US Debt Downgrades Will Keep Coming

US debt downgrades will be common given the Congressional Budget Office Projections.

The United States' debt was downgraded to AA+ from AAA by Fitch, who cited fiscal deterioration, high & growing gov't debt burden, & erosion of governance relative to AA & AAA rated peers over the last 2 decades that has manifested in repeated debt limit standoffs & last-minute resolutions.

A bit of historical context to wrap our minds around this news and ongoing debt escalation.

It took the United States 209 years to accumulate its first $1.8 trillion in debt by the year 1985.

But after this latest debt ceiling deal, the nation added $1.8 trillion in debt in a mere matter of 2 months. 

So a growing Federal debt sum that took over two centuries to pile up rollover, has recently taken merely two months to match in nominal debt escalation.

According to the US congressional budget office, we're only getting started with US fiscal deterioration and growing gov't debt burdens. They recently projected annual US federal budget deficits of near $3 trillion per year a decade from now, but all while seemingly escalating year after year from here to there.

Meanwhile we are already seeing interest on our current US debt burden near $1 trillion a year in current costs.

Yields on 30 yr and 10 yr US bonds ran up a wall this week illustrating a weakening appetite to lend long term to this growing debt quagmire.

Former NY Fed employee points out why the US Treasury is going to have to surge its debt issuances.

On a historical basis ongoing tax receipt data is a better indicator then more easy to rig GDP numbers regarding oncoming recession potentials. 

And not only on the Federal level are tax receipts plunging, but on the state and local levels as well they have fallen to historical low levels of late.

The head of the US Treasury used typical denial tactics citing not all that much substance.

For a further historical perspective regarding the first time the US debt was downgraded back in early August 2019. Opposite of what occurred this week, gold rallied on the news moving about $250 oz higher within a month, rallying over $1900 oz to follow as the fiat US dollar sold off in relative value versus other major competing fiat currencies at the time.

The US stock market at the time chopped lower on that first debt downgrade, floating around 1,200 at the time.

In terms of the ongoing S&P500 / the spot gold price with worsening fundamentals. The overpriced stock market index is currently 2.3 times the spot price of gold. Back in late August 2011, it got below 0.7.

A repeat of gold of outperforming the S&P500 akin would mean gold holders could buy more than 3Xs that US stock index in the future if we merely rollover to that level. 

In the coming gold mania, I suggest that is a conservative long term target, getting back to the August 2011 level. 

After all, the attitude of our financial authorities has not changed much from their first maestro's blunt commentary way back in August 2011. 

That they're not going to print and BRRR ad infinitum to come. 

Of course it is unlikely the US government will ever legally default on this ever-growing debt pile. But in real terms, the likeliest longterm play is paying it off less and less in real value terms over time as the underlying fiat currency sharply devalues further in time.

Stay tuned, on the other side of this message we will cover a bit on how silver bullion is poised to be a huge beneficiary of growing ongoing demand as an all time fiat US dollar bear is likely not far off in our future.

Contrary to what many might have guessed, both gold and silver sold off on the debt downgrade news and the fiat US dollar rallied in relative terms for the week.

The spot silver price finished just over 23.60 oz bid while the spot gold price closed just over 1,940 oz bid for the week.

The spot gold silver ratio climbed to 82.

Circling back to the bullish set-up for silver price to come, reports out of China are that silver solar demand keeps steady as offtake continues out of the Shanghai Futures Exchange warehouse inventories.

Metals Focus had a widely shared report this week regarding continually growing industrial demand for silver. Just over half of silver's ongoing demand is to keep the quality of our lives improving by using it for applications in things like electronics and increasingly into more and more solar panel cell manufacturing happening in China now at record sized scales.

Metals Focus basically had to admit in their report that $30 oz silver remains a large line in the sand and that the building ongoing silver supply deficit situation may get still worse with increasing silver solar demand estimations through 2026. All while coming price volatility could attract more speculative silver buying to come.

My strong bet remains that we'll see plenty of action for silver by 2026, and most of that coming volatility will be to silver bull's liking.

That will be all for this week's SD Bullion Market Update.

As always to you out there, take great care of yourselves and those you love.

← Previous Next →
James Anderson
James Anderson
Senior Market Analyst & Content

A bullion buyer years before the 2008 Global Financial Crisis, James Anderson is a grounded precious metals researcher, content creator, and physical investment grade bullion professional. He has authored several Gold & Silver Guides and has been featured on the History Channel, Zero Hedge, Gold-Eagle, Silver Seek, Value Walk and many more. You can pick up Jame's most recent, comprehensive 200+ Page book here at SD Bullion.

Given that repressed commodity values are now near 100-year low level valuations versus large US stocks, James remains convinced investors and savers should buy and maintain a prudent physical bullion position now, before more unfunded promises debase away in the coming decades...