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Bond King: National Debt Explosion Behind GDP Positive

Posted By Isaac Nuriani |

As reported by Reuters, Jeffrey Gundlach, founder of global asset manager DoubleLine Capital and a man Barron’s once referred to as the “King of Bonds,” made a stunning declaration in a recent webcast that should illustrate just what a house of cards the U.S. economy really is. Gundlach said U.S. growth has been based “exclusively” on the use of debt and the economy actually would have contracted if not for all that borrowing.

Gundlach’s pronouncement is more evidence of the underlying instability of a supposedly robust economy. Observers would do well to see the writing on the wall and take steps now to protect their portfolios. Gundlach decided to protect his holdings with gold; might there by a lesson there for all of us?

Growth in GDP “Based Exclusively on Debt”

In his webcast, Gundlach made the compelling case that all the recent economic growth in the U.S. can be attributed to debt.

“Nominal GDP growth over the past five years would have been negative if U.S. public debt had not increased,” said Gundlach. “One thing everybody seems to miss when they look at these GDP numbers … they seem to not understand that the growth in the GDP that looks pretty good on the screen is really based exclusively on debt – government debt, also corporate debt and even now some growth in mortgage debt.” Gundlach specified that while nominal GDP rose by 4.3%, public debt grew by 4.7% over the past five years.

“Growth in the economy is simply growth in the debt,” Gundlach said. “That’s what’s really responsible for growth in GDP.”

Growth in the U.S. Debt-to-GDP Ratio in Last 50 Years
(U.S. debt as a percentage of total economic output)

(Chart Courtesy of Macrotrends)

Gundlach made his observation in the context of his real concern that the nation is presently ill-equipped to handle the recession so many are predicting – including Gundlach himself. Gundlach says there’s an “extremely high” probability we’ll see a recession within two years and believes there’s a 50% chance a recession will hit sometime in the next 12 months.

When recessions strike, countries rely on their ability to implement dynamic – even extreme – monetary policy to jumpstart the economy. However, because the nation is mired in this much debt and already positioned on the low end of the interest rate scale, central bankers have considerably less room for “fixing” things. The Federal Reserve has historically cut rates between five and six percentage points in their efforts to stimulate the economy; the current federal funds rate is already at a lowly 2.5%.

The country’s present debt and interest rate profile is why you’ve been hearing more about the possible implementation of negative interest rates when the next recession comes to pass. Negative interest rates would be an astonishing step for U.S. central bankers to take, even considering their demonstrated willingness to pursue extreme monetary policy measures.

For Gundlach, the Answer to Staying Safe Is Found in Gold

Gundlach obviously has a substantial stake in all of this – DoubleLine Capital oversees a whopping $130 billion. So what is he doing to protect his clients? Stocking up on gold.

Given the current environment and outlook, Gundlach sees popular mainstream assets as especially risky. Gundlach describes himself as being “comfortably” long on gold right now. In fact, he’s been a gold bull since the middle of 2018 and appears to have no intention of changing that posture in the near term.

Gundlach’s analysis of the present state of the economy is presented without hyperbole. It is a matter-of-fact assessment of where things stand as far as America’s economic infrastructure. His description of the problem is straightforward … and so is his remedy: buy gold.

DoubleLine is just the latest example of an institution with a great deal to lose turning to gold as the way to stay safe. Central banks around the world have been adding gold to their portfolios at a record pace in the last year. On the private side, hedge funds and other asset managers have been shoring up their gold positions as well, and citizens of developed nations are purchasing gold in significant quantities.

Portfolios of Any Size Can Benefit from Physical Gold and Silver

You might not have a portfolio worth hundreds of billions … or even hundreds of millions. But it’s likely that, whatever the size of your portfolio, it means a great deal to you and your prospects for a safe retirement. This is why it is every bit as important to protect what you’ve already accumulated as it is to work at having more.

Central banks and billion-dollar asset managers understand portfolio protection can be an exceedingly important benefit of physical precious metals. However, a large swath of “regular” Americans remains in the dark about the protective potential of gold.

If you’re ready to learn more about the demonstrated potential of physical gold and silver to keep your retirement savings not only safe but growing during volatile economic periods, call Augusta Precious Metals at 855-242-4121 and speak with one of our knowledgeable gold and silver professionals. The Augusta team is intimately familiar with the breadth of risk to a retirement portfolio and would be happy to answer any questions you have about precious metals. Also, the folks at Augusta can help you learn more about gaining ownership of a silver and gold IRA, a dynamic product that enables you to combine tax-advantaged growth with precious metals’ array of unique portfolio benefits.

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