Safer with gold, silver

July 20, 2017

Pat Heller

Federal Reserve Chair Janet Yellen testified on July 12 before the House Financial Services Committee. After her testimony, she was asked a question by Rep. Steve Pearce, R-N.M., about the size of the federal government’s debt.

Her response was, “Let me state in the strongest possible terms: I agree that what you’re showing here represents a trend that, given current spending and taxation decisions, is going to lead to an unsustainable debt situation, with rising interest rates and declining investment in the United States that will further harm productivity growth and living standards.”

She later said, “A key thing that Congress should be taking into account … is the need to achieve sustainability of this debt path over time.”

What is even scarier is that her comments only cover current federal government collections, expenditures and debt. They do not include any reference to soaring unfunded liabilities for Social Security and Medicare.

According to the federal government’s own Sept. 30, 2016, financial statements, the net present value of Social Security and Medicare collections and expenditures over the following 75 years will increase the federal deficits by $46.7 trillion (see https://www.fiscal.treasury.gov/fsreports/rpt/finrep/fr/16frusg/FinancialStatements_2016.pdf and go to page 61).

This statement from the federal government of future collections and expenditures for Social Security and Medicare does not take into account the already existing unfunded liabilities as of Sept. 30, 2016. On a net present value basis, I have calculated that amount to be between $67 and $87 trillion, which is on top of the federal government’s debt of $20 trillion and other unpaid bills of $3 trillion.

So, if Fed Chair Yellen admits, when only considering current collections, expenditures and the debt, that the federal government’s finances are “unsustainable,” that is a huge warning sign that things are going to get a lot worse for the U.S. economy and the U.S. dollar before they can ever get better.

Recently, in a June 27 speech in London, England, Yellen said, “Would I say there will never, ever be another financial crisis? You know probably that would be going too far, but I do think we are much safer, and I hope that will not be in our lifetime and I don’t believe it will be.”

So, Federal Reserve Chair Janet Yellen, which is it? If current federal government collections, expenditures and debt are unsustainable and will harm productivity growth and living standards, wouldn’t that mean there is a looming financial crisis? Or do you really believe there will not be a financial crisis in our lifetimes, meaning possibly the next 70 years?

I am convinced that, even before considering the additional burden of the federal government’s unfunded liabilities for Social Security and Medicare, that the U.S. government’s financial activities are unsustainable. That risk that federal government finances may be in a crisis means that the U.S. economy and the value of the U.S. dollar are also at a risk of decline.

This is the primary reason why I advocate the ownership of physical precious metals as wealth insurance against the risk of loss of paper assets such as stocks, bonds and currencies. By owning physical gold and silver as part of an investment portfolio, your metals will tend to increase in value as the other assets decline. Or, should paper assets continue to hold their value or increase, you benefit from those positions. That is the purpose of asset diversification.