- 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



Already a subscriber to Money Morning... or simply, just like what you're reading? Then show your support and spread the word...
Share this post on...
Share

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.

Leave a Comment

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!!!



GET THIS NEW REPORT : 5 Things You Can Do To Boost Your Retirement Pot


In this report we’ll give you strategies, tips and advice to help you kick-start, or revive your retirement savings right now.

PLUS you'll get Money Morning every weekday...absolutely free.

Enter your email address below and hit the 'Claim My Free Report' button now.

Privacy Statement
We will collect and handle your personal information in accordance with our Privacy Policy.
You can cancel your subscription at any time

WWD dvd

World War D was billed as ‘the biggest investment summit of the decade’

It didn’t disappoint…


Absolutely mind-blowing beyond my expectations

– D.A.C. Hall


The BEST INFORMATION available,
contrary to mainstream economic reporting.

– L. Sceresini


Exciting, dynamic, passionate, informative, challenging, so professional... Brain-stretching.

– D Finlay


Click here to watch
the brand new Highlights Reel.

Openx pos2

  • ^NDX4082.559+16.286 - +0.40%
  • ^FTSE6826.28+0.97 - +0.01%
  • ^AORD5656.900+27.600 - +0.49%
  • ^AXJO5658.500+28.700 - +0.51%
  • AUDUSD=X0.9285
  • USDJPY=X104.9175

Openx pos3

Diggers and Drillers

After three years in the doldrums…

Aussie resource stocks
are now a raging BUY
 
The last time resource stocks traded this low we saw a two and a half year rally that saw them gain 124%...
 
Now they’re getting ready to do it again. Read on to discover why…and three tiny Aussie miners that could explode up many times higher than that in 2014…click here.

Openx pos4

Openx pos5

Openx pos6

Openx pos7

Openx pos8

More Recommended Reading Below...

The Pursuit of Happiness & The Daily Reckoning

  • The Pursuit of Happiness
  • The Daily Reckoning Australia

The education system as we know it is preparing for a world that no longer exists. This will be Aust [Read More...]

This is something investors need to remember when adding stocks to their portfolio. Don’t panic over [Read More...]

Many Australian investors are turning to alternatives. Led by the SMSF crowd, investors are piling i [Read More...]

I wanted to know what Joe Hockey would do about the hundreds of millions of dollars the government. [Read More...]

This morning the Australian dollar trading for 93 US cents. It hasn’t managed to regain parity since [Read More...]

50-year government bonds in Spain yielding 4% are the financial market version of slo-mo. It’s a sur [Read More...]

You’ve heard of the accidental tourist. Somehow, we became accidental immigrants. But that is how th [Read More...]

You prevent a bank run by reassuring depositors that no matter what happens to the bank, they’ll get [Read More...]

Bypassing the banks, the US Federal Reserve will put their newly digitized money directly into the h [Read More...]

You’re about to see, you can do a lot better. You can win at the stock market when you use the power [Read More...]

TESTIMONIALS

"I think you're fantastic! I love to read what you write...you're so interesting and amusing and I've learned so much" -
Money Morning reader, Chris Gadd

"You guys are brilliant. I feel more relaxed about the future than ever simply because I know what is going on rather than floundering around with smoke screens and mirrors from the government and mainstream" -
Money Morning reader, Helen Carter

"Wow what can I say? I was an economically confused moron until I read your newsletter and even though I've been a subscriber for a short period I can now see how easy it is to understand, if you use common sense and can have the spin translated into everyday language. Thanks for an entertaining read." -
Money Morning reader, John

"Keep up the good independent and well thought out articles offering a view that often debunks mainstream myths." -
Money Morning reader, Craig

"I do admire your straight talking and simple analysis of the situation, I think of you as the Jeremy Clarkson of finance." -
Money Morning reader, Jeffery