-- Posted Friday, 26 March 2010 | | Source: GoldSeek.com
By: Dr. Jeffrey Lewis
Even the most statist economists can understand that a country’s debt has reached its saturation point once the change in Gross Domestic Product is less than the change in the federal debt. However, now the metrics of the American economy look even worse than the picture painted above. For each new dollar in federal debt, with productivity as measured by an increase or decrease in the GDP, 45 cents of wealth is destroyed.
Calculating the Loss
Economists would argue that the United States has long been on the road to wealth destruction. In 1966, each dollar in debt added just $.90 in productivity, with the remaining $.10 lost in translation. By the 1980s and throughout the period of Reaganomics, the United States generated just $.30 in productivity for each $1 in new debt as the ratio became worse for the American tax payer.
If you fast forward just 30 years, today each $1 in debt results in negative growth for the American economy at a loss of 45 cents on the dollar. Much of the loss has to do with the cost of borrowing and the fact that the US economy is already overleveraged.
What the Debt Means in Real Terms
To put the numbers into context, stimulus and other government measures meant to improve economic conditions actually do exactly the opposite. While we may have generated some return on government debt in the 1960s, losing only a dime for each dollar, today we lose $1.45 in GDP for each $1 in debt.
The government can no longer spend itself out of recession, no matter how hard it tries. In fact, as we continue to spend more and more, we push the federal government even closer to default, with the weaknesses in the economy draining more money from the system than is originally added.
The Spotlight is on Precious Metals
With the economy now treading water as the swimming pool is spiraling into the drain, the only seemingly positive part of the news (for precious metal investors, at least) is that commodities are sure to rise in price.
As wealth is destroyed while deficits and debt climb, the value of silver will grow, as it retains its wealth, regardless of the greater changes in the US economy. Truly, there is no better time to own gold and silver as a hedge against government spending, debt and inflation, as well as to realize the full benefit of a commodity that has intrinsic value. Unlike the dollar, the government and the unproductive elements of the economy, silver will never be worth nothing.
Cashing In
Even though our debt reached its saturation point more than 40 years ago, it is certain that government will continue these failed policies for years to come. If they weren't productive then and the government was still willing to continue, why would the government now stop, even when spending is not only bankrupting the economy, but providing negative returns? In moving forward, the government will do what is has been doing since the beginning of time: spending and inflating. Gold and silver will continue its historical trend as well, providing a fail-safe against the plague of debt.
Dr. Jeffrey Lewis
www.silver-coin-investor.com
-- Posted Friday, 26 March 2010 | Digg This Article
| Source: GoldSeek.com
