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The Cost of Debt

Debts DO Matter

Written by Brian Hicks
Posted April 12, 2012

In 1998, I remember listening to a popular talk radio show in Denver that dealt with all kinds of economic and political issues.

The host of the show had quite a broad following of listeners as he tried to cover with fairness both sides of any of the important topics of the day.

On one particular episode in which the show was talking about the debt of the United States and other countries, I began to realize from those who called in just how out of touch the average citizen was when it came to understanding the implications of our growing debt...

Back in 1998, this talk show host and his listeners seemed to think the growing debts were nothing to worry about, and that a country as big and strong as the United States could easily handle those debts and much more without worry.

But I thought much differently than most at the time...

I was labeled as someone who was "out of touch," so to speak.

Because of my belief that debts do matter — and eventually catch up with those who think they are exempt from consequences — I founded a bullion dealership called in the summer of 1998.

My basis for doing so was my belief that gold had bottomed and that the dollar would begin to unwind over the course of the next ten years, pushing gold to new all-time highs.

You have to remember that at the time, the Internet stocks were going ballistic, and someone like me who shied away from companies who were trading at 300 times projected earnings and began talking gold was from another planet!

Fast-forward to 2012, and it appears the entire fiat currency experiment of Keynesian Economics is on its final legs and ready to implode. Governments and their central banks with reckless abandon are blatantly deceiving the public, as witnessed yesterday by the orchestrated attack on the precious metals markets.

This type of behavior is typical when nations get to the end of the fiat currency game of creating money out of thin air and pumping it into the system.

They have juiced the system for over 40 years, but have now come face to face with the reality.

That reality is that it is taking greater and greater amounts of counterfeiting (creating money out of nothing) to keep the whole smoke-and-mirrors routine going. The debt is growing much more rapidly than the general economy that they are trying to stimulate.

At some point, the fear of the debt and the interest that must be paid is going to totally overwhelm their ability to stimulate the economy by generating more debt.

In my opinion, this day is getting very close...

What I find absolutely incomprehensible is the inability of people worldwide to understand what is happening to them.

At a recent conference I attended, John Embry of Sprott Asset Management expressed it like this: He explained this disconnect of the people with actual circumstances as “Cognitive Dissonance.”

The definition of this term is used to describe the feeling of discomfort that results from holding two conflicting beliefs. When there is a discrepancy between beliefs and behaviors, something must change in order to eliminate or reduce the dissonance.

In the case of economics, people want to trust their elected politicians — but the facts prove otherwise, and they simply don’t want to deal with these thoughts.

It is quite perplexing when you think about how many people seem caught in this scenario.

One of my subscribers invited me to a dinner at the Palm Springs show and expressed his thoughts on this with the following quote:

Someday, someone one hundred years from now is going to write a book about our generation and state how completely out of touch we were to allow these things to happen.

They will be studying what led up to the greatest financial crash of all time and will be in a stupor over how so many so called educated people could be fooled into thinking such fantasy.

I am amazed how few people actually have any understanding.

As an example, also from that conference in Palm Springs, I met with someone from a billionaire family who owns a major league sports franchise. He expressed interest in gold and was told by someone else that he should talk with me.

He came up to me introduced himself, and we had a nice 45-minute conversation... but I was absolutely dumbfounded as he admitted to me they had no gold or silver in their portfolio.

I was thinking to myself, "How could someone with so much wealth not be invested in precious metals at this point?"

He told me he would be calling me — and I hope he follows through — but this shows you how few people (even those with incredible wealth) have any idea of what's coming.

If the American people truly understood what inflation was doing to them, they would be screaming bloody murder about monetary policy.

Inflation is an especially insidious tax because it is not just a tax on your income for one year... It is a continual tax on every single dollar you own.

As your money sits in the bank, it is constantly losing value. Over time, the effects of inflation can be absolutely devastating.

If you put 100 dollars in the bank in 1970, those same dollars today would only have about 17 percent of the purchasing power that they did back then. In essence, you were hit by an 83 percent “inflation tax” and all you did was leave your money in the bank.

So who is responsible for this? Well, the Federal Reserve controls monetary policy in the United States, and the inflationary monetary policy that the Fed has gotten all of us accustomed to is taxing the living daylights out of us.

This is madness — and it needs to stop. 

The Federal Reserve System is designed to have the U.S. money supply expand indefinitely. And that is exactly what has happened since 1913.

But when the money supply expands, there are very serious consequences...

Every time more money comes into existence, the dollars that you and I are already holding become less valuable, because now there are more dollars chasing the same amount of goods and services.

Right now, the U.S. Government says that the annual rate of inflation is somewhere around 2 percent.

Those of you that have to buy food and gas on a regular basis realize how much of a joke that is.

Thankfully, there are others out there that keep track of these statistics as well.

According to John Williams of, if inflation was measured the same way that it was back in 1980, the annual rate of inflation would be more than 10 percent right now.

So why don’t the U.S. Government and the Federal Reserve quit flooding our economy with more paper money?

That is a very good question.

Sadly, the current management teams of Washington and New York seem to have a never-ending addiction to more paper money, and the American people are too clueless to demand any real change.

But the coming consequences will take care of that.

I wanted to show subscribers with some logical analysis just how high precious metals prices could go in the event of worldwide fiat currency implosion causing governments to topple.

I asked permission to use this slide from Mr. Gregory Weldon of Weldon Financial, who was kind enough to let me share this with others.

I recently met Greg at a conference I attended and was absolutely delighted to see someone who truly understands what is happening and why.

When I talk about the fact that DEBTS REALLY DO MATTER, I think Greg’s slide tells the real story of where precious metals prices are headed...

Many of you have heard me say in interviews lately that I feel like gold will be priced conservatively at $6,500 an ounce before things are all said and done.

But the chart below expresses this in terms of real governmental debts from around the world — and what kind of gold price it would take to cover all this debt based on the limited number of gold ounces available to the world.

Global Money-Debt/Gold "Conversion"

U.S. Money Supply ($14.0 trillion)
Gold = $3000 per/ounce

U.S. Government Debt ($14.0 trillion)
Gold = $3,000 per/ounce

U.S. Money Supply + Government Debt ($28.0 trillion)
Gold = $6,000 per/ounce

‘Global’ Government Debt ($36.8 trillion)
Gold = $7,200 per/ounce

IMF-5 Money Supply ($52.2 trillion)
Gold = $10,500 per/ounce

‘Global’ Money Supply ($60.2 trillion)
Gold = $12,120 per/ounce

All Money Supply + Government Debt ($96.8 trillion)
Gold = $19,525 per/ounce

NOTE: This mathematical conversion is strictly intended to illustrate
that gold could be ‘undervalued.’

That's right — it would take a gold price of $19,525 an ounce to cover this debt.

When I say gold is going to at least $6,500 an ounce in our future, I am being very conservative to what I really believe... but to say anything higher than that number without some sort of framework to quantify it is just picking a number for the sake of it.

This analysis is very credible as to why gold and silver prices are going to levels that people simply can grasp.

It is the reason I emphatically keep stating that gold and silver at their current levels are still dirt cheap compared to where they are going...

And when they go to these higher levels — which I fully expect as things continue to worsen — can you imagine what the price of a quality precious metals junior mining share will be going for?

The leverage is going to be one for the record books. The heyday of Internet stocks will look like chump change!

Until next time,

Greg McCoach
Analyst, Wealth Daily

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