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Our 21st Century Economic Structure

Updated: Sep 18, 2023

CAMS Weekly View from the Corner - Week ending 8/25/23

August 29, 2023

In our previous edition we examined the top performing asset class leaders for the 21st century. What may be a surprise to most; stocks were not the leader as is customarily expected, in particular when reviewing long periods of time. Rather, Gold outperformed handily thus far in this century.

Gold’s performance is a historical aberration especially when viewing, for example, the two decades previous to this young century. In the 1980-2000 timeframe the precious metal was nowhere to be seen in a performance study.

In the two-plus decades of this century it has been an overarching storyline of money printing & debt. Gold, well, specifically market participants like that type of environment for gold because underneath it all is a debased, worth ever less (in its value/purchasing power) currency via excessive printing and indebtedness.

As an add-on this is not only a U.S. story but rather a global one in that gold, when priced in various global currencies, has been a strong performer if not outperformer.

Being gold has been viewed as money for thousands of years and its supply cannot be added to via printing at whim its currency “exchange rate” moves up notably when government dictated (fiat) paper currencies meet the printing press in excess.

Speaking to this, in the U.S. for example, to begin this century the gold exchange rate was 1/280th of an ounce of gold which of course equals $280 dollars per ounce. More current day we see a 1/1916th rate which is $1916 per ounce. Gold’s tremendous increase when priced in dollars speaks to the dollar’s (and other currencies we emphasize) outsized printing and hence debased value.

With this as a brief backdrop we left off offering we would place our massive national debt (which is also known as Public Debt – in order to emphasize ultimately it is the citizenry that is on the hood for it) into context of the economy and its growth.

Public Debt & GDP

Federal Debt Chart
Click For Larger View:

The above chart dates back to year 2000 and progresses up through 2023. We are merely placing debt growth in context of economic growth via the well known GDP figure.

We began the century whereby Public Debt was just over half the level of the economy coming in at 60% of GDP. Per our red arrow we can see the steady, then at times, rapid increases along the timeline. Through it all we hit a high mark of 135% and are currently around 120%.

This simply means that debt growth has far surpassed economic growth in this century - adding the quip that Capitalism was long ago replaced by Credit-ism.

Now that our Public Debt is at 120% of GDP this also means current day that the size of our Public Debt is 1.2 times larger than the level of our overall economy. Remember, year 2000 that debt level was about half the level of our overall economy. The level of debt growth has been truly staggering in-and-of-itself and also when comparing its growth to the growth of GDP.

Lastly on this breakdown, this also tells us that in the past 23-plus years it takes evermore debt to create a unit of economic growth. A sad affair economically speaking.

This overall storyline is not a U.S. only issue as many countries around the globe have moved into Credit-ism with all of the negative consequences. Gold’s “exchange rate” outperformance messages this negative storyline of money printing and debt.

Placing the Big Three Together

Let’s place Money printing, Debt and economic growth via GDP together – an interactive trio if you will. Below we index them starting in year 2000. You can think of this as a race with the starting line being 100 for each then we see who out paces as the timeline unfolds.

Monetary Base, Public Debt and GDP Chart
Click For Larger View:

Above we have three lines beginning year 2000 with the green line representing money printing via the Monetary Base, the red line representing Public Debt and the blue line representing economic growth via nominal GDP.

Little narration is needed in that the money printing (green line) handily outperforms the other two which in-part speaks to the aforementioned gold story.

Public Debt via the red line is in second place which itself, as shown up above, has far surpassed the rate of economic growth via the bottom blue line. With this, we truly have had a couple decade storyline of money printing and debt.

If interested, by way of visual comparison, this link provides the same indexed big three but for the previous two decades of 1980 – 2000:

Very briefly (for 1980 - 2000) Public Debt and money printing were of relatively little notice compared to economic growth but as the two decades unfolded money printing and debt began to show a different story – albeit a subtle storyline relative to the 21st century.

Importantly, we do not reference the 1980 – 2000 timeframe as some sort of Holy Grail economically speaking. Rather, it is mentioned and used as a reference point being it was the two prior decades to what we have experienced since then.

Unfunded Liabilities

Federal Public Debt is usually the focal point anytime our debt issues are addressed but an even larger issue is the level of Unfunded Liabilities.

These are liabilities that are on the books (think promises made to the citizenry with citizenry expecting ultimately to be fulfilled) but there are no funds in reserve. These are estimated in the $125 - $175 Trillion range. Yes, a huge figure that dwarfs our Public Debt level. This is also a broad range in the estimates as there are many variables to include in the forecast.

This begs the question; how will it be possible to fulfill these obligations without further debasement of the currency via the printing press – think printing dollars out of thin air?

It is this or more debt under the Public Debt banner or default, which is failure to meet the obligation. Raising taxes as the go-to only solution to the level necessary would crush the economy and hence take us back to square one which is where will these dollars come from?

Expect all of them. That is, higher taxes, more money printing, more Public Debt, and “soft defaults,” meaning less citizens will be considered qualified for X benefits.

Broadening this out the U.S. is not alone in these money printing and debt issues as the globe is swimming in debased paper currency and debt. This takes us full circle to why gold has handily outperformed in the 21st century while being a ghost on a performance study the one and two decades prior.

Coming years to decade-plus are going to be very interesting relative to these economic/societal issues as the storyline of money printing, debt, economic growth and massive promises made that are not funded unfold.

Along the path gold will tell the story be it up or down.

I wish you well...

Ken Reinhart

Director, Market Research & Portfolio Analysis


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