- Money Morning Australia

Before the US Debt Ceiling Hits Again…

Written on 29 March 2012 by Shae Smith

Before the US Debt Ceiling Hits Again…

Less than six months ago, the American government was begging for an increase to the debt limit. At the eleventh hour, the US debt ceiling jumped from $14 trillion to $16.394 trillion. At the time, the administration promised the increase in spending would see the pollies through until 2013.

However, a few people (see below) have been crunching the numbers. And it turns out, the increased debt ceiling won’t last as long as they’d planned. Or hoped. Or said it would.

The outgoing Treasury Secretary, Tim Geithner, acknowledged this. But he doesn’t think anyone should worry, as the limit won’t happen until ‘late in the year’.

But Senator Rob Portman of Ohio isn’t so sure.

He told the Examiner in Washington,

‘Following the contentious debt ceiling last August, President Obama promised that he would take action to address the country’s fiscal crisis. He failed to do that. In fact, his new budget increases spending and projects that Washington will be hitting the debt ceiling again in mid-October – burning through a $2.1 trillion debt limit increase in just over 14 months.’

By his numbers, the debt will be $16.334 trillion as of September 2012, $60 billion below the limit. And in 15 more days, the government will reach the limit of $16.394 trillion dollars.

However zerohedge.com reckons the government will burn through the cash much sooner.

‘…at the current rate of debt issuance, which incidentally is going to accelerate sharply due to the recent extension of the payroll tax cuts which will require an incremental $100-150 billion total debt to be funded, and extrapolating future issuance solely on historical patterns, the US debt ceiling D-Day will be September 2012.’

That’s three very different time frames. But they all have something in common. Before the election the US will increase the debt limit.

Following a Pattern

Which, for you, gives you some time to buy gold.

Now why would you want to buy gold right now, considering the price is going lower, not higher?

Simply because when the debt limit rises, so does the price of gold.

Gold to rise if debt limit increases

Source: zerohedge.com, stockmarketsreview.com

Every time the US the raises the debt ceiling, the price of gold follows.

And this chart doesn’t show the gold price AFTER the limit was increased to more than $16 trillion.

Within days of the higher limit, spot gold reached a new high of USD$1,889.70. Even though the price retreated slightly after that high, the price still managed a 12% gain for the month of August.

1 year gold price

Source: goldprice.org

Three different sources have confirmed that the US government will need to increase the debt ceiling limit in six months.

If you were waiting for the ‘right time’ to buy gold, it’s here. Take advantage of the lower price while you can.

As the debt limit draws closer, the price of gold should rise.

Shae Smith
Editor, Money Morning

From the Archives…

A Better Inflation Bet Than Gold?
2012-03-23 – Kris Sayce

3D Printing: How “Desktop Factories” Will Create the Next $1 Trillion Industry
2012-03-22 – Michael Robinson

How to Invest in the Fastest-Growing Energy Business of the 21st Century
2012-03-21 – Aaron Tyrrell

Why You Should Build Your Wealth Using the Biggest BRICS Possible
2012-03-20 – David Thomas

Oil Getting Ready For Its Next Rally
2012-03-19 – Dr. Alex Cowie

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Shae Smith
Shae Smith is the feature editor for Money Weekend — the weekend edition of Money Morning Australia. She covers areas of interest arising from world markets and the global economy that could mean new investment opportunities for Aussie investors. Read more about Money Weekend Editor Shae Smith.

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Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.

If you would prefer to email the editor, you can do so by sending an email to moneymorning@moneymorning.com.au

2 Comments For This Post

  1. M&M Says:

    Thanks Shae. That first chart is amazing.

  2. DM Says:

    This is a good article Shae but how did the share market perform at the same points? Be careful not to be too biased on gold. Perhaps there was no correlation with the raising of the debt ceiling and the S&P or the Dow but I think it is worth mentioning.
    However, it is really concerning that there are such clowns running the biggest economy in the world and dealing with such mind blowing numbers. Where’s the next step $20 trill, $30trill?
    What we need in the White House is a good, old fashioned, housewife who can balance a budget – trouble is, it might be stale bread and dripping for us all!!!


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