ALEXANDER CITY, ALABAMA – This chart shows the increase in the government debt plotted against the increase in the central bank’s balance sheet since last summer.
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The two lines are almost in lockstep. They’ve both increased by about $3.5 trillion.
Is this a coincidence? Of course not. The U.S. government is financing itself with the central bank’s printer… (more below)
Next Leg of Our Odyssey
Greetings from Wind Creek Campgrounds…
I’m writing this letter to you from a campsite in the woods somewhere in the Deep South.
I’m sitting at a picnic table, writing by hand. Miles and Penny are next to me. Miles is reading a book to Penny. Kate and Dusty are inside the tent.
There’s a campfire burning somewhere. I hear children playing through the woods. Someone cleans a pot under a faucet…
Two years ago, my ex-wife Kate and I lived separate lives.
Kate was the stable one, raising the kids. She had a serious boyfriend. She had a church. She had a circle of close friends. And she had her parents nearby.
I was the mess. Disconnected from my children, my family, and my friends. Depressed. Unemployed. Self-destructing.
We weren’t friends. But one day we decided to abandon our lives and go traveling together.
First, we went on a road trip across the USA. Then, a train trip around Europe. Then, we went to Africa. The days turned to weeks… the weeks to months… the months to years…
We traveled around the planet, visiting 29 countries, staying in hundreds of hotels and Airbnbs, and homeschooling the kids.
The trip cured everything. Twenty years of email and work stress evaporated.
My depression lifted. I found sleep again. I found a passion for writing. I found a connection with my children. And it restored my relationship with Kate. (We’re engaged to be re-married.)
Restored and rehabilitated, our family always intended to return home and settle down again.
We’d rent a house. I’d get an office job. We’d make some new friends. I’d write a memoir about our trip. The Postcards would stop…
But a few months ago, just before the government ordered us to go into shelter, we decided we’re not done living like gypsies.
And like a plane aborting its landing, we pulled back the throttle, pulled up our wheels, and took off again.
Then the government ordered us to go home. We spent two months in lockdown at Kate’s parents’ house in West Palm Beach.
It was good timing because Kate’s parents hadn’t seen their grandkids in two years. They got lots of quality grandkid time.
Meanwhile, I wrote a book and launched a premium research service. [Until midnight tonight, you can still learn how to get both, right here.]
Then we bought a used pop-up camper…
Two weeks ago, we broke cover and hit the road on the next leg of our odyssey. We’ve now camped in six campgrounds throughout Florida and Alabama.
It’s a different lifestyle than we’re used to.
We drive ourselves, as opposed to taking public transportation. And we have tons of stuff. We spend all our time in the woods, not in towns. And our clothes stink of smoke.
But we’re starting to get used to it. Soon, we’ll be experts. Tomorrow we head for Georgia and the mountains…
Another Credit Crunch Before Christmas
Going back to the chart up top… The U.S. government is broke.
It’s a theme I’ve been repeating since I first noticed the plumbing beneath the financial system had seized up last spring.
What do I mean by “broke”?
The U.S. government has been spending more than it has earned for most of the last five decades. It has bridged the gap or made ends meet, so to speak, by borrowing gargantuan sums of cash.
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This was not a problem until October 2018. There had always been plenty of willing lenders. And interest rates kept falling, so the interest payments were bearable.
But starting in October 2018 – curiously on the exact date the Dow-to-Gold ratio peaked – the government’s appetite for cash finally overwhelmed the market’s ability to lend it.
A slow-motion credit crunch ensued, culminating in the repo spike of September 2019… the restart of the Federal Reserve’s money-printing… and the explosion of the Fed’s balance sheet in March 2020.
Said another way, the government finally became insolvent in September 2019. The Fed’s printer has been bailing it out ever since.
That’s why the two lines on the first chart I showed you are rising together. The more the government borrows, the more the Fed prints.
Recently, the Fed tapered its money-printing. But the government has not tapered its appetite for borrowing cash.
In other words, if I’m looking at this correctly, there’ll be another U.S. government credit crunch before Christmas…
…then the Fed will have to accelerate its money printer again.
We’ll see.
– Tom Dyson
P.S. Here we are boating on Martin Lake today. Andy, a Postcards reader, invited us. Thanks, Andy!
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FROM THE MAILBAG
Kind words from readers… including one who is enjoying Tom’s new premium newsletter…
Reader comment: I’m currently following many different investment newsletters and I must say that your piece Tom’s Portfolio is the best report I have ever read. I have spent the entire day reading parts of it over and over again. It is beautifully written, and I can’t wait for more.
Tom’s response: Thank you very much for adding me to your newsletter collection. And for sending me such a supportive and encouraging message.
Reader comment: Thanks for sharing so much of your personal life through the lens of these Postcards. There are so many extremely valuable lessons you have learned on your journey. You’re a lucky man and a lucky clan!
Teaching kids outside the box (a conventional classroom) has many trials, but also so many more wonderful benefits. Your kids will undoubtedly grow up as true chikyujin (citizens of the world in Japanese), and certainly understand this planet much better than traditionally schooled kids. It’ll be so much fun to see what path they ultimately choose for their lives!
Reader comment: I wanted to take a moment to personally thank you for the private-ness and time you spend sharing the moments you have encountered on your journeys through the past seven months with me when I began reading your postcards. Bill Bonner is an incredible person and mentor, and my most favored of this whole team! You can share that with him!
Meanwhile, one reader thinks Tom’s Emergency Investment Summit was too long… while others have questions about the role of crypto in Tom’s big picture, and his thoughts on numismatics…
Reader comment: While I have the greatest respect for both Tom and Bill, last week’s seminar/sales pitch was over the top. By that, I mean it was waaaay too long. These “seminars” started out being about an hour, then they became an hour and a half in length. I stopped watching after TWO hours!
C’mon, guys, 95% of your clients have a life (and probably a wife) and just do not have that kind of time to invest, not even for the hot stock-teaser. You are both excellent writers who know how to craft words. Please use some of your talent to make your thoughts and statements more concise.
Reader comment: I just became a subscriber and you did not say a word of what role cryptocurrency has in your vision for the future you discussed last Wednesday. Do you have an opinion on how cryptocurrencies will play a role in substituting the dollar?
Tom’s response: This is a good question. Money plays two important roles in the economy – as a store of value and as a medium of exchange. Sometimes, these roles can come in conflict with each other.
What I mean by this is, savers want something that cannot be debased or inflated for storing their wealth. Consumers want something with plenty of liquidity to make sure the marketplace functions smoothly and is always well-liquified with capital.
I do not think cryptocurrency can play the store-of-wealth role. Cryptocurrencies are just electrons and electrons are abundant. I think gold is the only suitable natural resource that can fill this role.
Meanwhile, I do not think gold can play the medium-of-exchange role. It’s too scarce and clunky for transacting in. The dollar seems ideal for this.
So I think the ideal monetary system is one in which the world’s nation states hold their reserves in gold… and let private citizens save their wealth in gold… but provide paper currencies for everyday transactions.
I don’t really see where crypto has a role in that, except as distributed ledgers to keep track of property ownership, for example.
Reader comment: In last week’s webinar, you mentioned, “Don’t buy numismatic coins.” Please clarify. Is the reason only because the price above spot is too high for your liking? Or, is there something intrinsically wrong with numismatics? For example, if I have a source of 99%+ gold coins, pre-1933, and the price is a few points above spot, then what is wrong with that purchase?
Tom’s response: Nothing wrong with numismatics. And nothing wrong with the purchase you describe. I should have been more precise because I DID buy numismatics. I just bought them when they were so cheap, there was virtually no premium.
The bottom line is, I don’t recommend paying more than a 4% premium over the spot price of gold for the gold you buy. Normally, numismatics will trade at premiums far higher than this and you should avoid them. But if you can find them for a few points over the spot price of gold, you’ve actually found a great deal.
As always, please keep writing us at [email protected]. Kate and I read every note you send us.