Conservative estimates now put the nation’s deficit at close to $4 trillion this year. Others say it could go to $10 trillion. Using the lowest of the numbers, the nation’s deficit-to-GDP ratio is likely to soar to close to 20%. It was expected to stay below 5% this year. But even that figure, which now looks anemic, is historically high for a time of economic prosperity and peace. In 2009, for example, the ratio climbed to 9.8%. And before that, the last time it saw double digits was in 1945, when it was at 20%.
It’s important to note that at the height of WWII, the ratio topped out at a record-setting 26.9%. It was so high here in the States and across the globe that the world’s leaders were forced to call a meeting in a little New Hampshire town called Bretton Woods.
The result of that meeting was that gold was set aside for the mighty dollar. It became the currency of currencies – proving that to the victor truly go the spoils. At least temporarily, that is. What happened the last time the world saw such a massive deficit compared with its output is what allowed this nation to become the supreme leader in the realm of debt. In fact, as I’ve argued in several posts recently, it’s not COVID-19 that’s the real threat these days. It’s a plague of debt. We will almost surely see something similar to the Bretton Woods agreement come out of this mess.
When Congress – and its brethren around the world – are mulling stimulus packages that are a fifth of our overall economy (or more!), fundamental change is a given. That’s why I’m more bullish than ever on gold and digital currencies like bitcoin. They’re the alternatives to this monetary mess. But – this is important – so are stocks. They are the savings accounts that are absorbing so much of Washington’s massive spending. Using an acronym you’ll hear a lot in the coming months… TINA. There is no alternative.
Guest blog, Jeff W