By Patrick A. Heller
Commentary on Precious Metals Prepared for CoinWeek.com
The magazine The Economist has just issued their annual economic review, this year titled The World in 2013. The issue does cover a number of social and political issues. Among the highlights are individual forecasts for economies of 79 of the larger nations.
A commonly repeated observation in issues of The Economist is that nations whose governments run budget deficits of 5% or more of Gross Domestic Product (GDP) for multiple years are not sustainable. Either the government fails, or the economy crashes, or the currency collapses.
Sadly this review forecasts that governments of 16 of the 79 nations will run budget deficits of 5% or more in 2013. Here is the list.
Nation Forecasted 2013 Government Budget Deficit As A % Of GDP
United Kingdom -7.8%
Sri Lanka -6.9%
United States -6.6%
South Africa -5.0%
Keep in mind that these projected budget deficits are calculated on a cash flow basis rather than the more accurate accrual basis of accounting that large privately owned companies are required to use. The accrual basis American budget deficit is likely to again exceed $5 trillion in 2013 instead of the cash flow deficit of just over $1 trillion. Therefore, the actual US Federal government deficit in 2013 will actually be at least 25% of GTP and may exceed 30%.
Obviously, that insane size of a budget deficit indicates that the US government, or the economy, or the US dollar is destined to collapse in the not too distant future. Perhaps all three will fail. The US government, on an accrual basis, currently spends about $7.5 trillion per year, as calculated and reported by USA Today in May 2012. In order to reduce spending to equal revenues, the federal government would have to cut expenditures by 70%.
In all the wrangling over the so-called fiscal cliff, no politician is discussing tax increases or cuts in spending anywhere close to these levels. Therefore, whatever last minute deal the Democrats and
Republicans will probably pull off will not prevent this looming catastrophe.
Beyond the horrible outlook, the simple fact that 15 of the other nations, including heavyweights such as Japan and the United Kingdom, are facing government budget deficits of 5% or more is a sign that financial crises could worsen around the world. For instance, three nations in the Eurozone are on this list, which puts the Euro currency in a precarious position.
By the way, the report identifies nine nations that are likely to have governmental budget surpluses of at least 1% in 2013. Out of these nine, seven countries derive substantial revenues from exports of commodities such as oil and silver. The other two nations experiencing surpluses are South Korea (2.6% of GDP) and Hong Kong (1.1%). Both South Korea and Hong Kong have tax levels far below those of the US. But don’t hold your breath hoping for the politicians in Washington to understand this.
When Americans and people around the world are scrambling to get out of US dollars, and this is already happening, you can be sure that owning gold and silver will be popular alternatives. If you don’t already hold an insurance position of precious metals, how long will you risk waiting?
Patrick A. Heller was honored with the American Numismatic Association 2012 Harry J. Forman Numismatic Dealer of the Year Award. He owns Liberty Coin Service in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Numismaster (under “News & Articles) . His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.