Top 10 most read posts from the APMEX blog

Catch up on what you missed this year! Here are 2012′s top ten most read posts from our blog.

Buying Gold? Top 4 Things to Keep in Mind

Interview with David Ganz, author of The Essential Guide to Investing in Precious Metals

Oklahomans can Buy Gold and Silver Coins and Bars without Paying Sales Tax!

Special Report: Fiscal Cliff? U.S. Debt Ceiling is the REAL Issue

Fun Facts About Gold – Part 1

How can I buy Gold?

Ten (10) Things to Know Before you Buy from APMEX

How to Spot a Fake Coin

Gold and Silver Prices Down. Is this an opportunity to invest?

Why investing is hard and Gold’s role in your portfolio. An interview with Tadas Viskanta.

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Special Report: Fiscal Cliff? U.S. Debt Ceiling is the REAL Issue

Debt Ceiling to allow U.S. Debt to hit historic level in early 2013

While there have been and continue to be a significant number of hands wringing over the fiscal cliff , which takes effect on December 31, perhaps the REAL issue is coming very early in 2013: the U.S. Debt Ceiling.

The fiscal cliff is being discussed on every business report on television, radio, Internet blogs and print media. As you most likely know, fiscal cliff is the name given to the event associated with the simultaneous expiration of the Bush-era tax cuts, the increase in the payroll tax and the immediate reduction of federal government spending. For reference, here are links to APMEX’s special reports n the fiscal cliff.

Fiscal Cliff is but the Beginning

While the sudden and significant impact of multiple changes in the economy is surely creating anxiety and uncertainty in both the personal lives and business of Americans, this is likely only the beginning of issues as the United States begins to respond to the “new normal” following the Great Recession.

However, the next increase in the federal debt ceiling – the maximum amount the U.S. may borrow as set by Congress – will establish the maximum U.S. Federal Debt at about $18 trillion. While this is, of course, a huge level of debt and the largest debt of any country, the U.S. also has the world’s largest economy.

The question that each country must address is “How much debt can this country afford?” The answer depends on a number of factors and is often measured in the ratio of debt to Gross Domestic Product (GDP) of the borrowing country. Historically, for the U.S., this ratio has generally been between 30 percent and 65 percent, from 1950 until the beginning of the Great Recession in 2008.

U.S. Debt is at Historically High and Dangerous Levels

When the next debt ceiling is set by Congress, most likely in early 2013, presuming borrowing to the ceiling and low GDP growth, the U.S. Debt to U.S. GDP ratio will most likely be about 120 percent, a level more than double the historical levels since 1950.

How does this compare to other countries? Below is a table of several key countries around the world. Also, here is a complete list of countries with Debt to GDP levels provided by the International Monetary Fund.

countrydata

The History and the Current Status of the U.S. Debt Ceiling

During World War I in 1917, the U.S. Congress passed a law requiring Congressional approval on the aggregate debt outstanding of the United States. Prior to this, Congress was required to approve each and every debt offering. Since 1950, there have been 95 changes to the debt ceiling; since 2000 there have been 13 changes, or about one per year. You can read about the History of the U.S. Debt Ceiling or see a listing of all changes to the U.S. Debt Ceiling, use Table 7.3.histroyofdebt

Since 2000, the increases in the U.S. Debt Ceiling have been larger than in previous years as the United States borrowed more to finance the 2000 dot-com bust, the wars in Afghanistan and Iraq, and the Federal support of the Great Recession of 2007–2008.

The current status of the U.S. Public Debt and the Debt Limit is shown in the charts below. The U.S. Debt has increased by more than 15 percent since January 2011. The current U.S. Debt is very close to the U.S. Debt Ceiling of about $16.5 trillion and, accordingly, Congress will be required to take action very soon.USpublicdebt

The U.S. Debt has increased $2.1 trillion, or about 15percent, in just two years since January 2011. Despite the large increase, the Federal Government has almost borrowed to the limit.

The U.S. Debt Ceiling must be raised in the very near future, most likely in a few months. As the chart below shows, at the end of October 2012, only about $172 billion remained available under the U.S. Debt Ceiling. In November 2011, federal borrowing increased by $119 billion, and if that were the borrowing rate for November 2012, almost all of the available U.S. Debt availability would be consumed.

Note: In an article in The Wall Street Journalon December 12, 2003, it was reported that the U.S. Treasury currently has only about $67 billion remaining in borrowing capacity.

usborrowingThe red line represents the total borrowing capacity of the United States that is above the current aggregate outstanding U.S. Debt. Since January 2012, U.S. borrowing has increased such that the remaining availability has declined each month , leaving the availability in November 2012 at just $172 billion. Here is the U.S. Treasury Monthly Statement of the Public Debt of the United States.

Gold and the U.S. Debt in 2012 and Beyond

With much debate on the fiscal cliff and future debate on the debt ceiling, the end result will be that the U.S. will most likely continue to be in a period of very high federal debt relative to the GDP. This relationship cannot be changed in a year and perhaps not even in five years.

The Europeans are ahead of the United States in addressing their debt to GDP issues with Greece, Portugal, Ireland and Italy. Spain will most likely become a problem as well. The solution in Europe has been the same as the solution in the U.S.: the Central Banks create more currency to keep the economy from falling even further.

A recent article in Barron’s, titled “Is Bad News Still Good News for Gold?” Randall Forsyth, the author, in the last paragraph says

As long as authorities try to do whatever it takes to hold the system of fiat currencies and indebted governments from flying apart, paper money will continue to lose value relative to the traditional store of value, gold.

Also read

Special Report: Fiscal Cliff is Only 1 of “4 Horsemen of the Economic Apocalypse” for 2013

Special Report: 5 Possible Outcomes of the U.S. “Fiscal Cliff”

Special Report: Read about the United States Fiscal Cliff

 

 

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Gold gaining momentum, Germany worried about U.S. debt

 

Spot gold is trading around six month highs today as the euro is gaining strength against the dollar. Gold has a positive relationship to the euro right now and over the past two months has grown to be at its most positive, a +0.75. There is growing expectations about what will come out of Thursdays Federal Reserve meeting; speculation is that a quantitative easing announcement could send the price of gold over $1,800.

German Finance Minister Wolfgang Schaeuble has brought into question the United States’ high level of debt. He is quoted saying in a speech to the lower house of parliament that “U.S. debt (is) a burden for the global economy.” He underscores the fact that the rest of the world is keeping their eye on the U.S. elections and is concerned about our ability to deal with it once the elections are over. This comes just after the U.S. reached an inauspicious $16 trillion debt.

Adding insult to injury, the U.S. trade gap widened in July. This was the first time in four months that demand for U.S. produced goods decreased. The gap grew 0.2 percent to $42 billion. The positive side to this is that is smaller than projected. The trade gap is due in part to stagnant economies in Europe.

At 9AM EDT the APMEX precious metals prices were:

  • Gold price – $1,736.10 – Up $5.30
  • Silver price – $33.82 – Up $0.19 cents
  • Platinum price – $1,608.00 – Up $3.20
  • Palladium price – $675.80 – Up $3.00

 

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