The United States Debt Crisis, The Ultra-Rich and Countries Continue to Stockpile Gold

As the coronavirus continues to spiral throughout global economies and the risks of a second wave becoming more and more likely in numerous countries, all eyes are on the United States and its unprecedented fiscal and monetary policy.

It was reported that 30% of Americans missed their housing payments in June at a time when 30 million Americans are unemployed. 

The reason why real-estate has not been dramatically affected as of yet is due to federal aid allowing deferrals on mortgage payments alongside $600 per week in federal unemployment benefits. These unemployed Americans will lose the $600 payments at the end of July, which presents a very uncertain picture in the real estate market. 

At the same time, the Federal Reserve continues on its money-printing path as they are currently:

  • Buying all the treasury debt 
  • Buying individual corporate bonds 
  • Buying junk bonds 
  • Buying ETFs 
  • Buying mortgage-backed securities 
  • Has loan programs in place to support universities
  • Has loan programs in place to support charities 

The Fed is playing real-life monopoly to try to keep financial markets afloat. At the same time, debt in the United States is exploding. 

Total domestic nonfinancial debt jumped by 11.7% to $55.9 trillion, while household debt rose 3.9%, and consumer debt rose 1.6%. 

This is happening at a time when the United States is facing one of its worst economic depressions since the great depression. 

Meanwhile, the National debt has exploded to over $26 trillion as the Federal government ramps up coronavirus relief spending, and the number will continue to grow in 2020 dramatically. The Committee for a Responsible Federal Budget estimated the federal debt would grow by $4 trillion this year. 

United States gross federal debt to GDP is currently 106%:

How long will this money printing and unprecedented debt binge go on for? It looks like many individuals and countries aren’t waiting to find out the answer. 

As reported last week, the world’s ultra-rich are currently buying gold as fiscal and monetary policy continues with no end in sight. Nine private banks spoken to by Reuters, which collectively oversee around $6 trillion in assets for the world’s ultra-rich, said they had advised clients to increase their allocation to gold. 

Lisa Shalett, Chief Investment Officer, Wealth Management at Morgan Stanley, said: 

“Our view is that the weight of monetary supply, expansion, is going to ultimately be debasing to the dollar, and the Fed commitments, which (are) anchoring real rates, make the case for gold pretty sturdy.”

This is all coming at a time when there is record selling in the U.S treasury market, as the treasury market has seen two consecutive months of heavy foreign selling. 

On a transaction basis, foreigners sold $176.703 billion in Treasuries in April, compared with sales of $298.910 billion in March, the U.S. Treasury Department said.

Meanwhile, countries remain to be net buyers of gold in 2020 as central banks added nearly 32 tons of gold to reserves in April. 

So far, during 2020, central banks have added a net 142 tons of gold to their reserves. In 2019, central banks purchased 650.3 tons, which represented the second-highest level of annual purchases in 50 years, which was only a little bit lower than the record in 2018.

The trend is beginning to be quite clear; countries are beginning to dump debt and stockpile gold. 

Fiat currencies around the world are dramatically being debased against gold, as debt expansion only continues to explode. Unfortunately, for many consumers holding debt denominated savings, it has only just started, in our opinion.