Guns, Butter And Gold

The comments below are an edited and abridged synopsis of an article by Richard Mills

Gold is a safe haven in times of political or economic uncertainty, and military spending feeds debt.

Guns Butter and Gold - BullionBuzz - Nick's Top Six
gun, gold and butter concept. 3D

Defense is the largest portion of the US federal budget behind Social Security. These two items are increasing the debt exponentially, adding deficit after deficit to the mounting pile that, when combined with Covid-related government spending, sits at a jaw-dropping $30 trillion.

Gold tracks the debt-to-GDP ratio, arrived at by dividing a country’s total GDP by its total debt. The US debt-to-GDP ratio has been rising since 2010. It currently sits at 125.6%. As the debt-to-GDP ratio rises because of a drop in GDP due to a recession or a jump in government borrowing that piles up debt—or both—the gold price reacts.

President Biden’s budget for 2022 totals $6 trillion, more than any other. The US government estimates that for 2022, revenues will again fall short of expenditures, leaving a $1.8 trillion deficit. Better than the projected $3 trillion deficit for 2021—almost the same as last year’s $3 trillion—but still, nearly $2 trillion will be added to the national debt.

The massive deficit threatens other national spending in areas of healthcare, education and infrastructure, as well as long-standing welfare programs like social security, which at the current pace is set to run out around 2034-2037.

A country must decide how much to spend on defense/the military (guns) against the amount budgeted for items that are needed for non-defensive purposes (butter). For the US to remain the world’s cop, it will have to maintain a strong military. There can be no letting up.

This comes at a major cost. When defense spending isn’t matched by social spending to address certain inequalities, the effects can be incendiary, especially in the current high-inflation environment.

Investors must pay attention to what is happening around us. Military spending is on the rise globally, and central banks are hoarding gold. In these uncertain times, it would be wise to follow the smart money and do the same. Buy physical gold and silver on the dips and invest in quality junior resource companies, which offer the greatest leverage to rising metals prices.

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