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We're hearing government reports of improving economic indicators. Is the situation getting better or is the risk even greater for investors?

January 6, 2014
Video Transcript

Right now, we're in the eye of the hurricane and we're in a lull, and we think we're safe. Here's the reason why. Interest rates in the U.S. have been going down for 30 years. So while our debt has been increasing exponentially, the cost of servicing that debt, the cost of actually paying that interest has actually been going down. It was something Bush has benefitted from and something Obama has benefitted from hugely. So even though we've been adding on trillions and trillions of debt, it's been painless, because the actual interest payments have been going down, net payments have been going down. That means there's more money to pay for highway repairs, welfare programs, tax breaks, student loans, everything else that the government pays. Well alright, you reach a point though, of course, those rates have to start going back up again. When those rates get up to 8%, the government starts paying 8%, about half of all U.S. tax revenue is just going to service the interest. We talked about a 5% sequester and the government went crazy like that was the end of the world. We're talking about a 50% sequester at that point. So you'll be looking at massive tax increases, you're going to be looking at massive service cuts, and you're going to be looking at social strife. If you think it's bad now between the 1%, the have's and the have not’s, it will get exponentially worse.

So right now we're in that lull, where things appear on the surface to be getting better, but the reality is they are getting much, much worse. The government statistics are a joke. Anyone who thinks the unemployment rate is at 7% needs to go and take a new survey. Some how when somebody gets so discouraged from looking for work after years of not being able to find it, that they simply give up, so we no longer count them...that's insane. If you look at the inflation number, inflation at 2%, really? Has anybody been to a supermarket lately? Every time I go to the supermarket the basket of goods cost me more and all the packages are getting smaller. Now here's one of those interesting little tidbits, when the package gets smaller, it doesn't count as inflation. If a box of Ritz crackers cost $1.50 and you had 4 tubes of Ritz crackers in it, and then you go back the next week and it's 3 tubes in it for the same $1.50, as far as the government is concerned that's no inflation. Now to you and me that's 25% inflation, but it doesn't show up in the government statistics. Every package as we know is getting smaller. So for the government to say there's no inflation, unemployment is getting better, is all just complete nonsense.

Let me pose this question to you, suppose President Obama got on TV tonight, put an Emergency Action Message and he said, "I'm going to address this deficit issue. I'm going to put a 200% tax on investment income. If you get 100% in dividends, you have to pay $200 in tax. If you make $50 in interest on a savings bond, you have to pay $100 in tax. It's a 200% tax on any sort of investment income. I think my first thought would be, "I think the poor man suffered a stroke." And if it turned out he was healthy, then I think the riots would begin by around 9 o'clock tomorrow morning, probably starting in Greenwich and working the way outwards from there. Well, if you buy the 10-year treasury today, which yields at 3%, inflation's at 6--guess what? That’s a 200% tax. It's just packaged differently. It's packaged in a way that makes it easier for people to deny it. If they actually just put it in your paycheck and said, "Here's the tax," people would realize just what a bad situation we're in. But inflation is insidious. It's in a little dips and drips; it's the drip of death. It drips and drips and drips until finally you drown. We're approaching that point.

The simple fact is, the mathematics don't work. Math doesn't lie. It's absolutely impossible for us to raise enough revenue or cut spending enough to balance the budget in the years going forward. It literally cannot be done. That only leaves then printing and printing and printing and printing. As long as governments have a printing press, I'm going to hold gold.

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