DaveAt the end of fiscal year 2008, our reported federal debt was $10.12 trillion.  At the end of fiscal year 2010 that number ballooned to $13.61 trillion accounting for annual budget deficits in the vicinity of $1.7 trillion per year in 2009 and in 2010.  For 2011, another $1.26 trillion (low side of estimates) is expected to be piled onto 2010 totals.  see chart

There is one caveat in this 2011 projection, however.  The 2011 projected deficit is based on an increase of tax receipts amounting to $402 billion.  Please see White House Budget Stats from the OMB.  That would amount to an 18.5% increase in tax revenues.  Note that White House Stats for Debt exclude the Intragovernmental Holdings component of typical publicized debt stats.

That said, $402 billion is a huge number, especially in the face of 10% unemployment, which is really 15% or 18% or 22% - take your pick.  Data is spun so hard it makes you dizzy reading it.  I have no idea where the extra tax revenue will come from when we have yet to see extra jobs coming from anywhere.  Even today, jobless data came in worse than expected with jobless claims rising 51,000.

To reach what some consider full employment, we need about 5% more jobs.  Neither government or the Bernank expect this, so how does 18.5% of increased tax revenues become the fruit of 5% more jobs? - and in one year!!!? Hmmmm!

Using all these numbers as a backdrop, from the State of the Union Address, we learn of a goal to cut our annual budget deficits by $40 billion per year over the next 10 years.  To put that into perspective, $40 billion per year is $.04 trillion each year and $.4 trillion over 10 years.  Relatively speaking, even the average person sees those numbers as minuscule. 

Perhaps a better way to state the goal is, from now on we will attempt to limit the budget deficits to just triple or quadruple the amount of increased tax revenue each year.  Said like that it just seems hopeless and ridiculous.  Then to plan it and be proud of it is like planning a Superbowl party for Monday.  

If these are our goals, then one of two things is going to happen.  We either get crazy high inflation or we end up with so much debt not even a printing press can bail us out.  As far as I'm concerned this seals the deal for long term gold.  Sure we can get a price correction now, and more in the future.  But that is totally normal in a long term bull market.  

The gold bull market, by some measures, is now 10 years old.  One could argue though, that for much of that time, (our time of prosperity and inflating bubbles) gold prices were merely playing catch-up to years of inflation.  In fact, it still has not caught up to an inflation adjusted high that would put gold prices above $2400 an ounce.

Indeed, inflation or default create a win win situation for gold.  Heck!  Even stocks could do well in an inflationary environment.  But, we already tried that - didn't we? What's in your savings and retirement accounts?  LearCapital.com