Debt, Division and Dysfunction

Guest Post from Stefan Gleason (edited)

Never in our lifetimes has American politics been so marked by division and dysfunction.

The longest partial government shutdown in history occurred after the Democrat-controlled Congress wouldn’t compromise with President Trump on a border wall. The impasse is but one symptom of a deeper malady – one that threatens to wreak wider social and financial instability in the years ahead.

Put plainly, the pillars of the American system as we have known it are eroding.

No longer are we unified in support of the Constitution and a (more or less) free market economy. A growing faction within one party favors socialism and outright rejects foundational American principles such as free speech, gun rights, and limited government.

No longer are political solutions even possible for insoluble problems such as the $22 trillion national debt and the tens of trillions of dollars more in unfunded liabilities. The U.S. debt to GDP ratio now – when times are supposedly good – comes in at the highest non-wartime level in history.

What you’re less likely to see in either the “liberal” or “conservative” wings of the establishment media is a warning to investors about the unsustainable status quo.

Recent history shows that regardless of whether Democrats or Republicans are in charge of Congress or the White House, government spending grows, the national debt grows, and unpayable entitlement promises grow. More bipartisanship is no solution to a structural policymaking defect that has deep bipartisan roots.

To paraphrase Barry Goldwater, bipartisanship in pursuit of national bankruptcy is no virtue.

As trillion-dollar deficits pile up in 2019 and beyond, interest on the national debt will become the largest single item in the federal budget.

Mathematical realities will eventually force a harsh reckoning of the political fantasies both parties indulge.

Since there is unlikely to be any consensus in Washington on cutting spending… and since no marginal tax rate increase would bring in the kind of revenues needed to close long-term fiscal gaps, the only politically viable outcome is inflation.

That’s not to say we’ll become another Venezuela. But we could become another Argentina.

One of the most critical strategies for investors in bracing for financial turmoil is to reduce counter-party risk. That means limiting exposure to financial assets.

Third-party promises – whether from bankers, brokers, insurers, or politicians – may turn out to be empty.

Precious metals held in physical form carry zero counter-party risk. Gold and silver serve as real money and stand to gain greatly during a U.S. dollar crisis.

Stefan Gleason is President of Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. 

Thanks to Stefan Gleason.

Gary Christenson

The Deviant Investor