DRIGGS, IDAHO – In 1998, Wall Street bailed out a hedge fund.
In 2008-09, the government bailed out Wall Street.
In 2020-21, who bails out the government?
Greetings from Driggs, Idaho…
Three years ago, my family and I gave away our things, handed in the keys to our apartments, and jumped through “The Portal.”
We now live an unconventional lifestyle as a traveling family with no home and no possessions (other than what we can carry with us.)
We’re currently in the American West, experiencing winter in the Teton Mountains, one of the snowiest places in North America.
So far this year, we’ve had 298 inches of snow. Another 1-2 feet is being forecast this week.
Planning Our Next Stop
We originally planned to settle down a year ago, when we returned to the USA from overseas. We planned to make a new life in Baltimore.
But when we arrived in Baltimore, we decided we weren’t ready to settle down yet. So we packed our suitcase back up and hit the road again…
Then, somewhere on the road in the Midwest, we decided we were going to settle down in London in 2021 and take care of my mother, who had Parkinson’s Disease. But Mum died on Christmas Eve.
Kate and I talked last night.
“What do you want to do for the rest of the year?” I asked Kate.
“What are my choices?” she said.
“Let’s keep traveling.”
“Okay,” she said.
“What about Mexico? We can all learn Spanish.”
Who Bails Out the Treasury?
Turning back to the financial markets…
This is the easiest way to understand what’s happening…
In 1998, a big hedge fund called LTCM blew up. LTCM had borrowed such extraordinary amounts of money from various banks, its collapse threatened to bring down the whole banking system.
So a cabal of Wall Street banks clubbed together and bailed out LTCM. They averted the crisis.
In 2008, Wall Street blew up. Bear Stearns, Lehman Brothers, and a bunch of other big banks collapsed when their bets on subprime loans went wrong. It threatened to bring down the whole banking system.
So the government stepped in, and acting in concert with the Federal Reserve, they bailed out the whole of Wall Street. They averted the crisis.
In early 2020, the government was $23 trillion in debt, running a trillion-dollar budget deficit, and had a $100 trillion pile of bills (off balance sheet entitlements) to pay, stretching into the future.
A recession arrived (fueled by the COVID-19 pandemic), impairing the government’s tax revenues while also triggering a series of fresh trillion-dollar bailouts…
The Treasury is now in the most stretched financial position of any entity in history… And it’s entering the exponential stage of the bankruptcy process, where it can only service its existing debt by adding more and more new debt.
Who bails out the Treasury?
The Only Way Out
There is only one way to rescue the government. That’s devaluation of the dollar.
Devaluation is a way to reduce the real value of the government’s debt (and everyone else’s, too). It’s the only remaining way to bail out the system.
Devalue or die.
I know currency devaluations only happen in undeveloped countries, and no one believes it could happen here.
I know U.S. government borrowing costs are still near their lowest levels in history, and no one seriously entertains the idea that the U.S. government could be broke.
I know everyone’s focused on lockdowns, small business failures, and the deteriorating unemployment situation.
So I know this sounds crazy. But I’m certain about this…
Devaluation is the ONLY path left to bailout the government from bankruptcy. And they’ve already decided to pursue this path…
You can see this in the price of the U.S. dollar over the last nine months.
And you can see the first signs of this in the stock market, commodities markets, real estate markets, and cryptocurrency markets as prices start to “pop” like popcorn.
Protect Your Wealth Against the Devaluation
This is just the beginning.
When the market fully absorbs what’s happening, I predict a thunderous stampede of capital will leave the currency and bond markets and charge into the stock markets and other real assets.
The next indicator to flash will be rising consumer prices. It’s not flashing yet, but it will soon…
We’ll see stagflation because the currency devaluation won’t produce real economic growth. It’ll only devalue the dollar, other currencies, and things that are claims on currencies (loans) relative to anything backed by real assets.
What to do about all this?
Dollars and bonds are the worst things you can hold. They’re effectively guaranteed to lose purchasing power.
Stocks are harder to predict. Some stocks should do okay, as they’re claims on real, hard assets.
I prefer industrial or commodity businesses, and I like international stocks. That’s because they’re much cheaper than U.S. stocks and pay better dividends. I’m staying away from U.S. stocks… especially the most popular ones.
Finally, as regular Postcards readers know, I like gold and silver for maintaining the purchasing power of our savings during the devaluation…
– Tom Dyson
P.S. No one is saying the government is bankrupt. But it is. If the Fed hadn’t monetized its debt last year (and continued this year), the government would have defaulted on its obligations. It’s in a position where the only way it survives is through bailouts. That’s a blow-up.
As regular readers know, I saw something like this coming back in 2018. That’s why Kate and I moved to the sidelines in gold and silver, so we can protect and grow our nest egg over the next decade. And it’s not too late yet for anyone who wants to do the same. I put together a model portfolio, including percentage allocations for the ideal precious metals portfolio… as well as the 11 gold stocks I recommend today. Learn more here.
Harsh words for Tom today following Monday’s essay, “How China Beat COVID-19”…
Reader comment: Tom, you are tragically naive (ignorant) when it comes to China’s Wuhan virus “heroics,” not to mention quoting The New York Times to make your case. You actually want to shove the word of the Chinese Communist Party in our faces, after all they have done in the past year?!
Closing down travel from Wuhan to the rest of China, but allowing travel to the rest of the planet, is but a starter. Have you done any research into the PCR test hoax? Even China’s lapdogs, the WHO and Anthony Fauci, acknowledged such in the past few weeks – of course, after their mission was accomplished.
Did you see Johns Hopkins say that the total deaths in 2020 were on par with 2019? Do you actually think the rest of the world is now going to lap up a “vaccine” made in China? I could go on and on, but as Warren Buffet would say, you’re simply outside your “circle of competence” on this, and in the most embarrassing and insulting way. Save this kind of garbage for likes of the shallow swamp of Twitter.
Reader comment: China’s approach is certainly more “efficient.” Getting “results.” But I doubt your family’s recent wanderings would have happened if in China. Not really “efficient” from a governmental point of view. Give me the mess and inefficiencies of democracy.
Reader comment: I’m a resident of Taiwan and have a better understanding of real China as I ran a manufacturing plant there back in 2000. The reality is: DON’T TRUST ANY INFORMATION (or, at least, have deep speculation on information released by the state or its agencies).
It’s a completely different story being visitors and residents. You won’t be happy seeing China as a worldwide superpower. Fight against them while you still can.
Tom’s note: As always, thanks to everyone who wrote in. Please keep your questions and comments coming at [email protected], and I’ll do my best to address them in one of our Friday mailbag editions.