The G-20 Pig-out And What It Means For Gold
July 7, 2010 by John Myers
Listening to President Barack Obama at the Group of 20 summit in Toronto, Canada, last week reminded me a bit of myself. As a person who has gained, lost and then gained back 100 pounds over the past decade, I have given much consideration to the very best time to start a diet. Without a doubt the answer is always: tomorrow.
For nearly 18 months Obama has been on a spending orgy that would make the Roman Emperor Caligula blush. Yet Obama says that the United States and other nations need to cut spending; just not yet, damn it!
"Because durable growth must also include fiscal responsibility,” said Obama after the G-20, “we agreed to balance the need for continued growth in the short term and fiscal sustainability in the medium term." Then the President added: “We can’t all rush to the exits at the same time, so countries that have surpluses should think about how we can spur growth."
In other words, “Of course I will have that piece of cheesecake.”
This is especially true if you not only think the cheesecake isn’t bad for you, but if you have in fact convinced yourself that you just might die without it.
After offering up $7 trillion in spending to re-flate the economy following the Crash of ’08 you might think that the industrialized nations had already bitten off more than they could swallow. This is apparently not so. The G-20 summit concluded with Big Governments showing their still insatiable spending appetites.
As a native born son I can tell you that nobody knows how to borrow and spend better than Canadians. Prime Minister Stephen Harper proved it by urging advanced and developing countries set aside their differences and spend until it hurts.
Harper bragged after the summit ended that the world will adopt a “carefully calibrated” plan that rightly puts growth and jobs first and then tackles market-rattling deficits in a big way.
Harper advocated what he called the, “continued role for ongoing stimulus in the short term,” adding: “The G-20 still has a lot to do to fully entrench the global recovery.”
In their final communiqué the G-20 leaders said that “strengthening the recovery is the key.” Nevertheless the G-20 leaders agreed to cut deficits in half by 2013 and to put government debt loads on a stable or downward track by 2016.
It all sounds a bit like Kirstie Alley at Thanksgiving dinner.
World’s Biggest Loser
And in case you were wondering, nobody has a bigger appetite to spend than Obama. The President says that he fears an austerity program will choke off the global recovery, inviting another crisis. But even he concedes that ballooning American and European deficits will be pared back eventually (just one last box of chocolates… I swear it).
“We are moving in the same direction,” the President said as the summit came to a close. Exactly what direction that is remains unclear, but I for one think it might require an economic liposuction also known as deflation.
Of course that is all down the road. The good news for the U.S. is that the G-20′s six-year window leaves Obama the latitude to front-load stimulus and bring in austerity later. No doubt that will come sometime after the President’s bid for re-election.
Meanwhile, Washington is currently running a $1.4 trillion deficit, or a number which almost totals 11 percent of gross domestic product (GDP). Still the President has said he is determined to keep on spending until we see a permanent economic turnaround. When that will be is anyone’s guess, but one thing is clear: it won’t be easy to stabilize the debt load, much less set it on a downward path. For the 31 members of the Organization for Economic Cooperation and Development, unemployment now stands at 46 million, up some 50 percent since 2007.
Trillions have already been spent trying to resurrect the global economy and if the G-20 meeting is any indication, world governments are about to double-down on their bet. One has to wonder if even John Maynard Keynes—the father of deficit spending—would recognize what is going on now in his name. Perhaps Keynes would fear that runaway deficits threaten an even worse financial crisis.
Eventually deficits become counterproductive. They cause concern and eventually fear in the credit markets. This will invariably lead to skyrocketing interest rates and despite government’s best intentions, an economic collapse.
Germany—a country whose people are known for their boorish appetites—is urging caution when it comes to more government spending. At the G-20 summit German Chancellor Angela Merkel warned: “It’s not about growth at any price, it’s about sustainable growth.”
German Finance Minister Wolfgang Schaeuble added: “Nobody can seriously dispute that excessive public debts, not only in Europe, are one of the main causes of the crisis.”
And German Economy Minister Rainer Bruederle threw in his two euro-cents, saying that the U.S. and Europe need to “urgently” slash spending.
Fat chance I say. A doctor at an obese clinic is more likely to stop fat kids tumbling into an abandoned Twinkie truck than the German Bundestag will be at reining in the spending of other G-20 members.
In fact President Obama has staked his reputation and more importantly, his re-election, on more stimulus spending.
The Wall Street Journal writes that the Obama administration is insisting on new stimulus measures—”convincing evidence that they too recognize that the earlier measures failed.
“The administration’s stimulus program has failed. Growth is slow and unemployment remains high. The president, his friends and advisers talk endlessly about the circumstances they inherited as a way of avoiding responsibility for the 18 months for which they are responsible.”
The latest market evidence says that the WSJ is spot on. Consumer confidence is anything but confident. The Dow Industrials are on the edge of a cliff—perched below 10,000 points, while the S&P 500 is at its lowest point since the dark days of October 2009.
And don’t look for any help from our so-called friends at the Federal Reserve. The central bank has already cut the cost of money as close to zero as it can go. In fact, the yield on 10-year Treasury notes has fallen to less than 3 percent, one of the few times in our history.
All in all it’s enough to drive a fella to run out to Wendy’s and buy up Baconators.
But there is something out there that would soothe us a whole lot better than grease. I am talking about gold.
Bullion prices have risen almost 50 percent since I first recommended it to you on this site last summer—even in the wake of last week’s big correction that took place mostly on profit taking and some fears of deflation. Still, I am convinced that Washington’s next flood of money will push the Midas metal higher—much higher—up to $1,800 per ounce within the next year. That makes bullion at $1,200 a bargain.
Most importantly, gold looks to be the only dependable investment out there. Government policies will soon unleash a tidal wave of inflation which will rock the stock and bond markets as well as the banks themselves. The only profitable place, in fact the only sensible place to be fully invested right now is in gold.
I started out by talking about diets. I want to finish up by telling you something my dad said to me about gardening: “The best time to plant a tree was 20 years ago. The second best time is right now.”
Of course it would have been better to have bought more gold sooner. But let’s do the next best thing and buy some today.
Action To Take
Sell all Big Board stocks and all bond instruments this very day and use the funds to buy physical gold. I recommend American Gold Eagles, Canadian Maple Leafs and African Krugerrands. I prefer these because they are stamped in English, have their gold content stamped on them, come in convenient, well-known sizes (1-ounce, half-ounce, quarter-ounce and one-tenth-ounce) and sell at small premiums over the value of their gold content.
Yours for real wealth and good health,
Myers’ Energy and Gold