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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... A New Exchange Traded Fund May Have a Major Impact on Long Term Silver Prices Last week after much publicity and a long wait, the Barclay’s Silver ETF (SLV) finally started trading. And it looks like the wait was worth it. Each share represents 10 ounces of silver. Trading began at $129 a share and at the end of trading for the first day, the new Exchange Traded Fund closed at $138.12 after trading more then 2 million shares on it’s first day of trading. This new fund appears to be immensely popular with traders. It is one of the new Exchange Traded Funds that is acting more like a commodity then a stock. Exchange Traded Funds which ten years ago were very conservative and were mostly mirrors of major stock indexes, are now getting very creative in the sectors they represent and also in the underlying financial instrument they represent. You can now but an ETF that invests in gold, silver or oil. When the equity markets are looking dull, investors can now move their money into funds that are driven by commodities. While not as volatile as the futures markets, these funds can still have wide price swings. Silver and Gold have been recently trading at multi decade highs. With inflation beginning to increase and volatility in world energy markets, these metals could continue to increase in value. Another factor, especially driving the price of silver is the approval of Barclay’s new silver fund. The fund is backed by physical silver and trading in this fund has created a demand for physical silver. This will likely continue to drive the price of silver upward. As the second day of trading ended with 1.5 million shares traded and silver continuing to move slightly upward, there is speculation on how long this trend will last. Silver however, is not driven by day to day news, like many equities. It is driven by long term trends. This particular...