The Real Cost of Running the Government

BADLANDS NATIONAL PARK – I’m writing to you from the desolate, windblown patch we’ve decided to call home for the night.

We’re inside the Badlands National Park. There’s no water or electricity. Just a latrine and some Purex to wash our hands with.

This campground is free.

Prairie dogs scamper and shriek all around us. They seem to be quite tame. But as soon as the boys try to catch one, they dive into their holes.

In the distance, a massive herd of bison moves slowly along the ridge.

Here’s our camp…

Our only shade comes from the little tin shelter over our picnic table…

Beautiful But Desolate

Greetings from the Dakota Badlands. It’s one of the most beautiful – but desolate – places on Earth.

My family and I are modern gypsies. We don’t have a home or any possessions. Just what we can carry with us.

We’ve been living like this for over two years, drifting from country to country, town to town, dragging our suitcase behind us, and educating our three kids in hotel rooms.

For now, we can’t travel internationally, so we’ve got a car and a tent and we’re drifting – more or less aimlessly – around America.

This week we are in South Dakota, visiting the main tourist sites in the western part of the state.

Next week we head to Colorado, where we’re going to hang out with Bonner-Denning Letter coauthor Dan Denning for a few days. After that, Wyoming and Montana…

We never use interstate highways. We only use county roads and often, dirt roads. (Our GPS has a setting “avoid freeways.”)

The Cost of Running the Government…
And a “Fringe” Prediction

This chart shows the cost of running the various departments that make up the Federal Government…

Notice the first three – Medicare, Social Security, and the armed forces.

These three are untouchable. They’re huge open-ended, unfunded liabilities that the government will have to pay for years to come.

Economists call these “off-balance-sheet liabilities” because they haven’t been recognized in the national debt yet. I’ve seen estimates that these unfunded future liabilities could be as high as $70 trillion.

The fourth is the interest on the national debt.

The interest rates the government is paying to service its debt are some of the lowest they’ve ever been. And still, the interest bill is enormous.

This should make it clear that interest rates on the government debt can never rise (or the Treasury would quickly become a victim of compound interest).

If market forces ever try to raise interest rates, the Federal Reserve will have to cap the entire yield curve – something I’ve written about before – by buying trillions of the government’s bonds.

Now look at this next chart. It shows the market’s expectation for inflation over the next five years…

There’s no stock or bond for “inflation.” But the market’s expectation for inflation can be easily implied from various bond and interest rate swap prices.

As you can see, inflation expectations in the bond market are still at some of their lowest levels in history.

In other words, inflation is still something of a “fringe” prediction. But I just can’t see any way for the government to escape its debt trap without inflation and the Fed printing money.

If I’m right about this, it’s going to catch trillions of dollars “offsides.”

– Tom Dyson

P.S. Tonight, we’re excited to see the stars. They’re supposed to be incredible in the Badlands.

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

Readers share travel suggestions and offer the Dyson family more places to stay while they’re on the road…

Reader comment: Dear Tom, I really love the letters you post about you and your family’s travels all over the world, now traveling and writing in good ole USA. I think you give incredible insight on investing, economics, and life in general. Thank you for all you share. I would like to encourage you as you travel to make a stop (or several) to the great state of Utah. Some of the most awe-inspiring landscapes are here in this beautiful state. Thanks again for sharing great investing knowledge and tips and your family with us!

Tom’s response: Utah is my favorite state for scenery gazing. When I looked at the arches, I felt like I was standing on another planet. We’re not currently planning to visit Utah on this trip because it’s too far south, but who knows? Thanks for the invitation!

Reader comment: Greetings Tom and family. I’m living just north of the Montana border in Alberta and looking out at the Rockies while I write. We got word this morning that the border will be locked down until August 21st, at least. It should not be a problem for you if you are going to Alaska. However, some of your countrymen have said they were going to Alaska, then were seen in a restaurant in Banff, Alberta where they were eating and had been hiking and enjoying the great outdoors, etc. Another group in British Columbia was evidently doing the same thing. One of the groups admitted they lied to border services about going to Alaska so they could vacation in Banff. The fines were $1,400 each.

Reader comment: I was wondering your general thoughts on whether to apply a DRIP to the four tanker stocks or just pocket the dividends payouts.

Tom’s response: I love DRIP programs. I hadn’t looked into the tankers for their DRIPs, so I don’t know the details.

Reader comment: No exploration of the U.S. West would be complete without a visit to the Moab, Canyonlands, Arches, Monument Valley area in Utah. The iconic site of many classic American western movies (including Forest Gump jogging) – just a suggestion.

Tom’s response: Totally agree. We were there two years ago on our first road trip across America. We’re exploring the northern states this time.

Reader comment: Tom, if you are planning on visiting Oregon, you are welcome to plant your camp trailer at my home in The Dalles. You may already know that The Dalles was on the Oregon Trail as well as visited by Lewis and Clark. Lots of remarkable scenery and several museums. Based on the descriptions of your travels, you and your family would really enjoy the beauty of the Northwest.

Tom’s response: Thank you for the kind invitation! We will contact you if we’re heading that way (although so much will depend on what happens with the Canadian border.)

Reader comment: I have long held the opinion that gold, like anything else in this world, is only worth what someone is willing to pay for it. As sentiment changes, so does the price. It’s definitely a moving target. Gold’s real value is always whatever it is worth to you!

Tom’s response: I totally agree with this statement. To me, gold is the best place I know for keeping my hard-earned savings from rotting away over time.

Reader comment: OMGosh, your children are so lucky!! They are getting such an education most children can only read about. I am living vicariously through you guys. Ha. 👍👍. Thanks for all the pictures. I am learning about our great country and investing. Safe travels.

Reader comment: Tom: I live in Florida and have traveled to 74 countries! If you plan on being near Durango in southwest Colorado, I have a 3 bed/3 bath condo in the mountains at 9000 feet that you are welcome to use for a few days if you would like. It is rustic but comfortable, and I use it primarily for skiing! If you are interested, please let me know!

Tom’s response: Thank you very much! This is an incredibly kind and generous offer! As always, please keep writing us at [email protected].