Will the Skyrocketing National Debt Doom My Investments?

Ask the Expert

Damon Geller
President
Contact Damon

Many economists have argued that going into debt is sometimes a necessary and unavoidable way to maintain our nation’s infrastructure, protect our national interests, and keep the economy stable. Yet we all know there’s a serious price to pay when the national debt skyrockets and remains at unmanageable levels for decades. The value of our currency shrinks, meaning your money in the bank and many of your investments are shrinking in value right along with it. So, how do you protect your investments against the scourge of national debt? History shows us that the most reliable hedge against rising national debts is investing in gold. Just take a look at the last few years as an example. In 2008, the national debt stood at $9 trillion and the price of gold was $850 per ounce. In less than 2 years, the national debt rose 67% to $15 trillion. Meanwhile, gold rose at exactly the same rate: 67% to $1425 per ounce. Now, you may agree or disagree with why the debt was increased, yet we can all agree that the national debt has increased precipitously over the last decade, and gold has once again proven to be the most reliable hedge against rising debts.

Use your imagination and pretend the US government, Europe and the central banks of the world act like a public company. This company has 100 shares at $1 dollar per share. To pay down its debt and make the debt more manageable, the company prints more shares. The only way to keep the company afloat is to pay interest payments, so the company prints even more shares. But the stockholders aren't made aware; they think their shares are still worth $1 dollar, yet the company has sold 100,000 more shares and used the money to pay down debts. This is essentially what the Federal Reserve is doing with the US currency. And in response, the international community uses US dollars to buy gold, silver, sugar, cotton, oil, and other commodities. Why? Because even if the stock market goes up to Dow 15,000, in real dollars that’s closer to Dow 9,000. This is fundamentally why gold and silver are an essential hedge against skyrocketing national debts.