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Tapering Is Bullish For Gold

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I wanted to address tapering, an end to monetary stimulus, and what it means for gold. In 2013 the price of Gold suffered its worst year since 1981. The general consensus on why gold crashed was because of the Fed’s forward guidance stating the US economy is on the verge of recovery, with government data supporting an economic recovery, which will ultimately lead to the end of monetary stimulus, followed by interest rate normalization.

In terms of fundamentals, none of the fundamentals that lead to a rise in gold from 2003-2011 have changed. When stating this, most people would think I’m crazy, partially because I am ;), but mainly because when one invested in gold, the decision was made because the Fed was printing money, and that the price of gold would rise because of the continuous injection of monetary stimulus. But what those people forget is that Gold is money, and the reason the US is printing money is because it’s insolvent. If interest rates were to rise to a fair market value, the interest on government debt would greatly exceed government revenue, thus leading to a national default on its financial obligations. That is why analyst have said if you believe in math buy gold.

I will admit if the Fed stopped easing, printing money, providing monetary accommodation, whatever you want to call it, that would cause a knee jerk reaction, and create selling pressure, thus reducing the spot price of precious metals. But the reality is, if they completely ended stimulus, slowly at a gradual pace, or quickly, interest rates would inevitably spike, thus causing sovereign debt crisis, which will ultimately lead to a default in the US treasuries market. This would then create a mad panic rush into monetary alternatives to the US dollar, and the strongest alternative to fiat currencies for the past 5,000 years was, is, and most likely always will be, Precious Metals.

I admit I don’t think the Fed will end stimulus, in fact I believe they will reverse the tapering, or come out with a much larger stimulus program in the future; but even if they ended stimulus, the gold fundamentals are still strong because of all the debt in the system, and because it is an alternative to the paper money system we are presently stuck in.

3 bubbles in the US economy that have yet to pop

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1. The Student loan bubble
Student loans aren’t going to be around much longer, when people come to a realization that college is borderline worthless, kids are going to stop going. Currently, I see people graduating college, and the type of job they get when they graduate is a McDonald Cashier, or Starbucks cashier. Did you really need to go to college so you can do that, I don’t think so. Eventually, when the masses see that college isn’t what it used to be, they’re going to stop going, and what you will see in the future are one of two things. Either numerous universities are going to go out of business, or foreign students will price the US citizens out of the college market, and most of the US universities will be filled with foreign students from other countries. In my opinion, when you get older, your kids are going to say, Mommy and daddy, what were student loans?

2. The credit card bubble
Will Credit Cards still be around in the future, yes, but will almost everyone own them like they do now, no. Very few are going to own them, it will be like the 70’s where interest rates were sky high, and only the super wealthy owned Credit Cards. Americans are going to learn you don’t get to just consume, you have to produce first, than after you produce you can use that money to go to college, or buy tangible goods. You can’t just keep barrowing money to live beyond your means, while consuming foreign products, that type of economy is not sustainable. In the near future, you’re going to see many credit card companies go out of business. Eventually foreigners are going to come to the realization that they won’t get their money back from the US, and they’re going to stop lending to the US. When that does happen, the US citizens will only be able to barrow from US savers, and very few people in the US save their money, this will bankrupt a lot of credit card companies, and due to the lack of savings in the US, there will be very little barrowing.

3. The Treasury bond bubble
If you own treasuries, get rid of them now, while idiots on Wall Street still think they have value. The USA owes 14 trillion dollars and counting. If you spend a dollar every second from now, till the day you die, you still wouldn’t spend a trillion dollars. And the US owes 14 trillion. Mark my words the US will default on its debt, it will be done by either inflating their way out of debt, or it will be honest default. But that money will not be repaid either way.

I am not saying these are the only the bubbles in the US economy, I am just saying these are the three most obvious bubbles, that anyone with half a brain should be able to see.