Precious metals markets retreated last week as official U.S. employment data came in surprisingly strong.
The Labor Department reported that weekly jobless claims fell by 13,000 to a total of 216,000. Many economists had been expecting jobless claims to rise.
Of course, government economic data is subject to revision and to criticism for flawed methodology. But it still has the ability to move markets, at least in the near term.
The rosy report on the jobs market helped reinforce the popular narrative that there will be no recession. That, in turn, lifted the U.S. Dollar Index for an eighth consecutive week.
Traders sold metals on fears that superficially strong economic data could cause the Federal Reserve to resume rate hikes. But if the U.S. economy really is going gangbusters, it’s not translating to any improvement in U.S. government finances. In fact, even as government spending soars, revenues are slipping.
The federal budget deficit is on pace to soar in 2023 and essentially double year over year, reports Straight Arrow News:
"The U.S. government's deficit is expected to hit $2 trillion this fiscal year, according to the nonpartisan Committee for a Responsible Federal Budget. That's double the $1 trillion deficit in fiscal year 2022. The increase is largely due to a 16% increase in spending, partly driven by higher interest rates, and a 7% decrease in revenue. The left-leaning Washington Post reported the current surge in the deficit is coinciding with a period of unusually strong economic growth, amid historic lows in unemployment and robust corporate profits. Harvard Economics professor, Jason Furman, told the Post, "To see this in an economy with low unemployment is truly stunning. A good and strong economy with no new emergency spending, and yet a deficit like this, the fact that it is so big in one year makes you think it must be some weird freakish thing going on."
Whether freakish or just plain fishy, clearly something isn’t adding up with America’s balance sheet.
The Biden administration scoffed at credit ratings agency Fitch last month for downgrading U.S. sovereign debt. Treasury Secretary Janet Yellen pointed to the strong and resilient economy as evidence the downgrade was unwarranted.
The problem with the Treasury Secretary’s position is that it reveals fiscal policy has gone completely off the rails. That’s because during a period of robust economic growth, the budget deficit should be rapidly narrowing. Instead, it is rapidly expanding.
When the next economic downturn hits – whether it’s a normal cyclical recession or something more severe such as another housing collapse or another round of COVID lockdowns – what will happen to the budget deficit then? It will likely enter uncharted territory.
Could the government potentially default on its bonds or on its obligations to Social Security and Medicare recipients? Under our monetary system, an actual default is unlikely. That’s because there is no limit to how many trillions of new currency units the central bank can create out of thin air and use to buy Treasuries.
The credit ratings agencies that have grown concerned about U.S. default risk should be just as concerned – if not more so – about inflation risk.
Inflation has remained elevated since central bankers pumped $6 trillion into the economy to rescue it from pandemic lockdowns in 2020. Although price levels have moderated over the past year amid the Fed’s aggressive rate hikes, the 2% inflation target remains elusive.
With COVID hospitalizations back on the rise in recent weeks, mask and vaccine mandates are starting to return at universities and other places. And Dr. Fauci is back on cable TV news channels scolding the public to heed official recommendations on face coverings and jabs.
Some worry a winter wave of infections could bring back crippling economic lockdowns of the sort Fauci spearheaded in 2020. Others are warning that so-called climate lockdowns could be coming as a way to force people to consume less, travel less, and emit less carbon dioxide into the air.
Central planners imagine they can dial down the economy at will and replace productive economic activity with fiat currency emissions from governments and central banks. In theory, yes, our fiat monetary system can replace the salaries of locked down workers deemed to be “non-essential” and enable government budget deficits to grow to any size.
But it cannot create real wealth. Instead, monetary inflation ultimately destroys wealth. In its most extreme form, under hyperinflation, the masses are impoverished on the way to becoming paper billionaires.
The way commoners can protect themselves from inflation on any scale is to turn depreciating paper into hard assets that retain their value over time.