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ZigMeister
Penny Pincher Member
USA
229 Posts |
 Posted - 03/23/2010 : 12:22:47
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Interesting article FYI.
Health Care Bill Should Boost Gold
By By Patrick A. Heller
March 22, 2010
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On Sunday night, the House of Representatives passed the 2,500 page so-called “health care reform” legislation. It is accompanied by a presidential order and still needs a ratifying vote in the Senate and a presidential signature to become law. However, it looks like the remaining steps will probably be a formality rather than obstacles that prevent enactment. Given that it will become law, what affect will this legislation have on future gold prices?
I don’t want to get bogged down in side issues, but this piece of legislation is not really “health care reform,” it is socialized medicine. It is also enacts one of the largest tax increases in American history. I heard one report that the Internal Revenue Service was planning to add 16,000 positions to enforce the complicated tax increases imposed by this potential law.
In order for it to appear that passage of the “health care reform” was a positive event for the U.S. government, it was necessary for the prices of gold and silver to be suppressed the following Monday morning. Right after the COMEX began trading early Monday, both metals almost instantly dropped about one percent from Friday’s closes. As the day progressed, prices did recover some. However, I expect prices to be restrained this week. Gold and silver won’t rise until after the Commodity Futures Trading Commission’s Thursday hearings on possible trading limits for gold and silver futures and after Friday’s expiration of April gold and silver option contracts.
Still, the negative economic effects of the “health care reform” legislation will come sooner or later. When Medicare was enacted in 1965, the House Ways and Means Committee projected a 1990 cost of $12 billion per year. The actual 1990 Medicare cost came to $107 billion. The White House Office of Management and Budget in 2003 predicted that the Iraq war would cost $50-$60 billion. The U.S. government has actually spent $713 billion on the Iraq war so far, with more expenditure yet to come. It is so common for any government program to cost far more than the politicians claim at inception that it is scarcely news any more.
Through financial chicanery, the administration is trying to pretend that this “health care reform” will cost less than $1 trillion above and beyond new tax collections over the next 10 years. That ignores $370 billion of expenditures under the legislation that have been allocated to a different part of the budget. That also takes into account that the tax collections will begin about three years before the bulk of expenditures commence. On even the most optimistic actuarial analysis, enactment of this law will increase the federal budget deficit by a few hundred billions of dollars annually.
For February 2010, the U.S. government last week reported tax receipts of $107.5 billion and expenditures of $328.4 billion. The federal budget deficit is now so large that even if Americans were taxed at 100 percent of their income that would not be enough to balance the budget. In fact, if the U.S. government eliminated all expenditures other than for Social Security, Medicare and Medicaid, the budget would still be in a deficit.
As there are not enough taxes that can be extracted from the private sector, the U.S. government will be forced to the other two methods of obtaining assets from others: borrowing and inflation. In February 2010, the federal government paid $16.9 billion in interest on the federal debt, which averages out to an interest rate just over 2.5 percent.
One sleight-of-hand gimmick to make “health care reform” appear affordable is the president’s budget assumption that the average interest rate on public debt will only increase to about 4 percent by 2014. In order to accomplish this, however, the Federal Reserve would be required to leave interest rates at too-low levels almost indefinitely.
However, interest rates well below the inflation rate will only encourage much higher rates of inflation. As inflation takes off, the interest rate on federal debt will have to increase. It is entirely within the realm of possibility that U.S. government annual interest costs could reach $1.5 trillion by 2014, not the $500 billion projected in the president’s current budget. (For details, please see You must be logged in to see this link.)
Higher inflation will cause the value of each U.S. dollar to decline. As the dollar depreciates, gold is bound to rise against it. In my judgment, the machinations of the U.S. government for the past several years have made it inevitable that the dollar will fall (possibly into a death spiral) and that gold will soar.
Enactment of this “health care reform” will not change the end result, but it will certainly accelerate the process. It may have already been too late to save the U.S. dollar. But, with passage of this “health care reform” law, the end could come a lot sooner. Non-perishable tangible assets like food, clothing and precious metals will hold their value. It’s time to stock up sooner rather than later.
Patrick A. Heller owns Liberty Coin Service in Lansing, Michigan and writes “Liberty’s Outlook,” the company’s monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at You must be logged in to see this link. Other commentaries are available at Coin Update (You must be logged in to see this link.) and Financial Sense University (You must be logged in to see this link.). His periodic radio interviews can be heard on the Korelin Economic Report at You must be logged in to see this link.
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Health Care Bill Should Boost Gold
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