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Author:
Bill Haynes

As gold topped $500, the news became front-page across the country, and radio and TV financial programs led off talking about the price of gold. Invariably, all noted that gold had reached nearly a two-decade high. Yet it is doubtful any of the reporters assigned to the story really grasped the importance of gold topping $500.

Further, few reports dared suggest that the price of gold could climb still higher. Gold stands a good chance of seeing higher prices before the inevitable price correction, which always follows such a strong move.

Most reports saw $500 gold as a novelty, not the ominous sign that something is drastically wrong with the state of financial affairs in the United States. The truth: gold is responding to profligate spending in both the government and the public sectors. Further, gold is rising because of the massive inflation by the Federal Reserve under Alan Greenspan. Let's take a brief glance at only one reason for gold's jump above $500: federal spending.

The federal government now has more than $8 trillion in official (on the books) debt. Only three years ago, gross public debt stood at $6 trillion. For those calculating, that is a one-third debt increase in only three years. The United States took 226 years to run up a debt of $6 trillion. In three years, an additional $2 trillion was tacked on.

According to The Privateer, present projected spending will push the official debt to $11 trillion before the end of Bush's second term. If this becomes reality, in only eight years the official federal debt will have nearly doubled. Additionally, there are the "off-books" liabilities.

Unfunded U.S. government liabilities--Social Security, Medicare, Medicaid, military pensions, federal workers' pensions, and other promise such as picking up the tabs for bankrupt corporate pensions--will reach $50 trillion by the end of the year and climb to $70 trillion by the end of Bush's second term.

The official debt is the accumulation of years of federal deficit spending. This fiscal year's deficit (October 1, 2005 thru September 30, 2006) is projected to be $521 billion. Deficit spending looks to get worse.

Pulling statistics from the respected Congressional Budget Office's January report on the federal budget and economy, Citizens for Tax Justice show annual deficits under Bush policies skyrocketing to $1.164 trillion by 2015. These projections are seven times the Bush administration's numbers because the White House assumes, among other things, that current tax cuts "sunset," that Iraq and Afghanistan expenditures will suddenly end, and that federal appropriations will "plummet" as a share of the economy.

The Congressional Budget Office forecasts that by 2013 "the government is likely to be spending more to pay interest on the debt than on all domestic appropriations put together." Any wonder the price of gold topped $500?

It appears unlikely that the problem of deficit spending will be addressed any time soon in Washington. Sadly, our lawmakers do not yet even see it as a problem. While it is true that Democrats never miss an opportunity to carp about Bush's refusal to "roll back" his tax break for "rich Americans," the Democrats would be as quiet as church mice if the deficit spending were for welfare programs. Either way, the results would be the same: continued deficit spending.

The way gold topped $500 was a big deal because the price of gold is the thermometer for the health of a nation's currency. A rising price for gold suggests a fever is building. However, the reporting suggests that few reporters understand the United States is infected with a deadly virus, not a common cold.

About the author:

Bill Haynes heads CMI Gold & Silver Inc, one of America's oldest precious metals dealers. See CMIGS' website at http://www.cmi-gold-silver.com/. This article may be reprinted provided this signature remains intact, including the direct link to CMI Gold & Silver Inc.

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A Quick Note From The Publisher... If you like the article above, you may be interested in the following article which is also related to Gold/Silver... How Much Gold Is In Fort Knox? This question, to my surprise, has two different answers from two different sets of people who don’t seem to get convinced with each other’s views. Fort Knox, a U.S. military base, is also home to the Bullion Depository better known amongst masses as the Gold Vault of the U.S.A. It was built in 1936 and started operations in 1937 when the process of shifting gold to the depository started in January to proceed to transferring most of the U.S. gold to the site. It has also stored other valuable belongings at various times like original Declaration of Independence, the Bill of Rights, reserves from European countries during World War II and Manga Carta, key documents from western history, the U.S. Constitution, the Articles of Confederation, three volumes of Gutenberg bible and specimens of Sacagawea Dollar coins of 22kt gold. The security, not to mention, is prime and best established. This two level vault has a door weighing 24.6 tons, walls made of granite and the strength of the building can be estimated with the building materials used which include 16,000 cubic feet of granite, 750 tons of steel, 670 tones of structural steel and 4,200 cubic yards of concrete. No visitors are allowed and no one person has access to all the combinations of the vault, the entry being allowed only on president’s orders. The facility is classified to an extent to have been visited by only two presidents Franklin Roosevelt and Harry S. Truman. Now the main question, the actual gold reserves at the bullion depository. According to the information from the US department of the treasury about the U.S. mint, the present holdings of gold at Fort Knox are 147.3 million ounces at $42.22 per ounce book value. This is stored in the form of 368,000 gold bars of 400 troy...