Gold investors are peculiar creatures. Cautious, alert, a little suspicious, they always have a foot in the door no matter how good the room looks. If they’re not true history buffs, they have a solid understanding of what happened in our economic past…and therefore they have a pretty good idea of what will happen in our economic future.
So precious metals investors are looking to the Obama administration and what lies ahead for the economy. Needless to say, most have one foot planted firmly in the door.
Putting aside, for the moment, the positive social implications of America’s first black president, the danger of conflating another potential big spender in the White House with our current economic woes could be a formula for economic Armageddon, many believe.
Which would certainly be fine for gold.
It all depends on the big spenders
Not that President Bush was exactly a cheapskate. From a 2001 budget of $1.9 trillion, the Bush administration submitted a $3.1 trillion budget for 2009 to a whopping 63 percent increase.
In a word, hehehe.
Still, that kind of spending was somewhat offset by three years of a Democratic-controlled Congress. What happens now that we’ve taken control away from that one-armed bandit voter, and everything goes Democrat?
Do not offend members of that party in any way. Both sides, as mentioned, have this worrying compulsive spending disorder (CSD). But in the environment of big spending last year, of controversial $700 billion bailouts and billions in bailouts, having a president and a Congress, of the same party, with a possible majority breaks filabusteroswanting to spend even more truckloads of money may be precisely the wrong step at the wrong time.
“President Barack Obama will have the necessary majorities in the new Congress to carry out his plans for increased spending on national infrastructure and a massive fiscal stimulus package,” wrote Peter J. Cooper of Arabian Money.
Whoops again. It might have been much better for us if Washington had been hopelessly stagnant for the next four years.
Four reasons Obama could be good for gold
So why is it smart to keep your gold in 2009 (and maybe even add more to your portfolio)? Four reasons:
1/ “Our last and best hopeSyndrome. According to a Associated Press According to one poll, about 72 percent of Americans believe, after the recent election, that President Obama will turn the economy around, and there will be a happy ending after all.
That’s fine…for now.
Despite this current enthusiasm for our brilliant new president, the outlook for the 2009 economy, at least in the eyes of analysts, is almost uniformly bleak.
Here is an example: “The world economy will suffer a substantial drop in 2009… It is a dark scenario,” admitted Antonio García Pascual, of the International Monetary Fund.
And that’s just the problem. If Obama represents America’s “last best hope,” and the miserable economy worsens anyway, our optimism for Obama could evaporate, our collective hopes could be dashed, and things could get downright ugly.
Do we have a last and best hope after Obama?
We make. Prayed.
two/Expected international crisis. Both Vice President Biden and Colin Powell alluded to it. “The problems will always be there and there will be a crisis coming on January 21 or 22 that we don’t even know about right now,” Powell said on Meet the Press on October 19, 2008.
Ignoring its glaring contradiction – that we don’t know what this crisis is but we know enough to predict that it will happen on January 21 and 22 – an international emergency to test our new president, whether it happens on those dates or at some other point in the next few years, it would cast even more fear and uncertainty on Americans who are already too stressed.
Fortunately, the antidote to that kind of fear has always been gold.
3/ Show me the money. Talk about the big spenders, according to the October 24 edition of the Wall Street JournalPresident Obama promises to spend another $4.3 trillion even if he cuts tax revenue.
So where is he going to get all that money?
“A trillion here, a trillion there, and pretty soon we’re talking real money. In total, Mr. Obama promises at least $4.3 trillion of increased spending and reduced tax revenue from 2009 to 2018… “wrote the Cato Institute. Alan Reynolds in that WSJ article.
Reynolds concludes with this: “Mr. Obama has offered no clue as to how he intends to pay for his health insurance plans, or double foreign aid, or any of the 175 other programs he promised to expand. Although he can expect to raise some of the loot from the top of the heap, the harsh reality is that this Democrat’s pursuit of hundreds of billions more in revenue each year would have to reach deep into the pockets of people much lower on the economic ladder. “.
Okay… so if our new president doesn’t have a viable way to generate the funds to pay for his 175 programs, where does that leave us? With only two paths: mind-blowing tax increases or…
4/ The H-word. Hyperinflation. “Come on,” you might say. “Things wouldn’t get that bad.” Well, let’s hope. But as things stand, even without Obama’s 175 programs, we are already more than a few miles down the hyperinflationary road.
Where do you think these ransom dollars are coming from? Friendly aliens visiting our galaxy? No, they come from the Treasury Department printing presses.
Which means they are being generated out of nothing.
Write looking for alphas Jason Hamlin, “…major investors like Jim Rogers, Robin Griffiths and Jurg Kiener are now predicting that global central banks’ insistence on printing their way out of the economic crisis is setting the stage for a hyperinflationary holocaust, a domino effect of the what will be the acceleration of gold towards $2,000, as demand for precious metals outstrips supply.
Whoops again. oh