Amid all of the clatter of a brand new administration and new legislative priorities in Washington, it is simple to see the bushes however lose sight of the forest.On this case, we’re speaking in regards to the U.S. authorities’s annual funds deficit.Final yr, the deficit grew by greater than 30% to $587 billion.And, in keeping with a brand new report by the Authorities Accountability Workplace (GAO) and Congressional Price range Workplace (CBO), it is on “an unsustainable path.”Little doubt the present Congress pays lip service to the newest warning, as each different Congress and administration earlier than has… simply earlier than turning round and opening up the spending spigot a second later.This case has been effectively documented by consultants earlier than.However the brand new key level from the GAO is its forecast…Barring essential modifications in fiscal coverage, the nation’s debt, relative to the scale of the financial system, will transfer to catastrophic ranges throughout the subsequent 15 to 25 years. Or it might occur sooner, if federal spending rises at a fair quicker tempo with out acceptable cuts elsewhere.The Path to RuinIn the wake of World Battle II, the scale of the nationwide debt relative to the financial system was a traditionally excessive 106%. Within the a long time since, the long-term common held at roughly 44%.The debt-to-GDP ratio was simply 39% as lately as 2008.However the fiscal disaster, bailouts and slower financial progress – in addition to the lapse of “pay as you go” federal budgeting guidelines instituted through the 1990s – put the debt-to-GDP ratio into overdrive.In 2015, the ratio soared to 74%. And final yr, it climbed additional to 77%.You’ll be able to see the place that is going. Because the CBO notes, giant and rising quantities of federal debt:
Imply increased curiosity prices.
Restrict authorities’s potential to answer unexpected occasions.
Scale back long-term nationwide saving and revenue ranges.
And, extra importantly, it makes a fiscal disaster extra seemingly.The Seek for SolutionsThe prescription put forth by the GAO and CBO is one that may sound very acquainted to you: decrease federal spending (with decreased interest-carrying prices), and alter programmatic spending on Social Safety and federal well being care packages.I will not plow into that thicket right here, however let’s simply say that each are going to be a problem for any Congress or president.So the place does that lead us? It factors to preparations for stagflation.For a lot of traders youthful than 50, the thought of stagflation – an financial system with each inflationary and recessionary tendencies – is difficult to know. All that almost all of this age group has ever identified prior to now three a long time is reliance on paper belongings, like proudly owning inventory via a mutual fund.We’ve got to return to the 1970s and the super rallies in gold and silver to see the worth of proudly owning exhausting belongings and the securities backed by them. With gold and gold securities at low costs, it isn’t a nasty concept to begin getting ready for that point once more.
