Gold is now in demand because it can act as both and inflationary and deflationary hedge. Before paper money became popular, coins were made of real precious metals because they had an inherent tradeable value that carried across borders. It's been that way for thousands of years. The value of gold has always been inextricably linked to the human psyche. And that's the way it will remain because as a system of establishing value, it works. And when paper money can't buy anything because it's worthless, you might as well have gold. The US government debt is currently running at 60% of GDP. If the Government increased personal and corporate rates rates by 10% tomorrow. It would take another 15 years to pay off its current debt. How much growth will you see if that happens? If they don't start paying off the debt, the amount grows and the interest payments required to service it continue to grow, which means even higher taxes in the future. The US government have nowhere to go. Increase taxes. Economy collapses. Cut government spending. Higher Unemployment. Economy collapses. Keep issuing Treasury notes. Debt grows. Debt repayments increase. Then government defaults on debt and the economy collapses. Print more money. Interest rates go through the roof. And economy collapses. This is a dire situation. It could actually be was the the great depression. Make no mistake about it.
There is no evidence to prove that it's going to become worthless. While we are now using fiat money instead of basing our dollars on the gold standard, it's a known fact that the U.S. dollar still remains the de facto 'world currency'. Every country wants it, every country wants to keep it as its reserve currency. I believe even China's concerns of our debt are all for show and that they will stand strong by the dollar. U.S. world strength will continue to keep the dollar strong; and now with the Euro must less of a concern to be a competitor, I believe we can see ourselves again emerge as the world economic strength. 60% of GDP? I think we might even be running at 90% of GDP right now, and we may even go higher. However, increasing debt from where it is now is becoming increasingly unpopular. Our high debt levels are no indication by itself that we're in serious danger. Debt levels were much higher during and after World War 2 than right now, and yet (albiet a rough year or two) the U.S enjoyed many prosperous years after World War 2. Highest tax rate from 1940-1963 was above 80%. The economy didn't collapse back then even with debt as a percentage of GDP at 100%+. I believe you raise some partly valid points and have valid concerns, however, this is a generalist argument that is growing in popularity that is starting to sound like an unlikely doomsday scenario. The Fed may increase the rate to 1% in the coming months...we'll see the course they take. Kansas City Fed Chief continues his dissent on the keeping rates exceptionally low.
The difference between post WW2 and now is that back then the US had a small public sector and a large private sector. Tax dollars were reinvested into infrastructure which helped the economy grow. Now you have a large public sector which generates no real tax revenue and a progressively shrinking private sector that has to be taxed at higher and higher rates to support the public sector. This in itself is disincentivizes business.
Yes, it's fiat currency. Look at a dollar bill, it says "Federal Reserve Note"...but the "Federal Reserve" is not even a federal agency, it's a private banking cartel. Here's a fun test: go to your white pages and look under "Government Listings" and try and find the phone number for the Federal Reserve. The U.S. economy hasn't "collapsed" yet because the printing press is running full speed, and the tanking of the Euro recently is a sideshow to stem the continued decline of the dollar. The economy isn't going anywhere soon, but as long as there is volatility, there is opportunity in the markets if you're a trader. So it really doesn't matter when the Dow gets back to 12,000 if you're playing both sides of the market. Unfortunately for the retirees and those with 401k's who are mostly long-only portfolios, they're getting screwed...again.
ScalperJoe, You are right of course. It has no bearing on trading. I just make the point for the newer traders out there that think the buy on dips theory applies in all circumstances. The general economy is of interest to me because it effects other areas of my life such as whether I invest property etc. Runningbear
Fo sho. In the meantime lets get ourselfs enough USD and keep on ridin' higher till the wheels fall off!