin Service has been a dealer in rare coins and precious metals since 1971, www.libertycoinservice.com.

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