In October 2015, the U.S. debt ceiling was suspended until March 15, 2017. The debt ceiling is of course a total farce. Why? Because it has been raised 95 times since 1940 and 14 times in this century. As a result, there is now a clear disconnect between the credit expansion and the lagging gold price which will soon be rectified as gold not only catches up with the debt expansion – but overtakes it.
The comments above & below are edited ([ ]) and abridged (…) excerpts from the original article by Egon von Greyerz (GoldSwitzerland.com)
The U.S. debt ceiling is a farce
Every single administration has totally ignored the debt ceiling and just raised it to accommodate their irresponsible budgeting and spending. All with the purpose to buy votes and to line the pockets of the banking sector.
A 100-year debt explosion has created a time bomb waiting to explode. Very little is required to light it. As the biggest economy in the world, the U.S. obviously has the biggest debt with a total of $65 trillion. To this we need to add unfunded liabilities of around $200 trillion and derivatives of circa $500 trillion. Thus, we are looking at a total US “risk” of $3/4 of a quadrillion. Many critics would say that this is a vastly exaggerated figure since it won’t all be payable in one go but that risk is much greater than anyone can imagine.
Let’s just assume that there will not be an early agreement to increase the debt ceiling. That would trigger major falls of the dollar and bond markets and probably also the overvalued stock market.
The repercussions would be higher rates, higher import prices, bigger budget and trade deficits and more money printing. Inflation will increase rapidly and, eventually, as the dollar falls precipitously, it will lead to hyperinflation, more money printing, yet higher rates in an unstoppable vicious cycle. The derivatives market which is extremely sensitive to higher interest rates would also come under pressure leading to more money creation by the Fed.
…To reach an agreement will be a mammoth task and the increase in the limit required – likely $2 trillion, at least – will be so big that there will be massive reluctance to accept the magnitude of it… It is unlikely that such a high increase will be approved which means that the farce will continue.
There is now a 95% certainty that the Fed will increase rates at their March 15-16 meeting and that there will be more increases in 2017… This will put more pressure on the U.S. budget and debt ceiling as the cost of financing the $20 trillion and growing debt continues.
Gold will soon catch up with rising debt
The chart below shows the debt ceiling and the gold price. There is now a clear disconnect between the credit expansion and the lagging gold price since 2011…
but this disconnect will soon be rectified as gold not only catches up with the debt expansion – but overtakes it.