Loading ...Why Rates Will Be Suppressed
So, let’s start with rates and why they can’t get much higher (near-term) and hence pose a long-term threat to gold’s much higher price rise down the road.
Using the U.S. Fed as the perfect proxy for delusional as well as desperate central bankers around the world, we can do some quick math to see a very clear path ahead for gold.
As the Biden administration adds another $1.9T of “stimulus” debt to an already historically toxic debt pile, the U.S. will be sitting upon over $30T in government debt before Q1 of this year.
With its economy on its knees and tax revenues dwindling, this debt, and hence U.S. deficits, will only get higher, much higher by year end.
Now, let’s compare this current reality to the pre-pandemic math of 2019 when the over-stimulated (i.e. artificial) economy was running hot.
It’s Simple Math
During that time, the U.S. was spending $4T per year and taking in $3T in taxpayer revenue. The net result was around $1T in annual deficits.
Again: This deficit was in a “strong” environment wherein interest expense on U.S. debt for 2019 was around $400B—roughly 10% of total spending.
But if we fast forward (calculator in hand) to 2021, the picture (and the math) turns very dark, very quick
At $30T of total debt and counting, if rates were allowed to rise much higher to anywhere near the historically normal range of 5%, that would mean $1.5T in annual interest expense for Uncle Sam, which would equate to 50% of national revenues rather than 10%.
Such a scenario of rising rates would mathematically make the U.S. insolvent.
By the way, such a rising rate scenario would be equally true in Asia, the EU, the UK, Canada, Australia etc.
In simple terms then, rates will not go much higher for the blunt reason that countries (and hence central bankers) can’t afford them to go much higher.
As a result, central banks have no choice but to cap and repress rates for as long as they can until the whole system implodes and rates, yields and inflation skyrocket.
For now, however, repressed rates are inevitable: It’s a simple matter of natural math and artificial survival.
more https://www.zerohedge.com/markets/getting-ready-golds-golden-era