Everything is cyclical. The economy, social attitudes & norms, you name it. With this in mind, we rarely make any long-term projections because once one believes a trend is firmly in place, the cycle turns. That said, one thing we can be sure of is that government debt will grow. It is simply a matter of how fast. So maybe, it is the growth rate that is cyclical and not the level of debt outstanding.
While precious metals can’t be produced out of thin air, U.S. debt can be financed through central bank money creation. In fact, U.S. debt has skyrocketed in recent years under both Democrat and Republican administrations. This infographic from Texas Precious Metals compares the increase in public debt to the value of gold and silver coin production during U.S. presidencies.
Total Production by Presidential Term
We used U.S. public debt in our calculations, a measure of debt owed to third parties such as foreign governments, corporations, and individuals while excluding intragovernmental holdings. To derive the value of U.S. minted gold and silver coins, we multiplied new ounces produced by the average closing price of gold or silver in each respective year.
Here’s how debt growth stacks up against gold and silver coin production during recent U.S. presidencies:
| Obama’s 1st term (2009-2012) | Obama’s Second Term (2013-2016) | Trump’s term (2017-Oct 26 2020) | |
|---|---|---|---|
| U.S. Silver Coins Minted | $3.7B | $3.3B | $1.4B |
| U.S. Gold Coins Minted | $6.7B | $5.1B | $2.9B |
| U.S. Public Debt Added | $5.2T | $2.9T | $6.6T |
Over each consecutive term, gold and silver coin production decreased. In Trump’s term so far, the value of public debt added to the system is almost 1,600 times higher than minted gold and silver coins combined.
During Obama’s first term and Trump’s term, debt saw a marked increase as the administrations provided fiscal stimulus in response to the global financial crisis and the COVID-19 pandemic. As we begin to recover from COVID-19, what might debt growth look like going forward?
U.S. Public Debt Projections
As of September 30, 2020, the end of the federal government’s fiscal year, the debt had reached $21 trillion. According to estimates from the Congressional Budget Office, it’s projected to rise steadily in the future.
| 2021P | 2022P | 2023P | 2024P | 2025P | 2026P | 2027P | 2028P | 2029P | 2030P | |
|---|---|---|---|---|---|---|---|---|---|---|
| U.S. Public Debt | 21.9T | 23.3T | 24.5T | 25.7T | 26.8T | 27.9T | 29.0T | 30.4T | 31.8T | 33.5T |
| Debt-to-GDP ratio | 104.4% | 105.6% | 106.7% | 107.1% | 107.2% | 106.7% | 106.3% | 106.8% | 107.4% | 108.9% |
By 2030, debt will have risen by over $12 trillion from 2020 levels and the debt-to-GDP ratio will be almost 109%.
It’s worth noting that debt will likely grow substantially regardless of who is elected in the 2020 U.S. election. Central estimates by the Committee for a Responsible Federal Budget show debt rising by $5 trillion under Trump and $5.6 trillion under Biden through 2030. These estimates exclude any COVID-19 relief policies.
What Could This Mean for Investors?
As the U.S. Federal Reserve creates more money to finance rising government debt, inflation could eventually be pushed higher. This could affect the value of the U.S. dollar.
On the flip side, gold and silver have a limited supply and coin production has decreased over the last three presidential terms. Both can act as an inflation hedge while playing a role in wealth preservation.
This article courtesy of VisualCalitalist.Com
Final thought; This article is not meant to accuse one party or the other as a cause of the debt. The fact is, US Government Debt began to risk in the 1960s when the US Government began its current policy of “Guns & Butter.” The was a policy that stated the government could wage war and fund a welfare state at the same time. This is hubris of the highest order and not economically possible. Further, whenever someone tries to cut or even restrain the budget of some departments, they cry of unfairness spread loud and wide. So budgets grow. Only the speed of growth is in question.
The US went off the gold standard in 1971 when it was clear the US Government could not pay its bills. From that day forward, the government deficits have grown exponentially and so has the level of debt. People try to argue that the Debt/GDP ratio is what counts. But let’s be fair. The government does not count its unfunded liabilities in its debt measure. That number is in excess of $200 trillion.
Finally, the government’s accounting is done on a cash basis (dollar in vs dollar out). When the government borrows money and agrees to pay you back in 10 years. This is a debt and it is counted. The government promises to pay you some benefit (e.g. social security, pension, medicare Medicaid, etc.) in 10 years, this is not counted. So the accrual of liabilities is not counted. Corporations use accrual accounting. So if they make a promise to pay or do something, it is included as a liability (i.e. a debt). The US Government’s deficit reported on an accrual basis is always trillions more than the number recorded on a cash basis. You can see the problem clearly now, can’t you?
