Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Will You Make Money in the New Silver Bull Market ? - 13th Aug 20
Hyper-Deflation Capital Destruction And Gold & Silver - 13th Aug 20
Stock Market Correction Approaching - 13th Aug 20
Silver Took the Stairs to $21 in 2008, Took Escalator to $29 2010. Is Silver on Elevator to 120th floor today? - 13th Aug 20
President Trump Signs Additional COVID Relief – What To Expect from the Markets - 13th Aug 20
Has Gold's Upward Drive Come to an End? - 13th Aug 20
YouTuber Ads Revenue & How to Start a Career on YouTube - 13th Aug 20
Silver Notches Best Month Since 1979 - 12th Aug 20
Silver Shorts Get Squeezed Hard… What’s Next? - 12th Aug 20
A Tale of Two Precious Metal Bulls - 12th Aug 20
Stock Market Melt-Up Continues While Precious Metals Warn of Risks - 12th Aug 20
How Does the Gold Fit the Corona World? - 12th Aug 20
3 (free) ways to ride next big wave in EURUSD, USDJPY, gold, silver and more - 12th Aug 20
A Simple Way to Preserve Your Wealth Amid Uncertainty - 11th Aug 20
Precious Metals Complex Impulse Move : Where Is next Resistance? - 11th Aug 20
Gold Miners Junior Stcks Buying Spree - 11th Aug 20
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

A Crisis vs. the REAL Crisis: Keep Your Eye on the Debt Ball

Stock-Markets / Global Debt Crisis 2014 Apr 22, 2014 - 10:39 AM GMT

By: Casey_Research

Stock-Markets

By Laurynas Vegys, Research Analyst

Today I want to talk about crises. Two of the most notable ones that have been in the public eye over the course of the past 6-8 months are obviously the conflicts in Ukraine and Syria. The two are very different, yet both seemed to cause rallies in the gold market.

I say “seemed” because, while there were days when the headlines from either country sure looked to kick gold up a notch, there were also relevant and alarming reports from Argentina and emerging markets like China during many of the same time periods. Nevertheless, looking at the impressive gains during these periods, one has to wonder if it actually takes a calamity for gold to soar.


If so, can the yellow metal still return to and beat its prior highs, absent a major political crisis or a full-blown military conflict? My answer: Who needs a new crisis when we live in an ongoing one every day?

More on this in a moment. Let’s first have a quick look at what happened in Ukraine and Syria as relates to the price of gold. Here’s a quick look at the timeline of some of the major events from the Ukrainian crisis, followed by the same for Syria.

There seems to be a fairly clear pattern in both of these charts. Gold seems to rise in the anticipation of a conflict; once the conflict gets going, or turns out not as bad as feared, however, it sells off.

We see, for example, that as the news broke that chemical weapons were being used in Syria and Obama was threatening to intervene, gold moved up. But when the US did not wade into the bloodshed and Putin proposed his diplomatic solution, gold slid into a protracted sell-off, ending up lower than where it began.

It’s impossible to say with any degree of certainty how much of gold’s recent rise was due to anticipation of the Ukraine/Crimea crisis, but there were certainly days when gold seemed to move sharply in response to news of escalation in the conflict. And again, after it became clear that the US and EU would do little more than condemn Russia’s actions with words, gold retreated. As of this writing, it’s down about $85 from its high a little over a month ago. (We think many investors underestimate the potential impact of tit-for-tat sanctions, but they are not wrong to breathe a sigh of relief that a war of bullets didn’t start between East and West.)

In sum, to the degree that global crisis headlines do impact the price of gold, the effects are short-lived. Unless they lead directly to consequences of long-term significance, these fluctuations may capture the attention of day traders, but are little more than distractions for serious gold investors betting on the fundamentals.

You have to keep your eye on the ball.

The REAL Crisis Brewing

Major financial, economic, or political trends—the kind we like to base our speculations upon—don’t normally appear as full-fledged disasters overnight. In fact, quite the opposite; they tend to lurk, linger, and brew in stealth mode until a boiling point is finally reached, and then they erupt into full-blown crises (to the surprise and detriment of the unprepared).

Fortunately, the signs are always there… for those with the courage and independence of mind to take heed.

So what are the signs telling us today—what’s the real ball we need to keep our eyes upon, if not the distracting swarm of potential black swans?

The big-league trend destined for some sort of major cataclysmic endgame that will impact everyone stems from government fiscal policy: profligate spending, leading to debt crisis, leading to currency crisis, leading to a currency regime change. And not in Timbuktu—we’re talking about the coming fall of the US dollar.

The first parts of this progression are already in place. Consider this long-term chart of US debt.

Notice that government debt was practically nonexistent halfway through the 20th century, but has seen a dramatic increase with the expansion of federal government spending.

Consider this astounding fact: The government has accumulated more debt during the Obama administration than it did from the time George Washington took office to Bill Clinton’s election in 1992. Total US government debt at the end of 2013 exceeded $16 trillion.

Let’s put that in perspective, since today’s dollars don’t buy what a nickel did a hundred years ago.

Except for the period of World War II and its immediate aftermath, never before has the US government been this deep in debt. Having recently surpassed the threshold of 100% debt to GDP, America has crossed into uncharted territory, getting in line with the likes of…

  • Japan, “leading” the world with a 242% debt-to-GDP ratio
  • Greece: 174%
  • Italy: 133%
  • Portugal: 125%
  • Ireland: 117%

The projection in the chart above is based on the 9.4% average annual rate of debt-to-GDP growth since the US embarked on its current course in response to the crash of 2008. If the rate persists, the US will be deeper in debt relative to its GDP than Ireland next year, deeper than Portugal in 2016, Italy in 2017, Greece in 2019, and even Japan in 2023 (and the US does not have the advantage of decades of trade surpluses Japan had).

Granted, the politicians and bureaucrats say they will slow this runaway train, but we’re not talking about Fed tapering here. Congress will have to embrace the pain of living within its means. We’ll believe that when we see it.

But let’s take a more conservative, 10-year average growth rate (an arbitrary standard many analysts use): 5.3%. At this rate, the US will still be deeper in debt than Ireland and Portugal in 2017, Italy in 2019, Greece in 2024, and Japan in 2030.

Either way, this is still THE crisis of our times; all of the countries mentioned above are undergoing excruciating economic and social pain. It’s no stretch to imagine the kind of social and political turmoil that has resulted from the European debt crisis coming to Main Street USA, as American debt goes off the charts.

It’s also important to understand that the debt charted above excludes state and local debt, as well as the unfunded liabilities of social entitlement programs like Social Security and Medicare.

This ever-growing mountain—volcano—of government debt is a long-term, systemic, and extremely-difficult-to-alter trend. Unlike the crises in Ukraine and Syria (at least, so far), it’s here to stay for the foreseeable future. While some investors have grown accustomed to this government-created phenomenon and no longer regard it as dangerous as outright military conflict, make no mistake—in the mid to long term, it’s just as dangerous to your wealth and standard of living.

Still think it can’t happen here? To fully understand how stealthily a crisis can sneak up on you, watch Casey Research’s eye-opening documentary, Meltdown America.

The article A Crisis vs. THE Crisis: Keep Your Eye on the Ball was originally published at caseyresearch.com.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Casey Research Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules