Devalue the Dollar, Avoid Federal Default?

WEST PALM BEACH, FLORIDA – This weekend, an idea has been nagging at me. And that is, central banks and governments may start buying gold… (More below.)

Waiting for the Storm to Pass

Greetings from West Palm Beach, Florida…

Two years ago, we sold it all, turned our savings into gold, and hit the road with our three kids.

We circumnavigated the planet, visiting 29 countries on four continents. When the trip was over, we returned to the U.S. expecting to get back to work.

That was about two months ago. But after some thought, we decided we weren’t ready and so we hit the road again.

We went to Nicaragua for three weeks. And then we were supposed to go to Argentina last week.

We were in transit… passing through Florida to visit Kate’s parents for a few days… when the epidemic story exploded in the media. Argentina closed its borders. We decided it wouldn’t be sensible to travel in this climate.

So here we are in South Florida, hunkered down, waiting for the storm to pass.

I’m writing this message to you from my new office on the porch of Kate’s parents’ house. It’s quiet here. Kate and the kids are inside doing their schoolwork.

We’re fine. We hope you are, too.

Here’s Penny playing with her dolls…

Penny at her grandparents’ house

Homeschooling Tools, Part Seven

We’ve been homeschooling for years. And for the past few days, we’ve been sharing some of our homeschooling tools with you. (Catch up on parts one through six here and here.)

Below are two great YouTube channels we like. (Grown-ups will enjoy these too.)

The first channel is called Ashuelot Concerts. It’s a pair of musicians who tour schools, introducing school children to classical music.

Since schools closed, they’ve started performing their concerts – live – for an online audience (Wednesdays and Saturdays).

Their performances include explanations and analysis of the music.

The second channel is called Periodic Videos. It’s an eccentric university chemistry professor with crazy white hair.

He makes videos about the elements of the periodic table, demonstrating their properties with spectacular experiments.

My father loves this channel.

The Case for a Weaker Dollar

What you must understand about the current macroeconomic situation is this…

If you owe me a dollar, it’s in your best interest for the dollar to devalue before you give it back to me. It reduces the value that you transfer to me.

Now let’s consider this on a global scale. Who owes the most dollars?

The U.S. government, of course. It owes $23 trillion and counting. Therefore, we can say the U.S. government has a very strong interest in the U.S. dollar FALLING.

We could even say the U.S. government has the largest “short” position in the dollar the world has ever seen. 

We could make the same case for ALL borrowers of dollars, both domestically and internationally – including all the corporations, the municipalities, and the states.

They all want the dollar to fall to ease their debts.

Synchronized Global Currency Devaluation

One way to make the dollar fall would be some sort of Plaza Accord.

The Plaza Accord was an agreement they struck at the Plaza Hotel in New York City in 1985 to make the dollar go lower against all other currencies… which it did for years afterwards.

I can’t see that happening this time, because it just puts the burden onto everyone else.

They’ll find it much easier to simply revalue gold to $3,000 or $5,000… what I’ve been calling a “synchronized global currency devaluation.”

This would immediately release all the financial pressure on the government’s finances and get the banking system working again.

In 2014, a board member at the European Central Bank (ECB) actually suggested this. From The Telegraph:

Yves Mersch, a member of the ECB’s executive board, said that the purchase of [gold] was “theoretically” an option for the central bank, which earlier this year resolved to “take further unconventional measures to counteract a lengthy period of lower inflation.”

We must watch the dollar. It’s the key battleground in the war between inflation and deflation.

The dollar just made a super spike. That means deflation is winning and the entire world economy is headed for a great depression.

But the Federal Reserve and Congress are fighting back with trillions of printed money. Can they reverse this chart? Inflate-or-Die…

– Tom Dyson

P.S. The prison crisis we’ve been fearing has arrived. (I wrote about that here.) Rikers Island Prison, in New York, now has 60 confirmed cases of coronavirus. This is just the beginning. I imagine we’ll see riots in the prisons soon…

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

One reader shares their coronavirus experience as a physician… while others ask Tom about owning gold and gold stocks… and yet others thank the Dysons for offering their homeschooling resources…

Reader comment: I work as a physician in emergency departments in rural areas of the U.S. Currently, a sporadic case of coronavirus here or there. We all feel like we are on the edge of a shore watching the tide go out before the tsunami.

Reader comment: Please tell Tom Dyson it is not “superficial” at all for him to write about his life and the markets. It is simple and gorgeous and keeps us all sane.

Reader comment: I want to thank both Bill Bonner and Tom Dyson for the great job you guys are doing in keeping us informed and educated. Tom, my children are older, but I have shared your suggestions for homeschooling videos with friends that have young children and they are very appreciative. PS: I am originally from Mendoza, Argentina, and our wines are much better than Salta wines… just saying.

Reader comment: I enjoy your Postcards and admire your (apparent) honesty. You have a pretty unique degree of courage putting your life out there for all to read (if it’s not all made up). The true movers and shakers in this world are the people with the get-up-and-go spirit you and your family have in abundance, not the armchair critics who look for ways to put anyone with a degree of independent thought and action down. Please ignore them.

Reader comment: Thanks so much for the homeschooling resources. If Kate wouldn’t mind giving an idea of “schedule,” that would be great. I’m trying not to stress too much about the academic stuff and get my two doing more cooking, planting vegetables, and helping around the house. But given that I am working full-time (very fortunate to have the ability to work from home and have a steady income during this), I need to set them up for an hour or so at a time while I work.

Regarding divorce and reunion: I’m five years out of an 11-year relationship. The first four years were fine. The last year has been spent defending multiple court applications from my ex. One thing I feel: There are two parties in a relationship breakdown. My ex may have done the “bad” things. But my mental “checking out” of the relationship ultimately led to the death knell. I say this because you appear to be taking 100% blame for everything that was wrong in your relationship before.

Also, I’m hugely appreciative of the financial education. I love Bill’s writing, but as a completely non-financial person, I get lost when he turns to money talk. With your writings, at least I grasped enough to put the little reserve I had into a couple of gold coins. Thanks!

Tom’s response: Kate says schedule is the most important. We live by our routine. It keeps us all from going crazy. Even when we’re traveling, we always try to keep our schedule. We don’t stress about the academic stuff either. As they say, not all classrooms have four walls.

Reader comment: You have been stressing the importance of gold (and to a lesser extent, silver) as the hedge against falling currencies. However, I would be interested in your take on the overall effects of “buying power” on commodities after the fall of the dollar.

Will we be buying common commodities such as gasoline, groceries, etc. at a “cheaper” price than we currently experience? Will that result in an increase in our purchasing power?

Tom’s response: The prices of ALL hard assets and hard currencies are going to rise in terms of dollars and other paper currencies. Gold will rise the most. But food, gas, clothing, services, etc. are all going to rise in price. In other words, I’m expecting stagflation, which is a combination of economic stagnation and price inflation.

Reader comment: My wife and I enjoy your Postcards. It’s the first time I’ve ever been able to get her to engage in something remotely associated with gold/markets, but I am pretty sure she is only paying attention to your family life and travel adventures.

My question is regarding your statement, “Ultimately, these interventions will lead to the bankruptcy of the U.S. government.” How can the U.S. government technically go bankrupt if they print their own fiat currency? I understand that they can and will devalue the currency via inflation (hyperinflation?), but how the heck do they go bankrupt? Keep the letters coming!

PS, I am glad you and your family enjoyed your time in Nicaragua. We own farmland near Rancho Santana, and we agree it’s a special area with special people.

Tom’s response: In practical terms, the U.S. government cannot go bankrupt. It can always print money, as you point out. When I say the government is heading for bankruptcy, what I mean is, it will find itself in a position where it cannot continue to function unless it prints money.

Reader comment: I enjoy your writing. But can’t help wondering what the world would be if we all decided to do what you do. No schools, no government, no healthcare, nothing. Like a socialist country after the government fails.

Reader comment: I really enjoy your letters and thank you for ramping up the frequency during this crisis. It’s great to hear your opinion at the end of each market day.

Today I have a few questions about your letter. The main question being what are "royalty streaming stocks" that you mentioned in the letter today?

Also, the majority of my savings is in my 401(k). I am fortunate that after a record run up in the Dow I decided to sit on the sidelines in cash for awhile. Very lucky timing on my part. I am ready to invest in gold now, but it needs to be through my 401(k). What are the best funds to be invested in right now in order to be well positioned when stagflation occurs?

And one more question. You mentioned yesterday that despite the huge demand for physical gold right now, the value of gold seems to be going down during this crisis. Will funds like PHYS and GLD hold up well when stagflation occurs? Thanks so much and all the best.

Tom’s response: I don’t like GLD. There’s something screwy with it. I don’t trust it. I like Sprott’s Physical Gold Trust (PHYS), though, and their Physical Gold and Silver Trust (CEF) is worth looking into as well. I’ve met the management team at Sprott and I love their products.

But my favorite is physical gold in my possession. It’s hard to find now, though. And if you can find it, you’ll pay big premiums for it. I also like gold in the ground… which is what gold royalty stocks are. 

And, as always, thank you for your kind notes and messages! Kate and I are so encouraged by them. Please keep writing us at [email protected].