Gold Trading Boot Camp: How to Master the Basics and Become a Successful Commodities Investor

CHAPTER 28

U.S. Fiscal Fundamentals

A credible argument can be made that there is a direct correlation between government deficit spending and growth in trade, consumption, and output.

Theoretically, government deficit spending is as effective, if not more directly effective, as money supply creation in sync with an easy monetary policy from the Fed. Deficit spending creates money representing wealth that is transferred to the consumer, usually through tax cuts or direct subsidy and social program expenditures.

In the United States, periods of expanding deficits have been associated with paper wealth reflation, rising consumption, and expanding imports.

Conversely, periods where deficits are shrinking or where surpluses are being generated by the government can be linked to times of retrenchment extending into consumers, businesses, and even into global trade.

I do not make any political statements herein, nor do I discuss the causes; I only observe the correlations as they relate to inflation and the credibility of the currency.

This is the connection to precious metals. You might simply shave it down to suggest, that all other things being equal (which they never are), rising government spending equals expanding deficits, which equals intensified underlying inflation support and a weakening currency. Thus it is bullish for bullion and vice versa, all other things being equal (which they never are).

In your regular review of the U.S. fiscal situation, you should first examine ...