Trying to Find a Balance

The deficit and debt crisis that is staring the US in the face will take a dramatic turn very soon....one way or another. Obama proposes to make small spending cuts across the board while "fixing" tax loopholes that will essentially raise tax rates on the rich. This has been quantified as a $4 Trillion deficit reduction. The GOP has proposed much larger cuts focusing mainly on entitlement programs like Medicaid. $6 Trillion is expected to be saved in the same period of time. What will happen is anyone's guess, one thing for sure is there will be fireworks in Washington. 

What should be done? If both sides truly wanted to solve the problem (and left politics out of it) they would do both. Higher taxes AND cuts to entitlement programs. In fact, that may not even be enough. I imagine the opposite will come true...negotiated spending cuts and negotiated tax hikes, but it's good to dream.

A few notes on gold:

1. If this "dream" scenario occurred, you could see a short term sell-off in gold as the prevailing thought would be a much more balanced budget. But again, not going to happen.

2. My father wouldn't be happy with this post unless I included the following excerpt which supports his conspiracy theories: "A bill proposed in the State of Washington seeks to capture "the name, date of birth, sex, height, weight, race, and address and telephone number of the person with whom the transaction is made" of every purchaser of gold. Furthermore, if passed, the bill will record "a complete description of the property pledged, bought, or consigned, including the brand name, serial number, model number or name, any initials or engraving, size, pattern, and color or stone or stones" and price paid, of course. What’s also significant in the bill is that any transaction in the amount over $100 would require a signature, photo and fingerprint of the person with whom the transaction is made."

First, the government recently tracked down all of our overseas dollars. Then this headline. If they knew the whereabouts and owners of all dollars and all the gold, couldn't they then control its movements? When the day comes that people no longer want their money in dollars because all faith has been lost in the ability to repay, they either move it overseas or into gold. Is the government trying to beat us to the punch?

Sean (and Michael, in spirit)

S&P Downgrades U.S.

Today, I am writing a check to the IRS.

The other bad news, the S&P put the US on a 'negative' watch this morning amid rising debt/deficit concerns.  The credit rating agencies have been warning of a downgrade for well over a year so this really isn't that surprising. Bill Gross of PIMCO recently sold all of their US debt holdings and even went short on some. Then there is the timing of the publication...just days after Obama and the GOP announced their deficit reduction plans. What conclusions can be drawn from this...?

1. Gold is good. Why? Because it's timeless, unchanging, pure. Governments have been destroying currency, so it is important to have something to demonstrate its relative value.

2. Awareness! This should bring the debt/deficit issues to the forefront of the political spectrum. I am shocked to learn from friends and clients how little people understand about our fiscal situation. It all seems like monopoly money; how much is $1 Trillion? And what about the $100+ Trillion we owe? Why should we care? Until we understand it, we won't be able to hold our government responsible. Here is a great video if you want to learn more: http://www.iousathemovie.com/

Sean