Global Debt Is Exploding, Putting the Federal Reserve on High Alert

PRIEST LAKE, IDAHO – Last week, following its monthly meeting, the Federal Reserve issued a statement promising to get inflation above 2% and to keep interest rates at zero until 2024.

“This is very strong forward guidance, very powerful forward guidance that we have announced today that will provide strong support for the economy,” said Fed chief Jerome Powell, speaking to reporters at the press conference afterwards.

Seems a little desperate to me… (More below.)

End of the Road

Greetings from Priest Lake, Idaho…

My family and I are on a road trip around America. For the past four months, we’ve been living in a tent, eating at drive thrus, and brushing our teeth in gas station bathrooms.

It’s been awesome. We’ve seen so much of the country (and yet feel like we’ve barely scratched the surface).

We’ve had a great time in the car, looking out of the window and listening to Louis L’Amour novels on the radio. And we’ve met many wonderful people, who’ve hosted us around the country in barns, garages, driveways, horse pastures, back yards, basements, etc.

We’re currently in Priest Lake, Idaho, being hosted by Peter and Donna, who are putting us up in a garage.

Today, Peter took us out on Priest Lake in a boat. The smoke cleared and we got a beautiful view of the Selkirk Mountains.

(Priest Lake has the clearest water of any lake I’ve ever seen. Even at 15 feet, you can still see every little thing on the bottom of the lake.)

We’ve just about come to the end of the road. We’re going to keep camping for another week in Idaho and Montana, and then we’re going to turn in for the winter.

I’ve just rented an apartment for us. I found it on Airbnb. It’s in a small town called Driggs, Idaho…

Why Powell Sounds Desperate

Turning back to Powell’s comments last week…

Take a look at the chart below, which shows global debt. It has now passed $255 trillion… up from about $75 trillion 20 years ago.

The way the Fed has structured our financial system, debt must continue to grow, or we’ll get sucked into a giant global depression.

The late Richard Russell, one of the great newsletter writers of the past 50 years, called this problem “inflate or die.”

This is why Powell chooses the words he does. (He used the word “powerful” 10 times in the press conference following the Fed’s monthly meeting.)

He’s telling the market the Fed will do “whatever it takes” to keep the debt bubble growing. And he’s inviting traders to bet on the debt bubble continuing to grow. “We will not reverse these policies,” the Fed is saying.

The problem is, the world economy reached its limit for carrying debt long ago. So the Fed has had to manhandle the markets – using low interest rates, too-big-to-fail safety nets, and asset purchases (with printed money) – to continue inflating the debt bubble.

Much of this $255 trillion in debt is BAD debt. It’s unproductive. It needs to be written down and someone needs to take the loss on it.

A New Prediction

I think we’ve now reached the limit of interest rate cuts (we’re at zero) and central bank guarantees (can’t promise speculators more than they’ve already been promised).

The next stage of “inflate or die” means the central banks will have to eat the bad debts themselves by printing money… buying the debts in the marketplace at full price… transferring them onto central bank balance sheets… and quietly letting the currency holders eat the loss.

This is why central bank balance sheets have started to hyperinflate. The central banks are “eating” the world’s bad debt. They’re socializing it.

Yesterday, we noted that the combined balance sheets of the Fed, the European Central Bank (ECB), and the Bank of Japan (BoJ) had reached $21 trillion. Of the world’s total $255 trillion in debt, how much of this is bad debt? 10%? 20%?

I don’t know. But it’s very easy to predict central bank balance sheets are going to keep hyperinflating as the world’s excess debt moves from the private markets and into the central banks…

Prediction: The combined balance sheet of the Fed, the ECB, and the BoJ will hit $50 trillion in the next three years…

– Tom Dyson

P.S. Holed up in a hotel room, I just recorded an urgent video. It’s about the huge mess we’ve gotten ourselves into economically, what’s next, and the single best thing you can do today to preserve and grow your wealth. Watch it here before it’s too late…

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

On readers’ minds today: the dropping Dow-to-Gold ratio… borrowing money to buy gold… and personal safety concerns when buying gold…

Reader question: Hi Tom, Kate, and kids, I read your postcard every day. What a grand adventure you are on. Looking forward to how your story is going to play out into the cold season and beyond. Take care and God’s speed. I also have a couple questions: If gold is at $10,000, wouldn’t the Dow have to be at $50,000 for the ratio to be 5? Wouldn’t you expect the Dow to be much lower than that? My suspicion is that the ratio will go much lower than 5. Your thoughts?

Tom’s response: I agree. A Dow-to-Gold ratio of 5 is just my initial target. I expect it to ultimately go lower. I also think it’s possible for the Dow to get to 50,000, especially if the dollar loses half its value. 

Reader comment: Tom, what do you think about taking money out of stocks into a cash value whole life insurance and then borrowing against it to buy gold, and paying back the policy loan each month by cashing out just a little of the gold?

Tom’s response: I understand the strategy and I’ve considered doing this myself. But in the end, I decided it’s being greedy… and unnecessarily risky. I don’t like debt. And I just want to make life as easy as possible for me as I try to hold on to gold’s bull market until the very end.

Reader question: Love your letters, family, and your approach to life. You are living in the “sweet spot”… having adventures with the people you love and keeping life simple. My question may seem crazy but here goes… Am I safe purchasing physical gold and giving my name, address, etc. or even going to one of the listed establishments and buying physical gold? When I was a kid, a lovely family we knew in our small town was murdered execution style. The father/husband was a rare coin dealer and the mom, dad, and grandma were murdered for the coins. The kids, who were at school at the time, were orphaned. If I am buying large dollar amounts of gold, should giving my information at the time of purchase concern me?

Tom’s response: I understand your concern. I worry about these sorts of things, too. But I think they’re unlikely outcomes and I just plough ahead regardless.

Meanwhile, another reader argues the S&P 500 isn’t overvalued…

Reader question: Tom, I interviewed with you and was offered a job in the early years of The Palm Beach Letter as an analyst. I wish I would have taken that job! Getting paid to do what I love! Anyway, I’m wondering what you think about adding the interest offered by the 10-year Treasury to your charts today, showing how expensive the market is by historical comparison.

For instance, the 10-year, which competes for money against stocks and other assets, was 6.67% on January 1 of 2000. It has never bottomed, (nor reached new highs) and currently sits at ~0.67%. There isn’t much competition from the 10-year at the moment and the yield on the S&P is ~1.80%, almost 280% higher. Given everything is relative, does this change your view on how expensive the market really is at the moment?

Tom’s response: If I’ve understood your question correctly, you’re suggesting the S&P 500 might actually NOT be overvalued because interest rates are low and therefore the S&P 500 deserves a higher than normal valuation? Sure. I’d accept that. My counter would be that interest rates are absurdly low, too. So basically, we’re seeing a bubble in bonds and stocks. One day – and it could still be quite far off in the future – they’ll both return to normal valuations.

And finally, more travel suggestions for the Dyson family as they wrap up their American road trip…

Reader comment: Hey Tom and family! I live in Liberty Lake, Washington, which is a few mountain ranges to your west on the Washington/Idaho border. While we don’t have room for your trailer on our lakefront lot, our neighbor is Liberty Lake County park, which has a campground. And we would be happy to host your family for dinner! Dan Denning and his brother stopped by for lunch on his bolthole tour. Good guys. Regardless, if you happen to winter in North Idaho, our doors are always open.

Tom’s response: Thank you very much for the kind invitation. From here, we head east to Glacier National Park and the Canadian border…

Reader comment: Hey Tom, good luck getting into Canada. I don’t think they will let you in. If you do get in, be aware you will be targeted by police based on your license plates. They have given out some really heavy fines to Americans who strayed off the shortest route through. And if you do get in, be wary of some people, also. Many are afraid of the scamdemic. Never trust anyone who willingly wears a mask… lol. It will be easy to blend in, but plates and IDs, credit cards, etc. when renting a place, for example, will give you away. Good luck.

Reader comment: I have been following your travels and wish you well. But I am concerned about your plan to travel into Canada. There is no longer casual travel between the USA and Canada. Other readers have cautioned you. To me, this sounds like a publicity stunt for your publisher and readers.

Being turned back will be a lifetime memory for your wife and children. It will also likely be a lifetime memory for the Canada Border Service and may interfere with your plans to enter Canada later in the lives of you and your family members.

It is not unusual for those entering Canada to be asked if they have ever been prevented from entering Canada. This is a test of your honesty since the questioner already knows the answer. What will you answer in two years? Be kind to Canadians and to our friends and relations in the U.S., and don’t test something that highlights COVID and other problems we currently have. And don’t make up a story of moving to Alaska.

Reader comment: We were in Bozeman two weeks ago, now happily in the Black Hills of South Dakota. Yeah, it was sub-50 last night here, too, but is beautiful again today. We will head to Fruita, Colorado and nearby Moab, Utah in mid-September, which is the sweet spot through October. October and November are perfect in the Sonora Desert in south Arizona, and it’s a great time before all the snowbirds get there for the winter. We usually drop into the Tucson area in late October and get all our maintenance done before heading south for the winter.

Reader comment: Hi Tom, come winter in Arizona. We have eight months of spring starting about now. Lots of desert and high country, and some lakes, too. Plenty of state and national forests. Choose your elevation. My wife and I lived on a 50-foot catamaran in the southern Caribbean for five years. We did a circumnavigation of South America by car, putting on 35,000 miles. We have lived in, visited, and touched 65 countries. Will be 89 in October and am still working as a full-time real estate broker. Life is good. When your kids are older, they will remember your travels as the best thing that ever could possibly have happened to them.

Tom’s note: As always, please keep writing us at [email protected]. We love hearing from you, and we read every message you send us.