Up, Up, and Away!

By Christopher Zoukis

Not too long ago, the U.S. Supreme Court made a momentous decision.  The Court decided that the Affordable Care Act was in fact constitutional.  The Democrats cheered and the Republicans booed.  The Court asserted that ACA was a tax, and that the U.S. government has the right, according to the Constitution, to impose taxation.  Essentially, and under the circumstances, the Court was correct.  There’s nothing more to be said.  Image courtesy of politicalnewsnow.com

Other than this:  Obamacare is going to change the whole shape of the playing field. 

Let’s take a look at what’s going to happen.

The U.S. Senate Budget Committee estimates that the Affordable Care Act will incur $17 trillion in additional cost over the rest of this century.  At the present juncture, healthcare spending includes $38 trillion for Medicare, $20 trillion for Medicaid and $7 trillion for Social Security.  Adding $17 trillion to the equation brings the grand total to $82 trillion.  If that’s not scary enough, try this on for size:  all of the above healthcare programs are unfunded.  Translation:  there’s no money set aside to pay for them.

The only way to pay for the programs is to borrow the money.  It’s called deficit spending.  The government will sell debt to anyone willing to buy it.  Remember?  That’s what happened prior to the Recession of 2008.  Banks were selling debt.  They packaged mortgages, securitized them, and then sold them.  They were called CDOs.  It didn’t work out so well.

Who will buy U.S. debt?  Some people speculate that the most likely buyer will be the Fed.  They’ll print money so they can buy up debt.  And yes, it is kind of incestuous.  But that’s the way they do it. 

Two really smart guys – John Katz and Frank Holmes – maintain that the price of commodities escalate as the money supply increases.  In other words, when the Fed starts cranking up the printing presses, the price of commodities will begin to rise.  The rise will correspond to the amount of new money being created. 

It’s called inflation.  When the money supply increases, prices go up, because each dollar is worth less than it was before.  Not only does it take more dollars to buy food, clothing, and electronic goods, but it takes more dollars to buy anything and everything. 

How high will commodity prices go?  No one knows for sure.  But $82 trillion in newly printed money is a significant amount.  And that means the price-value of commodities will rise significantly.  One way, supposedly, to hedge against such a glut of money is to invest in gold.  According to one school of thought, gold is a good safe-haven against the gathering storm scheduled to hit in the next few years.  Of course, people who invest heavily in gold are commonly called ‘gold bugs,’ a disparaging term in context.  And the context is this:  in reality, gold and other precious metals may or may not be an effective hedge measure. 

Another way to hedge, according to the pundits, is by going long in coal stocks and steel stocks.  Do intensive research into prospective companies before jumping in with both feet.