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American debt craze may push the Fed to use «gold stunt»

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American debt craze may push the Fed to use «gold stunt»

Post  claud39 on Wed Dec 05, 2018 7:56 am

http://economy-news.net/content.php?id=14628



American debt craze may push the Fed to use «gold stunt»




05/12/2018














Economy News Baghdad



US debt has become the focus of attention recently after it has been exacerbated by the extent of the degree of astonishment of the extent of continued discharge, which makes the trick of gold looming again.
A report published by the Daily Reconciliation website highlights the current US debt and deficit, as well as a glimpse of US national debt from President George Washington and Alexander Hamilton in an article by James Rijkards on Weekly Standard.
The US debt ratio stands at the highest level in history (106%) except for the post-World War II period.
But at least in 1945, the United States won the war and its economy dominated global production, while today there is debt without global domination.
The United States has always been willing to increase debt to fight and win the war, but the debt has been reduced and contained once the war ends.
Today, there is no war comparable to major wars in American history, yet religion is growing.
US debt has seen a steady increase and decline, but there has not yet been a view that deficits are not important and can be increased indefinitely.
According to the writer, it took 193 years to accumulate the first trillion dollars of federal debt to the United States, and it is surprising that this figure will be added in this fiscal year alone.
It is noteworthy that these historical efforts to manage US debt were supported by both parties.
Although Republicans Harding and Coled have previously reduced debt, and Democrat Andrew Jackson removed debt in 1836, today there is waste on both sides.
The writer predicts the prospect of an American debt crisis sooner rather than later.
The US budget deficit under the administration of President Donald Trump is close to $ 1 trillion a year, similar to that of his predecessor Barack Obama in 2010 and 2011.
This is the result of tax cuts, cancellation of the spending ceiling, high student loan defaults and inaccurate economic growth estimates by the Budget Management Office.
The annual deficit appears to exceed $ 1 trillion next year, taking into account projected spending.
As the impact of economic growth begins to fade after Trump's tax cut, with no new tax cuts in 2019, the debt-to-GDP ratio is now 106 percent as debt grows faster than the economy.
The US national debt grew 8.8% annually, but only 6.3% of GDP.
But this situation is unsustainable and it is not entirely clear whether GDP will be able to eliminate the gap between its growth and debt acceleration.
In a simplistic way, the United States is heading for bankruptcy, the author said, but stressed that what he says is not intended to arouse fear, but rather an honest assessment based on the figures.
At present, the United States has about $ 21.6 trillion of debt, compared to a $ 20 trillion economy, which means that the debt is bigger than the economy.
When is the debt rate of GDP very high ?, When does a country reach the point where it can change things or end up like Greece?
Economists Ken Rogoff and Carmen Rhinehatt conducted a historical survey that retrieves data and experiences some 800 years ago, looking at countries or empires in some cases, which have been bankrupt or have defaulted on their debts.
The researchers found that the risk zone in debt to GDP ratio was 90%, and once they reached it, they found a turning point.
At this point, the dollar return of debt is less than the dollar yield of production, debt becomes a real obstacle to economic growth.
As the US debt to GDP ratio is 106 percent, the United States is deep in the red zone, facing a deficit of about $ 1 trillion plus more spending.
"We have become more and more like Greece, we are heading towards a sovereign debt crisis, that is not an opinion, it is something that depends on the numbers," he says.
How to get rid of this crisis?
For the elite, there is only one way out at this stage - inflation - they're right. Tax cuts will not do that and the structural changes of the economy will not.
Both will help if they are done correctly but the problem is simply too big: economic growth must go well beyond current levels, which is not available.
Leaving only one solution - inflation.
The Fed has printed about $ 4 trillion over the past several years but there has hardly been inflation with the fact that it has started to accelerate recently.
The reason for the lack of inflation throughout this period is that most of the new funds the Fed has given to banks have turned them into deposits with the central bank to reap interest, which means that those funds have not been pumped into the economy to trigger inflation.
The bottom line is that even printing money does not trigger inflation, but is there another solution ?, In fact there is, and the Fed can raise inflation in 15 minutes if it uses it.
The Fed can call a meeting of its members and vote on a new policy of declaring the price of gold is $ 5,000 an ounce.
They can also make this new price possible through the use of gold owned by the Treasury at Fort Knox, as well as by gold dealers in US banks carrying out open market operations in the yellow metal.
The bank will buy gold if the price reaches $ 4950 per ounce or less and a seller if the price reaches $ 5050 per ounce or higher, printing money at the purchase and reducing the money supply in case of selling through banks.
This means that the Fed will target the price of gold instead of interest rates.
The aim of this is to cause a general increase in price levels, as the rise in the price of gold from $ 1230 per ounce today to $ 5000 means a significant reduction in the value of the dollar when compared to the amount of gold that can be bought by the dollar.
This is a massive inflation in 15 minutes, a time taken to vote on the new political.
It happened twice in the history of the United States during the past 80 years. It was the first time in 1933 when President Franklin Roosevelt ordered an increase in the price of gold from $ 20.67 an ounce to $ 35 an ounce, an increase of almost 75% Gold in dollars.
The US president then took the step to get rid of the price crunch associated with the Great Depression, which worked, as the US economy grew strongly from 1934 to 1936.
The second time was in the 1970s when President Nixon ended the possibility of turning the dollar into gold through US trading partners. Nixon did not want to raise inflation, but it happened.
The gold ounce rose from $ 35 to $ 800 an ounce in less than 9 years, up 2200%, and the US dollar swelled by more than 50% between 1977 and 1981, losing half of its value in that period.
History shows that an increase in the price of gold denominated in dollars is the fastest way to stimulate public inflation. If markets do not do so, the government can.
If the US economy enters a severe recession at some point, which is highly likely, the Fed may reach this trick that has proved successful every time.
 

Source: Mubasher

claud39
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