The Economic Crisis That’s Still Coming

DRIGGS, IDAHO – “How did you go bankrupt?” Bill asked.

“Two ways,” Mike said. “Gradually and then suddenly.”

This dialogue comes from a novel, The Sun Also Rises, by Ernest Hemingway.

What does it have to do with the financial markets? (More below.)

How I Proposed to Kate (Again)

Greetings from Driggs, Idaho. Here’s the story of how I proposed re-marriage to Kate, five years after our divorce…

Three years ago, I took a three-month medical leave from work due to my depression. I went to Scotland and then South Africa.

It was while I was on this sabbatical that Kate and I decided to go on a road trip around America together with our children to see the national parks.

Somewhere along the way, we decided we were having such a good time, I should permanently quit my job (instead of the three-month medical leave I’d taken)… we should move out of our apartments in Delray Beach, Florida… close all our accounts… get rid of all our things… and we should keep traveling.

For our next trip, we decided we’d fly to Europe and buy Eurail tickets and spend three months cruising around Eastern Europe on the railways like backpackers.

So we returned to Delray, threw away our belongings, put the few keepsakes we couldn’t throw away in a small storage locker, I sold my car, we closed all our accounts with cell phones, internet etc., and went to Europe.

Oh… and Kate broke up with her boyfriend of four years during this return to Delray Beach.

Not because she was considering getting back together with me, but because she was going to be gone for at least three months. She didn’t think it was fair to string him along while she was gone.

When I Knew

I knew I wanted to get back together with Kate when I was in South Africa… long before we’d decided to go on the road trip around America together.

In fact, I had a diamond ring made for her while I was in South Africa, using South African gold and South African diamonds.

But it wasn’t until we were in Turkey, about halfway through our interrailing adventure, that I floated the idea and told her about the ring. (I didn’t have the ring with me because I hadn’t wanted to bring it on our railway journey.)

She was shocked. Totally blown away. Couldn’t believe I was even suggesting it. She said, “Can I think about it?”

A few days later, she said “yes.” But then a few days after that, she changed her mind again and said “no.” And then a few more weeks later, she said “yes.” And then another month after that, she said “no.”

And so it went for months. “Flip-flopping,” we called it. Meanwhile, we were having an awesome time…

Kate Finally Said Yes

The train trip in Europe was incredible. We went to Poland, Romania, Greece, Albania, the Czech Republic, Bulgaria, Serbia, France, and Turkey. It was summertime… the cost of living was so cheap… and we had the adventure of a lifetime.

By the way, Eurail is a great way to see Europe. We loved riding the overnight sleeper trains and getting woken up in the middle of the night by Eastern European border patrol guards and having to change currency in every new country.

It felt like we’d gone back in time 30 years.

In Western Europe, the trains are modern, automatic, and air conditioned. And there are no border agents. But in Eastern Europe, the trains are 40 years old. You can still crank open the windows and lean out into the wind. And they’re covered with graffiti…

Anyway, I told Kate: “You don’t have to decide now. It’s an open-ended offer and it’s unconditional. Take your time. I’m not going anywhere. And if you decide you don’t want to marry me and you want to go back to your boyfriend, there won’t be any consequences. We’ll just continue being best friends and co-parents.”

Somewhere along the way, we made the decision to keep traveling. This time, we were going to go “all the way” and travel the whole way around the world. So I bought round-the-world tickets and on we went…

Drama struck in India about four months later. Our daughter, Penny, fell off a bunk bed. She was six at the time. We had to rush her to hospital, and we were very worried.

It was at the hospital that Kate turned to me and said, “I will.”

“Huh?” I asked.

“I will marry you.”

Everything turned out fine with Penny in the end. Just a concussion. She was back to her normal self the next day.

We Haven’t Seen the Crisis Yet

Meanwhile, turning back to the markets… A friend told me recently that I was one of the few people who had “forecast the crisis.”

“Total nonsense,” I said.

Investors all over the world still consider the U.S. dollar to be the ultimate safe-haven for their savings.

The chairman of the Federal Reserve has “carte blanche” to print as many dollars and backstop as many banks as he wishes.

And the federal government is still able to push through huge spending bills without any serious pushback from the bond market.

This is NOT a financial crisis. The crisis comes when the world loses confidence in the U.S. dollar as a store of value.

That crisis still lies in the future. And it starts with two things we’ve talked about many times in these Postcards: one, the fact that the U.S. government is broke. And two, that there aren’t enough lenders to satisfy the Treasury’s gargantuan demand for borrowing dollars.

Gradually, Then Suddenly

When does a bankruptcy begin?

It’s not when the money runs out and the lights go off.

It happens before that… when an invisible line gets crossed and – “poof” – psychology changes. Creditors begin to panic, calling in their money all at the same time. A “run on the bank” begins and bankruptcy follows soon after.

These bank runs have the pattern that Hemingway identified in The Sun Also Rises: gradually and then suddenly.

We may be seeing one of these play out in Turkey right now. Turkey’s creditors started to panic last week. They pulled their money out of Turkey so fast, the currency fell 15%, bond yields rose 34%, and interest rates on overnight swaps temporarily rose 1,400%…

Here in the United States, we’ve just watched the Fed engineer the largest financial bailout in history, using printed money.

But it wasn’t a bailout of the economy or the average American, as most people think. It was a bailout of the U.S. government, which is broke and cannot afford the checks it has to write.

The bills coming due for the government are only getting worse. I suspect this “bailout” will last for many more years and ultimately cost between $10 trillion and $25 trillion in printed money (measured by the total assets on the Fed’s balance sheet).

The question I wonder is: When does “gradually” turn into “suddenly,” and we see a run on the dollar?

I don’t know the answer. But we’re preparing for it now anyway, by selling stocks and bonds and buying gold… because when it happens, it’ll happen so fast, there won’t be time to get out of the way.

– Tom Dyson

P.S. If you agree with me that there’s a dangerous line the government can cross that sends the dollar suddenly spiraling, then you must buy gold now. Once we cross the invisible line… it’ll be too late to get gold. So do not wait. If you’re not sure where to start, I put together a detailed report that shows you the best ways to buy physical gold… along with my 11 favorite gold stocks to buy today. To learn more, watch this.

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

Readers admire Tom’s investment ideas and wish the Dyson family well as they prepare for London to close Tom’s mom’s estate…

Reader comment: Since you first began writing for Mark Ford at Palm Beach Research Group, I’ve followed your clear topics for investments and the research that you have done for yourself and your family. Your conglomerate family style is encouraging. I hope that my grandchildren turn out like you and your family. My late husband and I raised our four children like you are raising your three.

Life is a constant lesson; sometimes we don’t know how or when to listen to the lessons.

Reader comment: I have been reading your email letter and following your travels and your investment concepts since last year. I like your investment style and what you are doing. You have a well-thought-out rationale and you put your money where your investment values are.

And, consequently, I have worked at trying to emulate your concepts. I worked at deciding how much of my total investment funds I would like to allocate (40%) to the path you discussed. And while more than half of my funds (everything but the 40%) are in ventures, some debt investments, and partnerships, etc. that will take time, and are harder to sell, I really prefer keeping them in any event.

So, I guess I am all in with the remaining 40%.

Reader comment: I can’t even tell you how much I am looking forward to your Postcards each week. Good luck with traveling and staying in London, despite more COVID-19 shutdowns.

By sharing your family’s adventure and daily lives, I feel like I have known your family for a long time. The winter at Driggs has been an amazing experience for your kids and a break from traveling. Being a father, I share the same belief that time spending with our young children is precious.

Reader comment: I hope you and your family have a safe and wonderful trip as you head into your next adventure. Your kids are certainly getting a real-world education – if not an international one! Enjoy the journey and good luck with mum’s home.

Tom’s note: Thanks for writing in! Please keep your comments and questions coming to [email protected], and I’ll do my best to answer them in a future Friday mailbag edition.