October 2024 - Week 2 Edition

FY2024 Federal Budget Deficit Hit $2.3 Trillion – Worst Since 2021

The 2024 federal fiscal year ended last week, on Monday, September 30. By Thursday, October 3rd, we learned the sad fact that our federal deficit grew by $2.3 trillion in 2024, the most since the COVID-bloated budget deficits of 2020 and 2021. It wasn’t because of a lack of tax receipts or income, though. According to official White House budget data, this past year’s tax receipts grew 14.4% from $4.44 trillion to $5.08 trillion but outlays grew by more, from $6.13 trillion to $6.94 trillion – and that was the Biden/Harris planned budget. The actual deficit came in much larger than that.

We learned about the actual deficit by subtracting the total federal debt as of September 30, 2024, ($35.465 trillion) from the total federal debt as of September 30, 2023, which was $33.167 trillion. The difference is $2.297 trillion, just short of $2.3 trillion. The Biden administration may cite a lower number in their official spin but according to the universally accepted definition of income – by comparing the total debt, year-over-year – the increase in 2024 debt is just shy of $2.3 trillion.

As it turns out, the first trillion dollars in federal debt came in the first four months of the fiscal year, by January. After that, the deficit increase slowed in the spring, only to accelerate in the summer, with a huge $800 billion in red ink coming June through September, or $200 billion per month since June.

If you look at the past five years, the U.S. economy has grown less than half as fast as our public debt. The U.S. GDP has risen by about 15% since 2019, from $20 trillion to $23 trillion, but our public debt rose by over 40%, from about $25 trillion to over $35 trillion. So, debt is growing almost three times faster than the GDP.  Obviously, we need political leaders of both parties to address this growing debt, with no end in sight for this volume of red ink. Since increasing deficits are a factor in rising inflation and gold prices, I recommend you add gold to your portfolio routinely as long as our national debt increases.

Gold Exchange Standard Ended in 1971, Causing Gold to Soar

The ballooning deficits that I mentioned above, would not be possible under the gold standard. It policed government monetary and fiscal policies for centuries, even in times of war, when the country had to raise money by issuing bonds or redeeming fiat money after the war was over. The U.S. gold standard survived for decades and made the Western world rich and dominant. Austrian-born economist Ludwig von Mises explained this in his book “Human Action,” published in 1949 and translated from German.

In Chapter 18, von Mises covers the Gold Standard by saying, “Men have chosen the precious metals gold and silver for the money service on account of their mineralogical, physical and chemical features. That gold – and not something else – is used as money is merely a historical fact.” He argued against any fixed ratio between gold and silver, favoring a pure gold standard.

“The gold standard was the world standard in the age of capitalism, increasing welfare, liberty and democracy, both political and economic … It was the medium of exchange by means of which Western industrialism and Western capital had borne Western civilization into the remotest parts of the earth’s surface, everywhere destroying the fetters of age-old prejudices and superstitions, sowing the seeds of new life and new well-being, freeing minds and souls and creating riches unheard of before. It accompanied the triumphal unprecedented progress of Western liberalism ready to unite all nations into a community of free nations, peacefully cooperating with another.” 

The gold standard had several enemies: “Interventionist governments and pressure groups are fighting the gold standard because they consider it the most serious obstacle to their endeavors to manipulate prices and wage rates. But the most fanatical attacks against gold are made by those intent on credit expansion….it would free the state from the necessity of balancing its budget – in short, make all people prosperous and happy. Only the gold standard, that devilish contrivance of the wicked and stupid ‘orthodox’ economists, prevents mankind from attaining everlasting prosperity.”

“The gold standard makes the determination of money’s purchasing power independent of the changing ambitions and doctrines of political parties and pressure groups. This is not a defect of the gold standard; it is its main excellence. Every method of manipulating purchasing power is by necessity arbitrary. … The gold standard removes the cash-induced changes in purchasing power from the political arena. Its general acceptance requires the acknowledgment of the truth that one cannot make all people richer by printing money. The abhorrence of the gold standard is inspired by the superstition that omnipotent governments can create wealth out of little scraps of paper.”

The gold standard was “wounded” by the Great Depression and World War II but it survived in part 80 years ago in the Bretton Woods (New Hampshire) agreement in the form of a “gold exchange” standard of the U.S. dollar to foreign governments at the fixed price of $35 per ounce.

U.S. citizens were not allowed the right to exchange their dollars for gold but foreign sovereign banks were allowed that right until August 15, 1971. That is the day President Nixon closed the gold window and allowed gold and the dollar to “float” according to supply and demand, with the inevitable result of massive over-printing of most global paper currencies since 1971. As a result, in the past 53 years, gold has risen 76-fold to $2,655, while CPI inflation is up just 7.7-fold. That means gold has risen at almost 10 times the pace of overall price inflation. Protect your savings from inflation by buying gold!

After Bretton Woods, several classical economists warned this would happen if governments abandoned the gold standard. One small, simple book was written by American journalist Henry Hazlitt in 1946, “Economics in One Lesson,” but von Mises’ “Human Action” was the masterpiece.

As von Mises wrote in 1949, “No government is powerful enough to abolish the gold standard. Gold is the money of international trade and of the supernational economic community of man.”

It’s important to realize that the gold standard is not really dead because Central banks have voted for gold over the past 15 years since the Great Recession of 2008-09. They made gold second only to the U.S. dollar in foreign reserves. Millions of private investors have also voted for gold in their private portfolios, using gold as their “standard” hedge against the weakening U.S. dollar. As gold continues to rise, I urge you to contact one of our professional representatives today to discuss adding, or adding more, gold to your investment portfolio. Gold’s proven track record speaks for itself.

Gold Is Still Gaining and Will Continue

Gold hit $2,692 on the futures market on October 1st, another all-time high. The first week of October was full of shocks and surprises, including Iran’s surprise attack on Israel, pushing the crude oil price up 9% for the week. Compounded with the devastating hurricane Helene and the quick resolution to the port strike, a bullish jobs report on Friday and the victory by J.D. Vance in the vice-presidential debate the price of gold continues to increase. For the week, gold remained strong and silver hit $33 briefly on Friday, the first time in 12 years.

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