DRIGGS, IDAHO – The national debt is over $27 trillion and rising so fast, it’ll double over the next ten years at this rate.
This debt will never be paid off by “normal” means. Paying it off by normal means would mean a punishing increase in taxes, a drastic cut to the defense budget, and a default on entitlements like Social Security and Medicare. This will never happen…
The easier way out – a way that’s been used successfully in the past – is to devalue the dollar.
The U.S. has the world’s greatest hoard of gold. The authorities could raise the price of gold overnight to some very high number… perhaps $10,000… thereby making each dollar worth one ten-thousandth of an ounce of gold.
This would be very inflationary since all the other countries who hold gold… and all the private citizens who own gold… would now effectively be sitting on a pile of new dollars. Foreign central banks would immediately devalue their currencies against gold by the same measure to maintain competitiveness. The price of everything would rise.
Effectively, the government would have defaulted on 80% its debt – but it would be what we’ve been calling a “soft” default. That’s because it would allow the government to pay off its gargantuan debt in full, just with vastly watered-down dollars.
In the end, we’d have a new monetary system, linked informally to gold again, but without the gargantuan debt overhang we have today.
Biggest Changes in Money Since Bretton Woods
This is the only way to solve the debt problem. And it would trickle down and solve the debt at all levels of society, not just at the federal level.
This is the same strategy President Roosevelt used to bring the U.S. out of the Great Depression in 1934, when he raised the gold price from $20 to $35.
This idea may sound a little far-fetched today… but its time is coming. I can hear the debate getting louder every day.
People are beginning to discuss new payment systems, like bitcoin… as well as alternative financial systems based not on banks but on state-issued digital currencies. Lots of smart money managers – like Sam Zell and Warren Buffett – are buying gold. And Goldman Sachs (the second-largest investment bank in the world) acquired its first gold ETF last month.
I also think the Chinese, the Russians and some other countries can see this coming. They’ve started accumulating gold in a very determined way. (China is the world’s number one producer of gold today, but no one outside of China knows how much gold they own. It’s probably more than anyone realizes.)
Over the next ten years, I think we’re going to see the biggest changes in payments and money since the Bretton Woods conference in 1944… and a rising gold price is going to be at the center of it all.
The Only Reason Bitcoin Has Any Value Today
I’ve received quite a lot of feedback on my bitcoin essays from last week, including one person who called my ideas “daffy” and another who said my ideas were “superficial.”
Prompted by this criticism, I read a book over the weekend written by an expert on payment systems. It’s called Before Babylon, Beyond Bitcoin.
The author says mobile phones have launched us into a brave new world of money, and he predicts all sorts of new ways we might pay each other in the near future.
(I expected him to be a bitcoin evangelist, but to my surprise, he’s a bitcoin skeptic like me.)
If you look through history, anything that’s been used as money has either been a valuable commodity (gold, wheat, beaver pelts)… or it had an issuer standing behind it and giving it value (airline miles, medieval tally sticks, Federal Reserve Notes).
Bitcoin is neither. It has no intrinsic value nor any issuer standing behind it and giving it value. It’s just an elegant score-keeping system that runs on autopilot. (I don’t think that has a lot of value because the free market – if we’d only let it – could do this job more efficiently.)
The only reason bitcoin has any value today – in my opinion – is because there’s a big new segment of tech-loving investors who think bitcoin solves the problem of the paper dollar.
That is, Bitcoin can’t be inflated or monitored, and it doesn’t rely on the incumbent banking system. So it’s seductive in this age of bloated dollars and bankrupt governments.
Prediction: The current monetary system will be replaced… by something (or somethings) other than bitcoin. Bitcoin will continue to be a nerdy side-project until then. And then it’ll fall by the way…
– Tom Dyson
P.S. Two years ago, I went “all in” on a single trade… You see, the financial system is rotten to the core with intervention, manipulation, fake money, fake trades, fake deals, fake news, and robotic trading. The system has become very, very fragile.
The bottom line is, I don’t want to participate in this toxic mess. I want to sit on the sidelines in this one trade and get on with my life… until it’s safe to return to the financial system. It’s a trade that will play out over several years. But I have total conviction in this idea. Learn more here…
In today’s mailbag, readers talk gold, driving in the snow, and Tom’s controversial take on bitcoin…
Reader comment: Tom, believing in bitcoin does not require a “leap of faith” that some random electrons have value. It does require belief that a very specific set of computer code (programmed scarcity running on a decentralized network of over 10,000 nodes worldwide) can have value. And certain software in our digital age does command very high value – like Software as a Service businesses, or Tesla’s AI system for self-driving cars, or cloud computing. Dismissing bitcoin because it’s just “electrons” is shortsighted.
Reader comment: Tom, you might be right that Bitcoin will be banned but the rest of your argument is daffy. Not sure why you felt the need to make that prediction other than a lack of new material. How’s your oil tanker prophecy doing? Did you get to debate Bitcoin with Porter? By the way, most of the things that are traded lean on the greater fool theory, including Gold.
Reader comment: Hello Mr. Dyson. Been following your family adventures and frankly I’m jealous. Nice that you can devote this much time to enjoying life and your family.
I have a question regarding your stance on Bitcoin. You lay out an interesting case for not owning it. I would agree that it is more of a speculation than a replacement for money or trading goods. Personally, I do not own any Bitcoin, but have toyed with the idea of buying a small position in it. I’ve read many articles that point out why it’s a great investment and how it will be worth six digits in a few years.
My question has to do with the many other people that support it, and some of these people I’m sure are close friends. Have you had a discussion, or better yet, a debate with any of your colleagues who are pro Bitcoin? It would be interesting to see how they counter your point of view. Keep the letters coming…
Reader comment: Enjoy you sharing your travels with us. I lived in Libby, MT, for 50 years so I know the whole Northwest pretty well. Re: Gold as money…Try GLINT, an idea where you can own gold offshore that is the reserve for a Mastercard debt card. A neat idea!
Tom’s response: My colleague Dan Denning has been looking into Glint. I don’t know much about it…
Reader comment: Tom, I have enjoyed your writing since the first Palm Beach Letter. I know you love your van, but I am not sure if it is 4-wheel drive or all-wheel drive. If neither, I strongly suggest you get a vehicle with that, and put good snow tires on it (save the tires it comes with for spring). You cannot manage that much snow without both! Good luck.
Tom’s response: It’s a two-wheel-drive. We’ll put good snow tires on it and hope for the best…
And as always, thanks to everyone who wrote in. Please keep writing us at [email protected].