PEACEFUL VALLEY, COLORADO – Howard Marks, famous value investor, said…

Rule No. 1: Most things will prove to be cyclical.

Rule No. 2: Some of the greatest opportunities for gain and loss come when other people forget Rule No. 1.

Meanwhile, in these Postcards, I’ve been making the argument that, with $26.5 trillion in debt…

…a projected budget deficit of $3.7 trillion for 2020…

…huge unfunded liabilities coming due over the next decade…

….and several recessions coming, the U.S. government is broke. And it’s about to default on its debt.

More below. But first…

Greetings From the Rocky Mountains

Greetings from 9,500 feet above sea level in the Rocky Mountains…

My family and I are a traveling family, flitting from town to town, country to country like butterflies in a summer breeze.

We have no home. The only possessions we own are what we carry with us on the road.

We’ve been to 30 countries in the last two years, but this year, we’re exploring America, our “home” country and – in my considered opinion – the most beautiful country on the planet.

It’s also the best country in the world for camping.

The camping “infrastructure” here is miles ahead of anywhere else. So we brought a little tent trailer with us on this trip.

Whenever we get tired of driving, we pull over and set up camp… often on people’s private property. (They read these Postcards and then – if we’re in their area – write to us and invite us to stop by. We always accept.)

Our Little Mountain Cabin

Today we’re in Peaceful Valley, Colorado, staying in a little mountain cabin up in the woods high above Denver.

Our hosts – Kay and Al – opened their pinewood doors to us, fed us heartily, and showed us around their alpine retreat.

Tomorrow, we move on again…

Here we are exploring the area today, caught in a sudden hailstorm…


Miles and Dusty in the sudden hailstorm

And that’s Longs Peak begins us…


Longs Peak (14,200 ft.) in the center; Mount Meeker on the left

And enjoying a tea party in our cabin…


Our cabin tea party

Why I Won’t Bet Against Government Debt…
Even Though the Government Is Broke

Turning back to our argument up top…

Normally, when a debtor defaults on his debts, it means he’s failed to pay his creditor the money he owes. He may have missed an interest payment or failed to return the creditor’s principal.

Let’s call this type of default a “hard” default.

I do not expect the Treasury to “hard default” on Treasury bonds. Instead, the central bank will use its currency printer to make sure the Treasury honors its debts in full.

I don’t even expect interest rates to rise. (Normally, a broke borrower must pay very high interest rates to borrow money.)

Again, the central bank will use its currency printer to make sure interest rates remain low… probably below 2%.

We’ve been calling this “yield curve control.” It’s the reason I won’t bet against the price of the federal government’s debt… even though I think the government is broke.

The outlet – or relief valve – for the U.S. government’s financial bust will be the dollar and the floating currency system that we’ve all been using for the past 50 years.

Paper currencies around the world are going to be debased and devalued.

Not the First Time the Treasury
Has “Soft Defaulted”

In short, the U.S. government won’t miss any interest payments or fail to honor any bond redemptions. It may never even lose its AAA credit rating.

Instead, it will make sure the dollars it returns to its creditors are worth less than the dollars it borrowed.

In other words, it will debase the currency and repay its debts with watered-down dollars.

Let’s call this a “soft” default by the Treasury, driven by an erosion of purchasing power in the dollar. And it wouldn’t be the first time something like this happened…

In 1945, the U.S. government was also “broke” after spending heavily on WW2 and the Great Depression.

Like today, it used the central bank’s currency printer to repay its debts, control interest rates, and let inflation run hot.

Effectively, the U.S. government “soft defaulted” on its debts for the entire period, until it had rehabilitated itself financially 35 years later, in 1980.


You can see this in the chart above. It tracks federal debt as a percentage of GDP. Notice how it spiked in 1945, and then fell for the next three and a half decades.

Treasury bonds were given the nickname “certificates of confiscation” during this period.

My Hypothesis in One Chart

This next chart illustrates my hypothesis exactly…


Notice the blue bars. Each bar represents the REAL return to an investor – over the following 10 years from the year indicated – in Treasury bonds.

(By using real return, the blue bars take into account both the bond’s interest rate AND the change in purchasing power of the dollar over the 10-year term of the loan.)

Notice the experience of Treasury bond investors between 1937 and 1976. Investors in government bonds consistently lost.

Also notice how the interest rate they earned – shown by the red line – was positive the whole time. That implies their losses were entirely due to erosion in purchasing power of the currency.

Almighty Rebalancing Into Gold and Silver

I think we’re heading into another period like 1937 to 1976 on the chart above.

This coming period may be even worse for Treasury bond investors than the 1937-1976 period was. Why? Few reasons…

1) With debt-to-GDP at 136%, the government is in even worse financial shape today than it was in 1945.

2) We won’t have the incredible economic tailwind of the post-war era and the Baby boomer generation.

And 3) we’re far more reliant on international creditors than we were then. We’ll see.

Anyway, there’s about $13 trillion in negative yielding debt outstanding right now… and hundreds of billions more in low-yield bonds of all stripes (all redeemable in paper currencies.)

This tells me the credit markets have absolutely no fear of inflation and no inkling that bonds are about to become “certificates of confiscation” again.

It also tells me that… when the credit markets realize governments around the world are about to soft-default on their debts by debasing their currencies and nurturing inflation… there’s going to be an almighty rebalancing into hard assets, commodities, and especially gold and silver.

This process hasn’t really started yet because, as I write, the credit and equity markets aren’t positioned for inflation, and bond investors are still complacent.

But gold and silver may be starting to sniff it out…

I expect gold will be over $10,000 an ounce when the dust settles.


  • Rule No. 1: Most things will prove to be cyclical.

  • Rule No. 2: Some of the greatest opportunities for gain and loss come when other people forget Rule No. 1.

– Tom Dyson

P.S. I created an entire trade to take advantage of this setup. I invested nearly $1 million of my own money into this strategy. And I put together a model portfolio so others can take advantage of it, too…

Since May, my recommendations are up as much as 57%… 60%… even 133%. But this is just the beginning. I explain why in this special video briefing – and show you how to get access to the 11 gold stock names I recommend today

P.P.S. Thank you all for your messages (below). We love receiving them and I read the mailbag to Kate and the kids around the campfire every evening.

Please note: I will never reveal your identity and I will remove any potentially identifying details from your letters when I republish them to protect your privacy. Please keep ‘em coming at [email protected].

Like what you’re reading? Send your thoughts to [email protected].


A word of caution for Tom and Kate as they consider spending the winter in Fernie, BC

Reader comment: Hi Tom and family, I am thoroughly enjoying your postcards from the trip across America as well as your financial strategy. When you mentioned the idea of stopping for couple of months in winter at a ski resort (ideally in Canada), that sounded like an excellent idea. Your kids are at a perfect age to pick up skiing and/or snowboarding and giving them those skills at this time will teach them something which they will enjoy for the rest of their lives.

I would like to add a word of caution, though. Last winter, ski resorts all over the world were the major seeding points of the coronavirus. After thinking about it, it is quite logical. Skiers in major resorts spend time in lines, gondolas, bars, restaurants, usually in close proximity. They are typically young, strong, and healthy, and a cold does not stop them from pursuing those activities. Virus spreads easily in those temperatures and conditions. While the risk is small for kids, this is not necessarily true for you and Kate. So, when you pick a place, think about an uncrowded destination.

Meanwhile, one reader is confused why another reader suggested Tom is “jaded” by America

Reader comment: Tom, I read every one of your emails, but I realized I must have missed something when I read the comment from a reader suggesting that you are jaded when it comes to America. Can you provide a link to the posting that would have suggested that to this fellow?

The last paragraph of his comment – where he suggested you are like a superficial butterfly – was not worth reading. So what if you and your family are taking this opportunity to be like a butterfly and flit around?

When you find a place you really want to land – you will. In the interim, what a wonderful experience that you, Kate, and the kids will remember for the rest of your lives. All my best and warmest wishes to you and family.

Tom’s response: He wrote that in response to my story about Wyoming coal and the trains that carry it east. Somehow, he inferred from my comments that I was “jaded” because of how I described the growth of coal mining in Wyoming. Here’s the rest of his comment…

There is much beauty in this country – both natural and in the people who live across the land. I imagine they even have a “reclamation plan” for the mine — it is usually required — and as such, it will again be beautiful grassland.

Perhaps had you taken more time or insisted in learning the “whole picture,” you could have even seen a portion of the land which has already been restored, and could have taught your children about that rather than to resent that a once beautiful grassland succumbed to being a mine — which is probably only part of the story. Good luck to you and your family.

What he doesn’t realize is that I remain fascinated by American heavy industry and I loved every minute we spent in the Powder River Basin.

Reader comment: I have a technical question about central bank tools that can cause inflation. You mention that the Fed inflated away excess government spending from the Great Depression and after World War II. How did the Fed do this after WW II if the dollar was pegged to gold at $35 an ounce? Didn’t that limit the unlimited liquidity options the Fed currently has under a purely fiat currency? Keep sharing your adventures!

Tom’s response: Between 1942 and 1951, the Fed set interest rates on the 10-year bond at 2.5% and offered to buy every 10-year bond in the market at that interest rate, using its infinite balance sheet. Meanwhile, WW2 was very inflationary for America.

Other readers ask about Tom’s Dow-to-Gold trade… and one asks about Tom’s concept of a “global synchronized currency devaluation”

Reader comment: Did you and your family happen to see on the tundra above timberline on Trail Ridge, the still-worn, visible trails the Ute Indian tribe made 100 years ago? They would go from their winter camps outside of Fort Collins to their summer location near Grand Lake near Granby, Colorado, on the other side of Trail Ridge Road pass.

By the way, I purchased $21,000 of gold in my Asset Strategies Precious Metals IRA. Now I still have over $100,000 in stocks, bonds, and ETFs in another IRA. I retire in a couple of years. You seem to recommend purchasing a lot more gold and exiting equities & bonds.

Tom’s response: Yes, I think selling stocks and bonds and buying gold and commodities is the trade of the century.

Reader question: Tom, I love your Postcards, family travel, and the Dow-to-Gold thesis. I love to hear your thoughts on gold’s recent closing above “all-time highs” in USD terms, and more specifically in terms of inflation.

Your Dow ratio corrects for this somewhat as U.S. equities are an inflation hedge themselves, but do constant dollars factor into your thinking as well?

Tom’s response: The all-time inflation-adjusted high for gold is $2,777. It hit this price on January 21, 1980. The dollar doesn’t factor into my Dow-to-Gold ratio thesis because both the Dow and gold have the dollar as their denominator, so when comparing the Dow to Gold, the dollar cancels out.

Reader comment: Tom, why don’t you put somewhere on your homepage what the Dow-to-Gold ratio is? Gold’s been going up and I wonder how close to that magic number it is. I know you’re busy seeing America with your family – I love that you’re doing that. But surely someone could put that number on your home page for those of us that are not interested in doing the math. Thank you!

Tom’s response: Yes, good suggestion. I will try to publish the Dow-to-Gold ratio every day in these Postcards. Today it is around 13.5.

Reader comment: I don’t readily subscribe to newsletters, but I got yours and I’m glad I did. Since May, my investment in gold is up over 91k. I am patient with the tankers and read recently that they tend to do well in the fall and winter months.

I love reading your articles on the Dow-to-Gold ratio and your latest postcard on the global synchronized currency devaluation, but I must admit that I struggle to understand. I have no background in economics. Can you recommend reading to help me get up to speed?

Tom’s response: I’d recommend Mike Maloney’s “Hidden Secrets of Money” video series on YouTube. Also, Harry Browne’s books are all great. There’s one called 99% of Everything You Need to Know About Money, which you can download at Henry Hazlitt’s Economics in One Lesson is also good.

Reader comment: Tom, you titled a photo “Somewhere in Wyoming,” but I am pretty sure I recognize the spot, at least approximately. The next town on your journey from that photo should have been Medicine Bow. Or possibly it was after Medicine Bow.

I lived in Casper 40 years ago when I was young and single, and I took that road one Saturday with a couple of friends looking for a hillside where another friend told me we could find dinosaur fossils – bone fragments and teeth. We never found the place, or at least no fossils, but it was still a fantastic day.

I now live in Ecuador, so won’t expect a visit anytime soon, although if you resume your interrupted trip through South America, we’d love to meet you and your family.

Tom’s response: Yes, that spot was just off Highway 487 between Casper Mountain and Medicine Bow. Thanks for writing in! As always, please keep your comments and questions coming at [email protected]