DRIGGS, IDAHO – No one will say it out loud, but is the U.S. government bankrupt?

I’d say it most definitely is…

Uncle Sam Is on the Debtor Treadmill

Yesterday, we looked at the national debt. It’s at $27 trillion and doubling every 10 years.

However, the U.S. reports its debt on a cash basis. These figures omit its obligations to Social Security, Medicare, veterans, and military expenses.

These are monthly bills that must be paid. If they’re included in the national debt, the number jumps to over $100 trillion.

Now consider this…

The monthly bill for entitlements, defense and interest now consumes more than 100% of the government’s income.

(The government brings in about $3 trillion a year, and these three items cost $3.6 trillion a year, according to the latest figures from the Treasury.)

In other words, Uncle Sam is officially on the debtor treadmill… beholden to the cooperation of creditors… on the wrong side of mathematics.

Only Two Ways Out of This Hole

The picture becomes even more terrifying when you consider a) the large cohort of baby boomers entering retirement and b) the current state of the economy…

How does all this resolve itself?

Either a hard default… Meaning we admit the Treasury is bankrupt and we tell our creditors to take a hike. It’s hard to imagine this happening.

Or the dollar gets devalued… Meaning we pay our debts in full, but with massively watered down dollars. We’ve been calling this a “soft” default in these Postcards because it’s a way to default on the debt without having to admit you’ve defaulted.

This is the option they’ve chosen.


It’s already started. The March lockdown turned a slow-baking crisis into an acute crisis. The Fed started diluting the dollar, fast.

Of course, no one will admit any of this publicly. To do so would mean telling us that the dollars we’ve worked so hard to accumulate are only worth a fraction of what we thought they were worth.

In the end, though, the truth must come out. They’ll say something like, “We don’t have a choice, unless you want to see the whole system collapse.”

And we will say, “Well, when you put it that way, okay then.”

What This Means for Investors

“Okay, Tom,” you might be thinking. “Let’s say you’re right. How do I protect myself?”

It’s simple. Just look at what worked in the ’80s, and then expect the opposite.

In the 1980s, the Fed promised to crush inflation. Today, the Fed’s promising to revive inflation.

In the 1980s, real rates on government bonds were over 5%. (Interest rates on the bonds were more than 5 points above the inflation rate.)

Today, real interest rates on government bonds are heading to negative 5%. (Interest rates on bonds go more than 5 points below the inflation rate.)

In the 1980s, gold, oil and commodities entered a terrible bear market that lasted for almost two decades.

Today, gold, oil and commodities appear to be setting up for a long bull market.

Stocks and bonds started the 1980s terribly out-of-favor… but turned out to be one of the best “buys” in the history of markets.

Stocks and bonds are starting the 2020s terribly in-favor… but I suspect will turn out to be one of the best “sells” in history.

Too-Big-to-Fail Nightmare

One look at the headlines shows you exactly what I mean about stocks and bonds being terribly in-favor today…

Reuters reports:

Global investors yanked almost $26 billion out of cash funds over the last week and piled $17.6 billion into bonds, another $8.6 billion into stock markets, and the third highest amount on record into mortgage backed securities.


Investors are increasingly using corporate bond ETFs to bet on an economic recovery and hedge against what could be a volatile post-election season… So far this year, inflows to bond funds total $166 billion, compared with $154 billion in all of 2019…

The Financial Times:

Net flows into exchange traded funds have jumped 40% so far this year.… Investors have ploughed $488.2bn into ETFs (funds and products) in the first nine months of the year compared with $349bn in the same period in 2019.

Vanguard registered net ETF inflows of $134.3bn in the first nine months of 2020, up 73% on the same period last year and already surpassing the $119.3bn it gathered over the whole of 2019.

Also from Bloomberg:

Bond investors are pouring back into riskier debt in search of higher returns as they increasingly factor in years of low interest rates. Even in Europe, where coronavirus cases are on the rise and Brexit negotiations are entering a critical phase, investors are taking more risks in a hunt for yield.

The scarcity was highlighted this week by Italy’s sale of three year debt without offering any coupon on the bonds. Junk-rated jet-engine maker Rolls-Royce Holdings Plc drew such demand for a bond sale this week that the company doubled the size of the offering to 2 billion pounds ($2.59bn) equivalent and tightened the pricing.

Italian, Greek and Spanish 10-year bond yields all hit all-time lows last week. Spanish bonds yield just 0.12%.

Meanwhile, the Financial Times paints a grim picture of what’s actually going on in the economy:

The few people on the streets of the City of London or lower Manhattan have got used to a familiar sight in recent months: empty shops, boarded up storefronts and cafés struggling for survival in once bustling financial districts. Their eyes do not lie — city centres have become ghost towns.

In short, the entire system has been inflated into a too-big-to-fail nightmare, setting up a big devaluation of the dollar.

Investors haven’t studied history. They’re rushing headlong into the wrong sectors… and ignoring the right sectors.

– Tom Dyson

P.S. America is at a tipping point from which it may never recover. Saving your retirement and your family is the single best thing you can do right now. How? Watch this.

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


First up in today’s mailbag, readers weigh in on real estate as an investment… as well as skiing dos and don’ts…

Reader comment: Tom, it’s such a treat to be included in your “family circle” and follow your adventures…but I’m struggling a bit with your decision to spend $83 a night for a long term Airbnb. That’s approximately $2,500/month, and it seems to me you could have purchased a nice place in Driggs for a lot less…stayed your six months, then turned it into an Airbnb as an income property. I’m in no way criticizing your choice, just wondering about your thought process. Please keep Postcards coming, and I really enjoy the family photos.

Tom’s response: I don’t want to own a property in Idaho… or anywhere else for that matter. It doesn’t suit our hobo sensibility of travelling light.

Reader comment: Please don’t forget to buy snow shovels and maybe a snow blower so you can get out of your driveway! Unless the landlord takes care of it. It’s important to have one for your car anyway in case you get stuck somewhere, along with cat litter to put on the icy spots.

You rarely mention real estate as an investment worth having. I have rental properties that bring in positive cash flow monthly as well as equity increases in value, plus my tenants pay for the taxes, insurance, and any mortgages. Why don’t you recommend it?

Tom’s response: Property investment doesn’t suit our rootless lifestyle. But I don’t have any issue with it from an investment point of view, if it’s producing positive cash flow…

Reader comment: I didn’t take lessons before renting equipment and hitting the slopes for the first time. This was not a good plan. When I reached the top of the mountain, I started sliding down onto a black diamond trail. I didn’t know how to stop. I was literally too scared to fall as I flew over moguls and maneuvered around obstacles. I knocked some folks down at the bottom and that’s the only way I was able to stop before going into a pond. I profusely apologized to everyone and then signed up for lessons.

If you happen to print this, I hope I don’t make your experienced skiers angry. It’s what you do when you’re young (a long time ago) and stupid (not much has changed there). God bless you guys and thank you for the Postcards.

Meanwhile, the debate around bitcoin – and whether it has any more value than gold and fiat currencies – continues…

Reader comment: I enjoy your missives. I’m not in Bitcoin but am thinking about it. I read your story about nails as money, and I totally understand this grassroots point of view about money. However – using nails as money seems pretty much situational in its application as an on-the-ground, primitive situation between individuals, etc. But it seems to me the usefulness of Bitcoin is also situational in that it is tied to the contemporary situation…

Tom’s response: Bitcoin is attractive to contemporary investors because it seems like an antidote to state issued paper money and bloated banking systems. My argument is, without state issued paper money and bloated banking systems, bitcoin wouldn’t serve any purpose. In a truly free market, bitcoin wouldn’t exist, I don’t think. The free market would provide the money and it’d be a lot more practical than bitcoin.

Reader comment: Bitcoin is a harder currency than gold. There can never ever be more than 21 million bitcoin “mined,” no matter what. Gold COULD become more abundant in various ways, such as the possibility of finding more or the possibility of mining it more easily and cheaply – or gold could be discovered in unexpected places. So, perhaps Bitcoin is actually a harder currency than gold?

Yes, I too get great pleasure seeing you with your children and Kate. I am SO glad you returned to them. I also admire the way you went off on your own and “rode the rails.” AMAZING!

Tom’s response: Bitcoin tries to pretend it’s “hard,” but what could be softer than an invisible clump of electrons with absolutely no value supporting it…

As always, thanks to everyone who wrote in. Please keep sending your questions and comments to us at [email protected].