U.S. Debt At 102% Of GDP Hits Another Record – Good Time To Buy Gold?

Is it a good time to buy Gold?

• The US budget Deficit grew another $95 billion in July 2014.
• So far, the US borrowed 15.7¢ of every dollar it spent in Fiscal 2014.
• Total US Debt now stands at a record $17.7 trillion or 102% of GDP!
• ECRI’s USFIG (US Future Inflation Gauge) now at a 71-month high.

Despite a US economy slowly on the mend, the US deficit continues to grow as the Federal Reserve continues to keep interest rates artificially low while printing money with “quantitative easing” or QE to buy debt at these low rates. If the Fed doesn’t walk the perfect tightrope to taper its QE then raise rates to head off high inflation, gold and other physical assets could soar. Some think it could already be too late and another bubble is

inevitable.

Today, Tuesday, August 12, 2014, the US Treasury Department reported that the U.S. Government had a budget deficit of $95 billion for the month of July 2014. They also reported the total deficit now stands at $460 billion for the full fiscal 2014 year.

 

According to the “Monthly Statement of the Public Debt” for July 2014“, the total US public debt outstanding is $17,687,137 million or roughly $17.7 trillion.

According to the most recent estimate of GDP dated July 30, 2014, total “Current Dollar GDP” stands at $17,294.7 billion.

Taken together, this means the US Debt is 102.3% of GDP.

This table calculates that the US Government has borrowed about 15.7¢ of every dollar it spent so far in fiscal 2014.

As long as the US government spends more than it takes in and the Federal Reserve continues with its policy of buying the debt from the government at very low rates, I believe this relationship will hold true.

Like it or not, savers in “safe” investments like CDs and US treasuries are financing the economic recovery with a hidden tax levied with artificially low interest rates. This “wealth transfer” from a “hidden tax on savers” via lower rates has allowed the government to reflate the economy without causing high inflation, so far.

If the Fed is successful reflating the economy, then SPY should continue to do well. Gold may also do well if investors want to hedge for too much inflation. If the Fed errs by ending QE and raising rates too soon to drive us back into another near depression, then SPY and Gold will suffer while US Treasuries will soar.

If the Fed makes the same mistake it made in the past, keeping rates too low for too long and we get massive inflation where they have to raise rates to double digits again to crash the economy and contain inflation, then gold should soar.

Source: Seeking Alpha