The End of The Debt Economy

Posted: Jul 02, 2012 12:01 AM

Gold was up last week, but only because of a big spike up on Friday.  Absent Friday’s big move up it would have been another down week. 

Gold finished the week at $1,597.43 and silver ended at $27.47, with a week ending silver/gold ratio of 58.1.  Commodities finished the week strong across the board as the euro rallied against the dollar on word European finance ministers managed to cobble together a bank rescue plan. 

What happens to gold next week will depend on the level of optimism in Europe, but I look for that to hold next week and for gold to work back toward the comfortable $1,620 vicinity. 

It’s interesting to note that the way Europe plans to stabilize their banks is by printing virtually unlimited amounts of new money.  In technical terms banks are borrowing the money, but in unlimited quantities and with very little incentive to change the way they do business. 

When we were visiting some friends this week it dawned on me that these were people who borrowed money to buy their house and drive a car that was also financed on roads built with borrowed money in the form of bond sales. 

It seems strange to me how our economy turned into such a great wheel of debt in just a few decades and is continually pushed into more and more areas of our life until our morning coffee, paid for by a credit card, becomes part of a debt transaction.  The ironic part is, of course, that to pay for that cup of coffee you put on your credit card, the credit card company borrows the money from the government to pay the coffee shop! 

The net effect is a giant electronic system that is funded by the government but run by private companies that add stealth fees like processing fees and interest to every transaction but contribute no value; a stealth tax that sucks billions out of the economy every month.  It’s not capitalism; it’s a parody of a free market and it can’t go on indefinitely.  In fact, I believe we’re nearing the limits of the debt economy. 

That debt mentality is one of the chief reasons I make silver and gold part of my investment mix.  By doing so we are opting out of the big bank shenanigans and investing in something tangible.  It is putting part of our money into a commodity that’s easy to store and transport and will hold some relative value regardless of what happens to currency. 

The best part is it completely cuts out the greedy self-interest of the middle-men of our economy.  No one charges fees on the gold in your safe; the ounce you put in today will still be an ounce when you take it out. 

Chris Poindexter, Senior Writer, National Gold Group, Inc