By Kris Sayce, editor, Casey Daily Dispatch
It’s not the first time this story has come up.
It seems to emerge every time the government nears the federal debt limit.
You know. The debt limit that’s meant to cap government borrowing…
So D.C. doesn’t burden citizens with too much public debt or high taxes.
But whether the “solution” in this story happens or not, it doesn’t matter.
Debt will go up… taxes will go up… and inflation will go up.
That’s why you need a plan to guard against it.
Here’s what to do…
If this is your first time reading the Dispatch, welcome. If you’ve been here before, welcome back.
At the Dispatch we have two goals:
To introduce you to the most important investing themes of the day, and
To show you how to profit from them.
We do this by showcasing ideas from our in-house investing experts: Dave Forest and Nick Giambruno. And from the founder of our business, Doug Casey.
Today, we’ll look at the latest idea to help the government with its debt and spending problem – a trillion-dollar coin!
Raising the Debt Ceiling… Again!
As we say, this story does the rounds each time the federal government nears the debt ceiling.
As background, the debt ceiling came into force in 1917. In theory, it was supposed to act as a restraint on excessive government borrowing and spending.
Supposedly, the lawmakers of the day thought that if there were a “ceiling” on the level of government debt, future governments would think twice before spending money.
After all, if there are limits on borrowing, best not to waste public money… there may not be anything left for the important stuff.
But that idea (and ideal) didn’t last.
Since 1990, the debt ceiling has risen from around $3 trillion to $28 trillion today. That’s because Congress (after some haggling between sides) just raises it when it needs to.
And while each side of the aisle may put on a show of opposing any rise, they eventually compromise. Naturally. They know they’ll need the other side to compromise when they hold power.
That brings us back to the [ahem] “solution” for the current debt ceiling problem… a trillion-dollar coin.
How Much Platinum for a Trillion-Dollar Coin?
As reported by Axios:
An increasingly vocal chorus of commentators is saying that the U.S. Treasury should #MintTheCoin – issue a small platinum token, give it a face value of $1 trillion, and deposit it at the Federal Reserve.
Hmmm. And what would happen then? Axios explains:
The Fed, once given the coin, would credit the Treasury’s account with $1 trillion that would not count towards the national debt.
And according to Philip Diehl, quoted in the story:
“Voila, we’d have bought ourselves the equivalent of a trillion-dollar increase in the debt limit, without any impact on inflation,” says Diehl.
For reference, Mr. Diehl is a former director of the United States Mint. So you’d think he’d know a thing or two about money. But apparently not.
So if we’ve got that right… creating money from thin air – even if it’s using a platinum coin – isn’t inflationary.
We disagree on that matter.
We will make one point about this. We find it amusing that they should choose to mint the coin as a platinum coin. We assume this is to give the idea some kind of legitimacy.
The idea comes, of course, from the same people who scoff at the idea of sound money in the form of gold. The reality is that it doesn’t matter whether the minted coin is gold, platinum, silver, copper, or plastic.
It will still be money created from thin air. Fiat money. To put it in perspective, in order for the platinum coin to have any kind of sound money legitimacy, it would need to weigh over one billion ounces at today’s platinum price.
If minted in gold, it would be more than 571 million ounces.
To put that in perspective, that’s twice the size of the U.S. Treasury’s current entire gold reserves.
In short, the whole idea is ridiculous. And it won’t happen. But what will happen is that the debt ceiling… government debt… and inflation will continue to rise.
As an investor, it’s important you know that… and important you do something about it.
You Simply MUST Invest
This is why we’ve put such a big focus on inflation and rising prices in recent months.
It’s why we’ve explained to you that you can’t afford to keep too much money in the bank. Based on the government’s current numbers (which we know the government under-reports), the price inflation rate is 5.3%.
That means the dollars in your pocket or bank account are worth 5.3% less than they were worth this time last year. It means the item that would have cost you $100 last year, will cost you $105 today.
Even at the best case scenario, the government forecasts inflation over 2% for each of the next two years. That means the thing that cost you $100 last year will cost you around $110 two years from now.
Over the same time, if you’re lucky, you’re earning one-tenth of 1% in an interest-bearing bank account. Point taken? You’ve got to invest.
So what are your options?
We certainly don’t suggest putting all your cash into stocks or other investments. But we certainly do suggest allocating enough capital to investments that help you meet and beat inflation.
Investing in relatively safe dividend stocks is a start. You can even make dividend stocks one of your Casey “10 x 10” Approach groups. For the rest of your non-cash investments, the best method is to spread your money into different stocks across diverse themes.
That could be tech, gold miners, rare earths plays, warrants, small-caps, cryptocurrencies, pre-IPO deals, and more. Not forgetting a healthy allocation to gold and silver (maybe a little platinum, too!)
The bottom line is that it doesn’t matter who holds the balance of power in Congress: the government is too deep in the debt hole to stop.
And even though it would be great if you could just put your money in bonds or in the bank, it’s not a realistic option. As an investor, you and your money have to work harder to get the returns you need.
We’ll be back tomorrow to elaborate further on how you can do that.
Editor, Casey Daily Dispatch
P.S. One of the best ways to make sure you get the returns you need to maintain your current lifestyle is with a little-known financial asset class called warrants.
With just a small, $250 investment into one of these explosive picks, Dave Forest’s subscribers could have walked away with over $12,500.
And best of all… you can trade warrants as easily as any stock. Learn how to get in on warrants right here.