Zero Interest Rates Encourage Higher Debts

TRINCHERA, COLORADO – I take a great interest in finance and money.

And I have spent the last two years – as we’ve traveled around the world – glued to the little bright screen of my phone, studying economics and filling notebooks.

I foresaw the gold price rising, in 2003.

Then I foresaw it rising again, in 2018.

And now I must – once again – sound an alarm. First…

Colorado Wild Horse Ranch

Greetings from Trinchera, Colorado…

We’re staying on a vast wild horse ranch in the southeastern corner of Colorado.

It’s so big, the property stretches beyond the horizon… to the base of the mountains.

Wild horses roam in great teams of 20 or more. We saw some yesterday. They kept their distance from us while being curious at the same time.

These two – named Slick and Bueno – are not wild horses. They are saddle horses. And they were very friendly…

State No. 18: New Mexico

We drove into New Mexico today… for no other reason except we wanted to visit another state. Our 18th of the trip.

We chose a very desolate place to enter New Mexico. Tomorrow, we head west again. Back into Colorado. Back into the mountains…

This is the track to Denver…

They were doing maintenance down the track so I knew a train wouldn’t be coming. (I checked with the crew.) Otherwise, I wouldn’t have stood here.

Trains that come through here have just come down a mountain, and they travel extremely fast…

Nonsense Passing for Rational Behavior

Going back to the alarm I mentioned earlier…

Interest rates are now zero all over the industrial world. In a lot of places, they’re negative.

Never before in human history have we had negative interest rates. It’s absurd. It’s grotesque. It simply doesn’t make any sense.

(One day we’ll look back on this period, shaking our heads in disbelief as what nonsense passed for rational behavior.)

When interest rates are zero, it costs nothing to carry debt. You can keep building debt at no cost, for as much as you want.

It’s why Japan can get away with a 237% debt-to-GDP ratio (as of 2019). Thirty years ago, economists would have said this was impossible.

Or the U.S. government, which also doesn’t have to worry about debt service costs anymore. It can borrow to infinity. (And it’s gearing up to do this as I type.)

Glorified Monopoly Money

This game can last a lot longer than people expect, of course, but in the end, one of two things has to happen…

Either a) society will default on this debt. It will admit it cannot pay it back, in which case we’ll experience the mother-of-all financial crises.

Or b) we’ll pay off our debts with massively watered down (inflated) currency units.

Politicians will ALWAYS choose the second option because it’s easier in the short run.

Another way of saying this: The dollar, euro, renminbi, yen, pound, etc… they’re all going to become glorified Monopoly money.

And the only “currency” worth anything anymore will be…

Gold and silver.

Gold Is Crashing Higher

For the first time in a decade, gold is beginning to “crash” higher.

It’s already at new record highs… and every time I look… it seems to be another few dollars higher.

As I write, silver has gone up as high as 23% in the last three days.

The thing about rising gold and silver prices is they catch people’s attention… and stir their imaginations.

They become self-reinforcing, or what some traders call “reflexive.” That means rising prices cause rising prices.

It seems gold and silver are perfectly poised for a tidal wave of money to come pouring in… and explode prices higher than anyone currently expects.

Almost like a “viral” phenomenon.

We’ve now got Robinhood traders…

And computer-driven robo-traders…

And the hyperactive news media…

And of course, zero interest rates forever, encouraging governments to gorge on debt… destroy their currencies… and turn the dollar, euro, etc. into funny money.

What I’m saying is, for the first time in years, there’s potential for gold and silver to start rising in a disorderly way, instead of the orderly way they’ve been rising so far.

Like a meme that goes viral.

We’ll see.

– Tom Dyson

P.S. My next target for gold is $2,777, the inflation-adjusted high set in January 1980. Then, after that, $10,000 an ounce. What’s the best way to play this? I lay it all out in this video…

P.P.S. It’s very desolate out here…

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

A Tom’s Portfolio subscriber wonders whether the Dow-to-Gold ratio still applies…

Reader question: Hi Tom, I am a new subscriber of your research service. Your publications are great. There is a lot of valuable information. Thanks for that.

After I finished reading your Tom’s Portfolio research, I do have a question. As you mentioned, we should sell stock/buy gold when the Dow-to-Gold ratio exceeds 15 and sell gold/buy stocks when it is below 5.

Is the sell stocks/buy gold strategy still applicable? The gold price is very high now compared back in May when you issued your research.

Tom’s response: Yes, the Dow-to-Gold will always be applicable. It shows the fight between savers and investors for capital. (Gold represents savers. Dow represents investors.)

The Dow-to-Gold ratio is currently at 13.4. I expect it to fall below 5 in the next five to 10 years.

More readers give travel suggestions for Tom and his family…

Reader comment: Hello Tom and family, thank you very much for sharing your adventures with your readers. We look forward to the postcard like it was family news. You are a very valuable resource in the financial area as well.

Reader comment: Dyson world travelers: Wish I were there. Consider a trip down the San Juan River in Pagosa Springs, just west of where you are going. It is fun and you can swim, body surf, or raft it. Pagosa Springs is a fun town.

Wish I was there. I used to ski there every year until my knees started barking. I have enjoyed your postcard and adventures from India (or someplace before it).

Reader comment: Hi Tom. Thanks for the continuous updates of you and your family’s adventures. I just wanted to drop a short note and wish you and your family the best, and a continued, safe adventure. If your strategy pans out, I’m hoping to do similar adventures myself in the future.

Reader comment: Greetings, Dyson family. I just read that you are headed to the Durango area. I have been reading your letter for about a year and have followed your thoughts since The 12% Letter days, and really enjoy your daily updates.

I currently live about 20 miles from Durango and have room for you in our home, as well as a place for your camper in my yard.

Reader comment: Hello Tom and family, I’m a longtime reader of Bill Bonner’s books and diaries. This is how I came across your postcards, and I see you guys were in Buena Vista on your trip.

We are living near Cortez on a farm, which is about 300 miles west-south-west of your current location. My family and I would like to invite you for a stop-over, if it fits your travel plans towards Utah.

Reader comment: Your decision to live in a radically different way is inspiring. It seems to me that you are ahead of the game that we will all have to play in the near future. Living outside the box. Your family is beautiful, and your wife is just lovely.

My husband and I packed up everything 20 years ago and moved to Ireland. Our five children came up beautifully here and while it was tough, it was the best decision I ever made to go along with him. He couldn’t bear the thought of our kids growing up in a city with the Chuck E. Cheese mentality and the malls.

We live with near zero overhead now, zero debt, and all of our kids have been to college. I thought to myself, this is the payoff for listening to my husband and being willing to go along with his far-sighted plan.

I don’t know what to invest in, other than their education. We do not have a lot of extra money but if I knew what to do regarding investing, I would find something to play with. I’ll keep reading your accounts and see if I can find something.

Reader comment: My wife and I are also on the road and will keep an eye out for your distinctive rolling home on our way to Yellowstone Park.

Finally, an outpouring from fans of author Louis L’Amour, after Tom called his “tough but kind cowboy” depictions a great role model for the boys…

Reader comment: Hello Tom and Family, I really enjoy your Postcards. You have an engaging, relaxed style of storytelling. The San Juan mountains are beautiful. Louis L’Amour lived near Durango. I read once that the San Juan mountains were John Muir’s second favorite mountain range.

There is an inflation lesson driving on U.S. Hwy 550, known as “The Million Dollar Highway.” The 24 miles cut along mountain walls between Quray and Silverton cost $1,000,000 in the 1880’s. It is ranked one of the top 10 deadliest and scenic drives in the world. Ouray is fun to visit. Known as the Switzerland of America, it has caves with hot springs. Godspeed.

Reader comment: Tom, Louis L’Amour was an author that I valued in my youth so I can well-imagine your family’s interest in this book and the Sackett series. I too enjoyed them. After reading considerably more than 40 of his books, I eventually figured out that his characters were two-dimensional.

As a Westerner, there were many things that rang true, such as his description of topography, but there were other things that didn’t. But the same can be said about most other Western writers. (Actually, for most of them, nothing rang true, but it isn’t popular to admit that in print.)

Exceptional exceptions are the many books written by Elmer Kelton, who was a fourth-generation rancher in Texas. All of his books – and I believe that I’ve now read them all since he, John Steinbeck, and Mark Twain are my favorite authors – ring true. All of his characters are realistic, three-dimensional human beings. Although all of his books are Westerns, several of them don’t mention guns even once.

I once loaned one of his books (The Day the Cowboys Quit) to one of my good friends who was a devoted Louis L’Amour fan. He told me, in disgust, that there wasn’t any shooting at any point in the story. However, despite the absence of violence, it was a compelling story about a true event.

For those who like shooting, I recommend that you read his Texas Ranger series, the first book of which is The Buckskin Line. Out of the hundreds of westerns that I’ve read, I believe that Mr. Kelton’s second book in that series, Badger Boy, is tied with Jack Schaefer’s Shane as the best western ever written.

Reader comment: Hi Tom and family, love that you have discovered The Sacketts and, in turn, Louis L’Amour, one of the great writers of all time. The Sacketts are in a small way like The Dysons. They landed on the eastern shores of the New World and overtime worked their way across this vast continent. You will fall in love with them; I guarantee it.

Reader comment: Louis L’Amour is considered by many to be the best of the Western writers. He was able to do his own research and met with many relatives of those who lived in the period he wrote about and visited areas he wrote about. He was an extremely well-read author who also traveled extensively around the world.

Reader comment: It was with great pleasure that I read your Postcards. I have to agree that the Sackett series is a great set of well-written books that can help teach the reader or listener on the basic “values,” be they cowboys or in any other field. I was introduced to his books in about 1969. That was the start of many hours of reading pleasure and reminders that good is ok and preferred to bad. I have reread the books many times.

The one thing that I always tried to teach my kids was that only one person looked back at you from a mirror. If you were going to do something, ask how the person in the mirror would will feel in the morning. If good, do it. If bad, think about it again. I’ve bought silver, and now silver and gold stocks at 70.

Having gone through the inflationary world of the ’80s, I see where things are going. Trying to buy a property currently and will get that protection for my son and grandson, even selling stock to do it. Enjoy the trip and memories your children will have. It’s the best school there is.

Reader comment: He wrote some great books… Check out his short story books, too… War Party, The Strong Shall Live, etc. One of the neat things about his books is the places the characters go… Louis L’Amour would take his family on trips, too, and use the places in his book. He was quite the researcher, too. I think his home was in Colorado. Have fun!

Tom’s note: Thanks for all the kind words, and for the invitations! You keep us going. As always, please keep sending us your questions and comments at [email protected].