Goldman Sachs analysts have been taking a look at the map ahead for the United States, and all they can see is a road paved with debt and more debt.
So much so, in fact, that their Chief Economist says the fiscal outlook for America leaves our country dangerously exposed if the economy turns down again.
Goldman Sachs’ Jan Hatzius says that by 2028, America’s annual budget deficit could top $2 trillion, or a staggering 7% of our GDP.
Currently, we already have to borrow over $800 billion per year to keep the lights on in our government.
Goldman’s somber forecast is echoed by a recent report from the Congressional Budget Office. They anticipate that the total debt held by the American public will be equal to our GDP within the next decade.
Only our nation’s oldest citizens would remember the last time when this happened: World War II!
Sad to say, it is likely that the government’s own calculations are probably underestimates. Our nation is in serious crisis.
It is the same old story… lawmakers with pork barrel projects, ballooning entitlement programs, fiscal stimulus spending, tax giveaways and more. Not to mention an artificially-low interest rate environment that has Americans loading up on debt they won’t be able to service for long if rates continue to rise.
Nobody wants the party to stop. There was the lavish tax cut bill in December 2017, which included massive corporate and individual tax cuts. Then came the budget deal in February 2018, followed by another huge bill in March 2018 that lavished more on military and domestic programs.
This is not to say the money is wasted. No doubt, many of these large expenditures are vital to our nation and will potentially have far-reaching positive effects.
The problem is: we just can’t afford them any longer.
It is a fact that lawmakers refuse to acknowledge, and average Americans fail to realize because they can’t yet feel the effects of this gradual slide.
No doubt about it though… we are sliding. Goldman expects the federal deficit to hit $1.25 trillion by 2021, or 5.5% of GDP. Ten years from now, that deficit could be at $2.05 trillion or 7% of GDP.
There’s a double whammy at play here too.
“An expanding deficit and debt level is likely to put upward pressure on interest rates, expanding the deficit further,” said the Goldman report.
Even just a 1% increase in our budget deficit pushes up the 10-year Treasury yield by almost 20 basis points.
Every increase in interest rates means our deficit just gets larger faster. It is like the whirlpool that sucks you under faster as you spin quicker and quicker around.
Goldman Sachs seems convinced that their estimates might only be the beginning. “We believe the risks are tilted in the direction of larger deficits than projected,” Hatzius concluded.
TD SECURITIES: PRECIOUS METALS “MORE ATTRACTIVE” GOING FORWARD
TD Securities’ commodities analysts see the potential for a recovery in gold in the near-term.
“Between the FOMC minutes striking a dovish tone, and Trump canceling the meeting with North Korea’s Kim, the precious metals environment should appear more attractive moving forward,” they said in a recent report.
The head of commodity strategy at Saxo Bank, Olen Hansen, says that the gold market is “building up for a new upside attempt once the fundamental and/or technical outlook improves.”
The stock market has taken a pummeling this year at times, but it isn’t all that far off its record heights. The S&P 500 stands at about 5% from its record January 2018 close, while the Nasdaq is only 2% from its all-time high in March. The Dow Jones Industrial Average is just about 7% from its January 2018 high.
This may have lulled investors once again into a dangerous complacency.
BE HONEST: ARE YOU PREPARING TO FAIL?
Ben Franklin, one of our wisest and most interesting forefathers, once famously said that “by failing to prepare, you are preparing to fail.”
Sound financial planning has this principle at its core.
For anyone eyeing the current lofty stock market levels, our nation’s spiraling debt problem, and the political morass called Washington D.C., they should be asking:
• Am I well diversified beyond sky-high stock markets, and/or bonds set to fall as rates rise?
• Do I own physical safe-haven assets in my retirement plan?
• Am I adequately prepared for retirement if inflation comes roaring back?
These are questions best answered today rather than tomorrow. When you are ready to explore your options, we are here to answer all your questions.
Gold and silver coins and bars just makes sense as safe-haven assets in any market. But right now, they are well worth your honest consideration.