December 2024 - Week 2 Edition
Inflation Still Alive and Well but Won’t Be Tamed Any Time Soon
The November Consumer Price Index (CPI) was released early Wednesday at 0.3%, and the “core” CPI (subtracting food and energy) was also at 0.3% (a 3.6% annual rate) for the fourth consecutive month. This proves consumer prices were stubbornly high during the entire election season of August, September, October and November, giving us one more reason why Donald Trump swept all the swing states in the November election. Annual inflation at 3.6% is almost twice the Federal Reserve’s 2% “target rate.” The Federal Reserve funds futures market now indicates a 99% chance the Fed will cut interest rates for a third time during its Federal Open Market Committee meeting, held next week, December 17th and 18th in Washington, DC.
The 12-month “core” CPI stands at 3.3%, and the much-followed shelter rate (called “owners’ equivalent rent”) remained stubbornly high, at +4.7%. This is what is keeping many young families from affording a new home or even affording the rising rents now being charged.
Gold has risen strongly in the past few days, partly in anticipation of this stubborn rise in inflation rates announced this week. Gold has now surpassed its pre-election level, just five weeks after republicans took control of the House, Senate and Presidency. Specifically, gold closed at $2,740 (on the futures market) Tuesday afternoon on election day, November 5th, before the Republican sweep became evident in the evening hours. Gold then temporarily dropped on the “good news” of a return to expected financial sanity and global peace under President-elect Trump. Nine days later, gold fell nearly 7% to $2,554 but it recovered to pre-election levels on the CPI inflation news Wednesday morning, December 11, surpassing $2,750.
Balancing the Budget is Challenging Given Current Entitlement Guarantees That Will Be Good For Gold
As we enter 2025, there will be a +2.5% “Cost of Living Allowance” (COLA) in Social Security benefits, another sign that entitlement benefits will hamstring attempts to cut federal spending, despite the well-intended attempts by the new Department of Government Efficiency (DOGE).
We wish the best to President-elect Donald Trump and his cost-cutting team headed by Elon Musk and Vivek Ramaswamy but given our current budget realities, it will be very challenging to balance the budget any of the next four years without some major surgery in our entitlement programs, which would meet major political resistance in Congress.
Last week, we recommended the end of the penny coin, to save $100 million per year. If that worked – and 100 other cost-saving victories of equal value – that would save $10 billion per year or just 0.5% of the current $2 trillion annual deficits – so we must find much bigger cuts!
The basic math of both Social Security – created by President Franklin D. Roosevelt in 1935 and launched in 1937 – and Medicare, launched by President Lyndon B. Johnson in 1965, is that the current benefits for millions of retirees and other qualified recipients, are paid via payroll deductions by currently working Americans. Benefits are indexed to inflation, which has soared by over 20% during the Joe Biden years. But there are far fewer full-time workers paying into the system as the huge Baby Boomer contingent (age 61-79 in 2025) retire during the 2020s.
The younger generations, dubbed Generations X, Y and Z, born since 1965, have generally had fewer children and the middle cohort, Generation Y (Millennials, born 1981-96) have had far fewer children since the Great Recession of 2008. The youngest, the “Generation Z,” have not elected to work much at all, preferring the part-time “gig” economy. Very few younger workers will fund the retirement accounts of Baby Boomers and Generation X, entering retirement next.
If a better economy doesn’t produce more taxable income for Uncle Sam, then the only solution is to raise taxes, lower benefits, or both, and neither solution is very popular. Instead, President-elect Trump has promised to lower taxes on nearly every age cohort – young, old and middle age: Reduce taxes on “gig” workers (no taxes on tips), lower taxes on retired workers (no taxes on Social Security benefits) and lower taxes on middle-class full-time workers (no taxes on overtime). All of these are very popular ideas, but they are also “deficit dynamite.”
The next biggest budget hurdle is interest on the national debt. With rates averaging 4.5% on $35 trillion in debt, it’s costing over $1.5 trillion per year – and it will rise as deficits (and rates) rise. That is far more than the entire cost of the Department of Defense, whose budget is also slated to rise.
While Elon and Vivek can probably find half a trillion in waste and abuse – including the closure of at least one cabinet Department – they cannot kill or tame the three or four huge alligators in the swamp without Congressional approval. That will be a hard battle to win with so many recipients of Social Security, Medicare, defense contracts, subsidies and other generous government checks.
It likely means our national deficits will continue to rise by $1 trillion or more per year, eventually weakening the dollar and causing the Fed and Treasury to print more money to service that debt.
This makes each ounce of gold bullion more valuable in comparison to fiat money, so be sure to keep adding gold coins and bars – especially rare gold coins – to your portfolio and your tax-deferred IRA account to take advantage of this “golden advantage” in the years to come. You should also consider adding rare coins to your portfolio as we have seen some of our 20/20 Program coins rise significantly more than gold bullion coins in recent years.
Gold rose $137 in five days, from $2,617 (on the futures market) Friday morning, December 6th, to $2,752 on Tuesday, December 11th, initially on news that the People’s Bank of China (PBOC) was buying gold again. The increase was followed by the uncertainty of the regime change in Syria over the weekend and then the fear of higher inflation in the CPI report this week. While most of the world was celebrating the end of the despotic Assad regime in Syria, its replacement, led by al-Qaeda and ISIS, does not inspire confidence for peace in the region, especially for Israel.
Silver futures rose from $31.08 to $33.10 in the same time span, rising 6.5%, which was significantly more than gold’s 5.2% price increase in the same five days but both increases are welcome news.