11/15/09 Budget And Stimulus Update

Precious Metals Market Analysis, By Michael Pennington (Copyright 2010 Pennco Coins)

THE U.S. IS GOING BROKE – LET’S PRINT MORE MONEY! The budget deficit widened in October from a year earlier, reaching a record for that month… The excess of spending over revenue widened to $176.4 billion last month, compared with a deficit of $155.5 billion in the same month a year earlier… Spending for October declined 2.7% from the same month a year earlier to $331.7 billion, and revenue and other income fell 17.9% to $135.3 billion… Individual income tax collections fell 29% to $61.2 billion in October from a year earlier, and corporate tax receipts last month were a negative $4.5 billion on the government’s books… Over the past week, the Treasury auctioned a record $81 billion in its quarterly sales of long-term debt. The Treasury’s debt-management director… told a meeting of bond market participants last week to anticipate another year of government debt sales of $1.5 trillion to $2 trillion…The overall national debt is now over $13 trillion and counting.
While there is some talk now about a new Stimulus II, if you’ve been reading this report then you know they have already implemented a Stimulus II. They just learned from previous mistakes and instead of having public hearings subjecting themselves to criticism, they just  quietly improved spending packages much larger than the original legislation.
Watching the government rack up debts that will be impossible to repay while narrowing the tax base (at least 50% of Americans pay zero federal income tax) at the same time is very scary. Not only has the government gone mad with spending and corruption, but it also expects about 10% of the population to pay for essentially all the costs. The math simply doesn’t add up: 10% of the population can’t (and won’t) pay for all of the costs of a socialist federal government.
Unfortunately, we know from history this kind of political system can’t last for long – for lots of reasons. One important reason: The rich will leave. Or they will stop working. They will hide their incomes or only invest in tax-protected vehicles. And we know the political response will be tougher laws on emigration, taxation, more money printing, and – eventually – capital controls that make it impossible to protect yourself from a massive currency devaluation.

And I can tell you this with 100% accuracy: You cannot support the world’s reserve currency when you are the world’s largest debtor, when you plan to finance annual deficits exceeding $2 trillion with progressive income taxes and money printing. Our economy is a charade. And when it falls apart, the consequences will be devastating.
The stock market seems to believe the government can solve all of our problems with paper money and bureaucratic mandates. My bet is, it doesn’t work… at least, not for long. And given the choice between earning less than 1% in the bank and buying gold at $1,100 per ounce, I’m buying gold.


About Pennco Coins

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