The Public Debt Problem is Not Yet Solved!

Mike Fuljenz
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Posted: Nov 23, 2016 12:01 AM
The Public Debt Problem is Not Yet Solved!

Barring a miracle, huge federal debts will continue under the new President and Congress, pushing gold prices back up in time. The weekend Barron’s published a cover article, “Saving American, Part 1,” which begins, “The U.S. is headed for a major financial crisis if it does not restrain the growth of its debt burden.” With interest rates set to rise again, the cost of servicing the federal debt could rise sharply in the Trump years. The Congressional Budget Office (CBO) predicts that the cost of servicing the federal debt will more than triple from $250 billion in 2016 to more than $800 billion in 2026. Each one-percent rise in interest rates on Treasury bonds will cost the country $1.6 trillion over the next decade. This debt crisis could spin out of control if the federal government can’t cut spending and raise revenue collections.

In such a scenario, Barron’s asked some leading Wall Street professionals what debt would do to the price of gold. Dan Oliver, the CEO of Myrmikan Capital, said gold is going higher because “we’re coming to the end of one of the biggest credit bubbles ever, caused by U.S. government-underwritten fractional reserve banking and artificially low interest rates. There’s little that Donald Trump can do to stop that.”

In addition, John Hathaway, manager of the Tocqueville Gold Fund, said, “The price of gold has to go higher. Central banks have so perverted the financial system with ultralow interest rates that two-thirds of global debt trades at 1% or less.” This trend toward global negative interest rates and higher debt could turbocharge the price of gold in 2017 despite any positive new programs the Trump administration may launch.

A New Islamic Gold Standard Could Help Lift Gold Prices in December

In December of 2016, a new Sharia gold standard will be introduced to the 1.6 billion Muslims on earth. Until now, nearly one-fourth of the world’s citizens have been denied access to gold under some existing conditions of Islamic law, which controls all financial and personal decisions in a strict Muslim’s life.

Until now, there were very few gold investment products or services available to Muslims. As a result, says Aram Shishmanian, CEO of the World Gold Council (WGC), “there is a lack of Islamic gold-based products globally.” That will change with the introduction of the new Sharia (or Islamic) gold standard, which was hammered out through the cooperative efforts of the AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions), the World Gold Council (WGC) and Amanie Advisors.

The Islamic gold standard “will provide guidance from a Sharia perspective on the usage of gold in financial and investment transactions for Islamic financial institutions and participants,” said the WGC.

The practical effect of the new gold standard is that it will make physical gold much more accessible to one-fourth of the planet’s population – and that could be a huge new source of demand for physical gold.

Gold is Recovering

Gold held above $1,220 until last Friday, when it dipped to $1,208. The main culprit was a strong U.S. dollar, which soared to a new 14-year high. A strong dollar tends to depress the gold price in dollar terms but gold is still strong in terms of many competing currencies. Gold is still up 14%, year-to-date, better than stocks. Gold will likely close the year up for the first time in four years, but traders have sold gold in the last two weeks on the belief that the new Trump administration will be positive for the economy, causing a strong dollar and a rise in interest rates, which are generally considered negative for gold. I strongly advise the public to buy gold and silver on the dips!

More Reasons Why Trump Beat Clinton

In consulting with several doctors I know in Texas and Louisiana over the past year, I found that every one of them favored Trump over Clinton. Many of their patients, exposed to loss of available doctors and facing significantly higher health insurance premiums, feel the same way. I have visited several doctors’ offices over the last year and they all had Fox News playing in their lobby – not CNN or the Weather Channel, just Fox.

In the week before the November 8 elections, I was interviewed by the most-watched TV station in our area, Channel 12, the local ABC outlet. In a two-minute segment, they featured my response to the rising costs and the limitations of coverage under Obamacare.

You can see that Channel 12 TV news clip here.

We have already discussed the lack of enthusiasm for Hillary Clinton – the decline in Democratic voters, the erosion of the traditional Democratic base and the lack of Clinton signs on lawns across the country, but we have not discussed the many reasons why 30 states went for Trump and only 20 for Clinton. There was simply no enthusiasm for Clinton. She was mostly seen by coastal voters as the “lesser evil.”

I talk with customers and our professional community around the country every day. Here are a series of factors people tell as their motivation for voting for Trump (or against Clinton). Add it all up and it’s a “death by 1,000 cuts,” a gradual accumulation of minor irritations that doomed the Clinton campaign.

1. Obamacare price increases and crippling regulations frustrated many patients and doctors.

2. Constant delays on the XL Pipeline cost jobs.

3. Clinton erased thousands of emails on her private server. What was she hiding?

4. The WikiLeaks revelations exposed the cynicism of the Clinton campaign team.

5. The FBI investigation into her emails was slowed by the Obama Justice Department.

6. Clinton’s total lack of response to the Benghazi attack turned off many military family voters.

7. Law enforcement personnel are wary of Obama and Clinton taking sides against them.

8. There is a general desire for change after eight years of relatively slow growth under Obama.

9. Trump voters were disparaged by Clinton and media as ‘deplorables,’ flyovers or uneducated.

10. Late-term abortions were supported by Clinton, despite Catholic and Evangelical opposition.

11. The disgraced Anthony Weiner has been closely associated with the Clintons.

12. Sanders voters were betrayed by DNC, Deborah Wasserman Schultz and CNN’s Donna Brazile.

13. Gun rights advocates, including NRA members, are wary of Clinton.

14. Illegal immigrants and criminals harbored in Sanctuary Cities create new threats.

15. Terrorism concerns are rising with ISIS rise under Obama.

16. Old Clinton baggage is not resolved, like Travelgate and Bill’s issues with women.

17. Clinton Foundation money issues include foreign powers paying for special favors.

18. Clinton has close Wall Street ties and exorbitant speaker fees, highlighted by Bernie Sanders.

19. Floridians and other Cuban-Americans are concerned over relations with Castro’s Cuba.

20. Trump worked harder – more speaking events that brought out more people in more places.

21. Jobs and job loss are concerns in many areas of the country.

Now, what does Donald Trump need to do to maintain the support of the people who elected him?

Back in 1980, Ronald Reagan was also a controversial choice for President but he won favor by working closely with the opposition (including House Speaker Tip O’Neill) to pass needed legislation to further his agenda. Reagan decided early in his Presidency to concentrate on three goals – and he succeeded in all three, partly by not watering down his efforts by trying to do too many other things at the same time.

Reagan (1) broke the back of inflation, (2) brought down the Soviet Union without firing a shot and (3) made Americans proud to be Americans again, reflected in his 1980 slogan “Make America Great Again” (borrowed recently by Donald Trump) and then “It’s Morning in America” (his 1984 re-election slogan).

Trump needs to emulate Reagan’s success by initially concentrating on just three goals. My suggestions would be (1) Pass the XL Pipeline and help make American energy independent; (2) in partnership with the states, rebuild and repair America’s infrastructure and (3) appoint conservative Supreme Court Justices.

Mike Fuljenz is the Official Precious Metals Expert for Townhall