What is a Dollar Worth?

Nov 27, 2023 | Finconomics 101, No Bull Economics

What is a Dollar Worth Post Banner

The Federal Government’s financial condition could be better! We are running annual spending deficits that are approaching $2 trillion (up from the CBO’s May 2023 estimates) which will add to outstanding debt which exceeded $32 trillion at the end of 2Q23. Our annual tax revenue is under $5 trillion, and it is estimated that higher rates mean that the government will incur $1 trillion in annual interest expense (representing 20% of the government’s revenue) also up from the CBO’s estimates. Hard asset investments like gold are looking good right about now…

Commentary

  • Congress is in a pickle – how does it balance the budget without cutting operating costs by -30%? Well, it could raise tax revenue by +30%, but that might throw the economy into a depression.
  • With a P&L statement like this (see below), who would we expect to buy our bonds? China?
  • Should Treasury buyers disappear, interest rates on government bonds could skyrocket, causing our funding deficits to accelerate.
  • On the other hand, if the Fed was to lower interest rates, the government’s tax revenues would expand while its interest expense would decline – buying Congress some time to make structural spending cuts (we suggest a -1% annual budget decline until the deficit is eliminated).
  • Fed take note: higher interest rates will not only lower inflation as consumer demand craters, but it could also bankrupt the government.
CBO's Baseline Budget Projections by Category
  • In the meantime, gold looks good to us. But it might not look so good to the public. With a 1 oz. coin (not much larger than a quarter) selling for US$2,000, it could shock employees if they were paid in gold.
  • Imagine a worker paid US$50,000 per year instead of receiving just 25 one oz. gold coins in exchange for their labor for the entire year… We would be sure to have a new Congress in short order!   

Gold Coin Image

GoldCo Free Silver Banner

Marketing Consumer Research Weekly Banner

Nobull consumer research weekly

No Bull Economics

Get Corporate & Market Insights in your inbox