Tocqueville Management Corp. chairman John Hathaway says the growing US government debt to GDP ratio poses “the most viable threat” to the US economy.
In his fourth-quarter investment letter, Hathaway said the ballooning US debt, coupled with a bear market and a recession, will likely weaken the dollar and send gold much higher in the near future.
“Here we have an easy-to-understand, highly visible metric that in our opinion makes the likelihood of much higher gold prices seem inescapable. The magnitude of the debt relative to GDP – the productive resources of the US economy that underpin the creditworthiness of that debt – now stands at 105.7% (Q3 2018), a level at which there is significant risk that it will begin to outgrow GDP.”
Tocqueville ranks as one of the world’s largest gold fund managers.
We’ve written extensively about the ballooning debt levels in the United States. Between Christmas 2017 and Christmas 2018, the US government added a staggering $1.37 trillion to the national debt. And as we’ve noted in the past, debt is cancer on economic growth. Studies have shown that when the debt to GDP ratio reaches about 90%, it retards growth up to 30%. As Hathaway said, the US debt to GDP ratio has already climbed above 105%.
Hathaway said even a modest recession would make the situation even worse.
“A recession, or even a significant economic slowdown, would drive the pace of debt growth well in excess of 5%.”
Peter Schiff has been saying the stock market bubble has already popped, that we’re in a bear market and the overall economy is next. Hathaway hasn’t declared it an outright bear market, but he does think we’re on the cusp of a market downturn that could last three to five years. He said this is good news for gold.
“A bear market of even lesser magnitude will, we believe, cause investors to turn to gold and other strategies to offset poor performance generated by mainstream strategies.”
He went on to say owning gold is the best way to weather the coming storm.
“Gold exposure, in our view, is the antidote to unknown adverse repercussions stemming from a sovereign-debt crisis. Gold has always protected capital from currency debasement. We believe it will prove to be a winning strategy in a bear market.”