SOPCHOPPY, FLORIDA – The Federal Reserve tapered its money-printing. On March 27, it printed $112.5 billion. Yesterday, it printed only $7.4 billion.
Is this the end of the Fed’s latest money-printing campaign?
Greetings from Mayo, Florida…
I’m putting on the Emergency Investment Summit tomorrow evening. See you there! We’ll be back on the road Thursday.
Getting back to the question above… As I’ve said many times before in these postcards, the U.S. government is broke.
No one says it like that. But the way I see it, the U.S. government cannot finance its gargantuan spending habit at current interest rates without using the Fed’s fake money. That makes it “maxed out.”
The U.S. government finances its gargantuan spending habit by a) collecting taxes and b) borrowing whatever additional funds it needs from investors, from banks, from mutual funds, and from foreign governments (who keep their savings in dollars.)
I’ve long been making the argument that there aren’t enough lenders to meet the government’s demand for borrowing money.
This is why the repo market “broke” in September 2019. And it’s why the Treasury market “dislocated” in March 2020.
Both times, the Treasury was borrowing heavily. And both times, there weren’t enough lenders at prevailing interest rates to make a market. The markets froze up and the Fed had to intervene by supplying billions in fake money to prevent interest rates from spiking…
Which brings us to today.
The government’s spending is at wartime levels. Its tax revenues just took a huge hit (thanks to coronavirus job losses and business closures). And so it’s borrowing money at – quite literally – the greatest pace in history.
This quarter (April to June), for example, the Treasury will issue $3 trillion.
Meanwhile, the Fed has tapered its money-printing. Interest rates are still low.
If the government isn’t broke, this won’t be a problem.
If the government is broke – as I’ve been saying all along – either the Fed is going to have to crank its money-printing back up… or we’re going to get another repo crisis/bond market dislocation.
We’ll see…
– Tom Dyson
P.S. There’s one other possibility… New lenders could materialize to lend the money the government needs. Foreigners? Banks? Hedge funds? Individual investors?
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FROM THE MAILBAG
On readers’ minds today… wearing masks… narcissism… real currency… and investing in gold…
Reader comment: I am disappointed that your family apparently is not wearing masks. They really do more to protect me, rather than the wearer… and I’m a member of the more vulnerable class. I hope you do not visit our county during your travels – we have had less than 100 COVID-19 cases, and we’d like to keep our numbers down.
Reader comment: Narcissism has to do with a “self-love that shuts out everyone else.” By sharing your adventures and knowledge, you have negated that term from applying to yourself. Another association is “being too proud of self,” which is so subjective as to be laughable. Which individual or committee determines the level of “too”?
To honestly love and appreciate another person, one needs to love and appreciate themselves, first. I would encourage you to GO FOR IT and let the narcissist rattle the bars of their own cage. Be well.
Reader comment: Please consider adding a minute or two to help people understand that all currencies (paper) originated as receipts for gold. Americans, in particular, still seem mostly clueless that our fiat dollars are not money, but currency. And that throughout human history, only gold and silver have endured as real money.
I feel we are a nation largely of economic and monetary illiterates. I’ve been a goldbug since 1972, when I was “awakened” to the truth of sound money, with the help of Henry Hazlitt, of Richard Russell and his Dow Theory Letters, and of Bank Credit Analyst and its chart, “Velocity of Demand Deposits – All New York Banks.” Thank you. Looking forward to May 20th.
Tom’s response: 100% agree. I even saw Fed Chairman Jerome Powell make this mistake in his “60 Minutes” interview. He said, “As a central bank we have the ability to create money digitally.” What he should have said is, “We have the ability to create currency units digitally.”
Reader comment: Don’t forget to trade the gold/silver ratio while you are holding gold. One trade every few years (into gold when the ratio goes above 80; into silver when the ratio drops below 45) will increase your gold holdings while you wait for the Dow, priced in gold, to drop below 5. Best wishes to you and your family. Enjoy your stories!
Reader comment: I subscribed to the Bonner publications years ago. LOVE your Postcards, and appreciate they come freely to my computer. I am 87 years old and have been an investor in silver since 1977. Read Howard Ruff, then subscribed to all the Hard Money letters. I have been a day-trader in silver for 40 years… can’t wait for your and my total dedication to real money to fulfill its coming destiny.
My BEST wishes to you, Kate, and your children. No, you are not narcissistic. You are sharing important advice to “newcomers” to gold, and you are sharing your “recovery” with some who need similar encouragement. Generosity is not comparable with narcissism! Godspeed.
Reader comment: Whenever someone rolls out the “N” word, you can bet they’re jealous of your courage. Knock yourself out, life comes with an expiration date. Best of luck!
Reader comment: I guess we all like to hear reaffirmation of our beliefs, but despite strong encouragement from friends, I’ve never jumped on the bitcoin bandwagon… and for the same reason as you. I never saw wherein was the value. Also, like many, I have been watching the storm clouds of looming disaster that were not been caused by, but rather triggered by, this virus panic.
Two months ago, I flew from my home in Berlin to visit my kids in the States and got stuck here. I took my RV out of storage and meandered down to the Tampa, Florida area and am settled in for now. But while here, I followed your advice and went about 20% into physical gold. My unique tax situation keeps me from doing more right now, but I’d like to thank you for your level-headed, feet-on-the-ground advice. Enjoy your family time on your new adventure. From one gypsy to another, stay safe and fearless.
I left Draper, Utah Monday, May 11, and arrived in Cullman, Alabama on the Wednesday following. I spent two nights in motels. Very few guests. Traffic was light out west on I-80. Heavier on I-70. No problems. Things are more normal here than further north. Utah is pretty much normal. The exception to all this is the restaurants, which are closed except for drive-up. Thank you for the information on gold. Looking forward to Wednesday’s presentation. Always enjoy reading about your travels, etc.
Reader comment: I’m with you 100% on bitcoin, Tom. No idea why it has any value. Any guy or gal in a basement with a laptop can create another cryptocoin any time they want.
Reader comment: To the person who tried to say Tom Dyson was dishonest about the tanker stocks: You obviously bought something without doing your due diligence and understanding how tanker stocks trade in the market. You are responsible for your actions, don’t try to blame Mr. Dyson.
I have followed Mr. Dyson’s paid newsletter subscriptions and recommendations for years and he has had many more winners than losers. No one gets all stock picks correct. His comments were not to be taken as a formal recommendation, just conversations and opinions from a free newsletter. When he starts up his premium service, I will be a subscriber.
Tom’s note: As always, thank you for your messages! Kate and I read every one, even if we don’t publish a response right away. Please keep writing us at [email protected].