For a number of consumers, the effect the national debt and government spending may have on their ability to save and spend money can be a concern. However, diversifying your portfolio by adding precious metals might be able to help offset governmental debt’s impact, according to Kevin DeMeritt, founder and chairman of Los Angeles-based precious metals firm Lear Capital.
The U.S. has had debt virtually since it became a nation. At times, due to various events, the country’s level of debt has risen considerably. After the dot-com boom crash, for instance, as numerous tech companies filed for bankruptcy and the economy contracted in the third quarter of 2001, the national debt escalated, growing from $6.5 trillion to $9 trillion by 2007, according to Lear Capital’s $3,200 Gold: How the Debt Trap Could Get Us There report.
Over the past decade, the national debt has increased every year, according to the Department of the Treasury and the Bureau of the Fiscal Service’s Fiscal Data publication. As of June 6, 2024, the total amount that’s owed stood at $34.66 trillion — which is likely to increase as the government continues to borrow money to cover its expenses.
Government Spending: How Governmental Debt Reverberates
Americans can feel the effect of a growing national debt level because it can impact the economy — for instance, potentially reducing business investment and economic growth — and it also can lessen confidence in the U.S. dollar, according to the nonprofit Peter G. Peterson Foundation.
Given that since ending the gold standard decades ago, the U.S. has operated on a fiat money system, which relies largely on the world trusting a country can remain economically viable, confidence can be particularly key to ensure the dollar’s value remains strong.
The government’s practice of creating currency at will can also be a consideration, Kevin DeMeritt says. In 2022, for example, $267.1 billion was printed. In 2021, the U.S. created $319.7, according to Federal Reserve records.
“Now that we can print up as much money as the government wants to, every dollar you print, the money that’s already out there becomes worth less and less,” Kevin DeMeritt says. “That’s what happens over time to paper currency.”
Also Read: Why Gold Has Historically Been Viewed as a Store of Wealth
Throughout the years, the U.S. has added new money into circulation periodically to infuse the economy. In 2012, for instance, the Federal Reserve printed currency to assist with the purchase of trillions of dollars in bonds, which can potentially increase stock prices and reduce interest rates — but also possibly drive inflation up, according to U.S. News & World Report. That year, $386.6 billion worth of notes were created.
“The central banks have been piling into gold over the past four or five years because we’ve printed up so much money, now there’s a distrust that we are able to service the debt in the United States,” Kevin DeMeritt says. “You add on war or conflicts, [and] it just makes matters worse because we’re printing up more money.”
Without being required to back currency the government produces with a set amount of gold, it can create any amount of new bills at any time — which is one of the factors that has helped buoy the national debt level to today’s elevated level, according to Lear Capital’s $3,200 Gold: How the Debt Trap Could Get Us There report.
A Probable Currency Production Outcome
As the Federal Reserve of St. Louis notes, the cost of goods, services and labor can rise when the government prints too much money, reducing Americans’ purchasing power — and the value of the money that’s created.
“The one effect you’re going to get is inflation,” Kevin DeMeritt says. “The other effect you’re going to get is bubbles. You have so much money that it’s going to go in different asset classes and create some sort of bubble somewhere. Then they raise interest rates; the height of the cycle is going to be much bigger, and you’re going to get a bigger crash on the other side of it.”
Previous money printing practices helped create situations such as the real estate bubble, he says, that preceded the widespread housing market collapse in the U.S. in 2008.
“Once something starts getting momentum, like the stock market, it just continually goes up; you get the margin debt at incredibly high levels, and [they] start raising interest rates,” he says. “[People say], ‘My [debt] costs more, let me pull out a little bit out of the stock market.’ That starts to bring it down. Then they raise [rates], we pull more money out — pretty soon the economy is slowing down.”
Newly printed money working its way through the system, Kevin DeMeritt says, can be the catalyst for that type of cycle.
“It’s simply the government creating these bubbles by printing money out of thin air,” the Lear Capital founder says. “If they would stop doing that, the economy is going to be a little bit more stable; your currency is going to be a lot more stable.”
While individual Americans most likely won’t be able to directly influence whether the U.S. government decides to print more money or incur additional debt, precious metals — such as physical gold — may be able to help soften the effect future monetary policy decisions could have on your savings, Kevin DeMeritt says.
Historically, gold prices have frequently risen as the debt level increased. Gold’s value has actually grown 1.6 times faster than the national debt, according to Lear Capital — and if that rate continues, the precious metal could potentially serve as a way to protect your purchasing power and ability to effectively save money.
“The volatility of gold is not going to be the same as other investments,” Kevin DeMeritt says. “It typically is going to give you more stability.”
