CORPORATE APARTMENT, BALTIMORE – This year, the U.S. government will have to borrow more than a trillion dollars. It’s the first time it’s happened outside of a recessionary period.
A big “crux” of my argument is that the U.S. government will continue borrowing gargantuan amounts of money.
They have entitlements and pensions to pay to retiring baby boomers. They have vast obligations to the Pentagon. And lots of other stuff. And they’re already in the hole by more than $23 trillion…
The Congressional Budget Office (CBO) – the people who keep track of government finances – estimates that the U.S. government will borrow $13 trillion over the next 10 years.
Keep in mind, the CBO doesn’t factor recessions into its calculations. I expect at least two or three recessions over the next decade. (Recessions are like buses. You wait for ages, then three come along together.)
Recessions will cause the government to borrow far more than what it’s borrowing at the moment. The numbers are already terrible. So the CBO estimates are probably much too conservative. We’ll see.
Anyway… here’s what the CBO projects, without any recessions…
Catching Up
Greetings from Baltimore.
My family and I are squatting in an apartment in Mount Vernon while we explore the area and catch up with old friends.
Kate and I met and got married here 15 years ago. So not only is it a special place for us, it’s also an AWESOME city, brimming with history, culture, architecture, and interesting food.
Today we went to the Walters Art Museum.
Below, Kate and Miles are examining butterflies. Dusty and Penny are studying a reproduction of a 500-year-old globe and calling out all the mistakes made by the 16th century Dutch cartographer…
Kate and the kids at the Walters Art Museum earlier today
Why I’m All In Gold
There’s nothing new about the government’s outrageous spending.
What is new – and this is why I’ve become interested in gold for the first time in 17 years – is that there are no longer enough lenders to satisfy the U.S. government’s unending appetite for borrowing.
Over the past 70 years, the biggest lenders to the U.S. government have been other countries running trade surpluses. Like Japan. Like Germany. Like South Korea. And especially China since 2004.
These countries have been able to lend the U.S. government the dollars it needs because they’ve earned the U.S. dollars by exporting manufactured goods. China, for example, has run $400 billion annual trade surpluses for the last 15 years…
The thing is, these countries – collectively – stopped making new loans to the U.S. government in 2014.
This chart shows where the Treasury borrows its money. Notice the navy blue area. That’s loans coming mainly from China. And they’ve disappeared…
This Bailout Is Just Beginning
Things came to a head last year when “repo” rates spiked. It implied there was no more money for the U.S. government to borrow at prevailing interest rates.
The market tapped out. So the Federal Reserve had to enter the market and begin the bailout of the Treasury.
It’s loaned over $400 billion to the U.S. government… in just the last four months. (About the same as China earns each year from exporting to America.)
This is just the beginning. Because, as I showed at the beginning of this postcard, the U.S. government isn’t going to slow down its borrowing… And China, Europe, and Japan aren’t suddenly going to step up their lending. Not at these low interest rates, anyway.
The only option is for the Fed to fill the hole in the government’s finances…. And that’s why I expect the Fed will print more than $5 trillion dollars over the next few years, and expand its bailout to bonds of all maturities along the yield curve. What we’ve been calling “curve control.”
It must fill the hole left by the surplus countries. All this will drive enormous quantities of dollars into the market, devaluing the dollar, and triggering an avalanche of capital into gold. The panic – when it comes – will spread like a contagion…
Today I bought call options on gold.
My call options on gold are a specific bet that gold exceeds the all-time high it set in 2011 at $1,911 within the next two years. If it does, I’ll make 1,000% returns on my bet. If it doesn’t, I’ll lose our bet altogether.
– Tom Dyson
P.S. The Dow-to-Gold ratio is at 18.22. Still a long way to go to our target of 5.
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