Since the recent March high in the US dollar, the fiat currency has fallen consistently. The purchasing power of our dollar has dropped. Our dollar buys less today than it did a couple of months ago. All paper currencies have lost significant purchasing power over the past few decades. A simple example explains it all. A Big Mac in 1975 cost $.70. A Big Mac today costs $6.00. The Big Mac today doesn’t contain eight more beef patties. The simple fact facing every American is that the dollars we make and spend always buy less. The dollar has never kept up with the cost of living in our lifetime. With the monetary system collapsing today, this will only get worse.
Fitch revises the United States debt rating outlook to negative from stable
Unemployment in April was 15%. Unemployment in June was 11.1%. The recovery now seems to be fading as global coronavirus cases are near daily highs. US debt is $27 trillion. Trillions have been printed out of thin air over the past few months. The economy is at its knees only being held up by fiscal stimulus. Fitch expects the US general debt to exceed 130% of GDP by 2021. From our analysis, this debt is never going to be paid back. The monetary system is failing. The fiat currency experiment started in 1971 is imploding. The situation in the markets is not fixable. Of course, the markets can be held up temporarily by trillions of dollars printed by the central bankers. The financial crisis in 2006–2009 was never fixed. Central bankers kept things going for another decade by printing trillions and keeping interest rates near zero. More fuel for the fire folks. The US has benefited for decades as having the world’s reserve currency. This privilege and financial advantage are running on fumes. The US dollar is falling, and its dominance is threatened. Stephen Roach, a leading economist, sees the dollar possibly falling 35% soon against other major currencies. In this COVID era, he is quoted as saying this could happen at warp speed. Fitch may be correct because our debt certainly is toxic.
US GDP dropped 32.9% in the second quarter
On Thursday, the Commerce Department reported that the GDP (gross domestic product) shrank at an annual rate of 32.9% in the second quarter of 2020. Since March US businesses have been hard hit by the spread of the coronavirus. This quarter was four times worse than the worst quarter during the Great Recession. It was three times larger than the previous record in 1958 when there was a drop of 10%. GDP is the broadest measure of economic activity. We saw this huge drop in GDP during a period of unprecedented monetary stimulus and federal relief. Many have made more money by staying home than working. As this unfolded, the Fed increased its balance sheet from $4 trillion to $7.2 trillion. Central banks globally have printed $11 trillion to try and hold the global liquidity situation together. Virus cases here in the US are accelerating again. Some have said that the next wave has possibly already started. Sporting events are once again in jeopardy. There are still no concerts, no restaurant dining, no movie theaters, no bars, no nightclubs, and no school. No large gatherings of any kind. Business as we know it may not be around anytime soon. It sure looks that way. The situation concerning the activity of the economy can always be skewed to some degree. Let’s face it; aid, stimulus, and free money won’t permanently fix the situation. Eventually, someone has to pay. Buckle up folks; it’s going to get real interesting, real soon.
More economic stimulus is expected soon
The economic picture remains grim. The V-shaped recovery seems impossible. Unemployment weekly increases are picking up again. Coronavirus cases are near all-time highs. Some have even said that we may be experiencing the second wave of the virus right now. Whatever wave we are in, the immediate solution to this pandemic is not close, unfortunately. Extra unemployment benefits are expiring on July 30. Eviction notices for renters could be going out soon. Mortgage holders on forbearance plans will have to be dealt with soon. Banks are already bankrupt. More economic stimulus must come soon. There is no recovery in the economy anytime soon as the virus is still running rampant. Money printing and the virus are both out of control. Bottom line, the government is backed into a corner. Central bankers are running out of bullets. Money printed out of thin air eventually becomes worthless. All this debt and all this stimulus will eventually matter. The future of America is not dependent on how high Apple, Amazon, and Facebook stock will go. Fantasyland the last twenty years may soon become Realtyland. Consumer debt, government debt, and corporate debt are all out of control. The only solution in the toolbox is to print more money. Someday that will matter and most are not going to like the outcome.
Midas Gold Group has consistently talked to clients about the importance of a strong financial position. Gold has returned over 35% the past year. The increase in the gold price is reflecting the loss of future buying power of our dollar. That is exactly what gold does. Both gold and silver look like they are headed much higher in value over the next few years. Markets take one step backward to take a few steps forward. Pullbacks in gold and silver are a chance to accumulate more. In a time of exponential risk, it’s not uncommon to be 25% or more invested in gold. Every investor is different with a unique situation and time horizon. Call Midas Gold Group today for a free consultation at 480-360-3000 or 805-601-6000. An investor can still get liquid funds out of the banking system and convert it into physical gold bars and coins to hold in their possession. An old 401(k) or existing IRA can be moved sideways into physical metals. Call Midas today at 480-360-3000 and we will listen to your concerns and hold your hand every step of the way. Protecting your legacy with metals has never been easier. Investors who delay will be forced to pay much higher prices for gold and silver in the future. It’s not realistic to think the government debt will be paid anytime soon, that more money won’t be printed, the economy will be greater than before, or more importantly that our dollar will buy more in the future. We don’t know everything, but we do know that.