Doomsday Debt Device Wakes Up
What is the gold market seeing? Maybe the same thing we see...a debt crisis fast approaching... and the ‘point-of-no-return’ coming before the next presidential term is over.
Wednesday, April 10th, 2024
Bill Bonner, reckoning today from Dublin, Ireland...
MarketWatch:
Gold was headed for its 14th record high this year, with the June delivery price up $10, or 0.4%, to $2,355.60 an ounce. That price marks a new intraday high and surpasses Friday’s record close of $2,345.40 an ounce on Comex.
At this price, adjusted to gold, the Dow would have to hit 46,000 just to match its 2021 high.
What is the gold market seeing? Maybe the same thing we see...a debt crisis fast approaching... and the ‘point-of-no-return’ coming before the next presidential term is over. Then, the feds will have no real alternative but to inflate.
To get everyone on the same page...
Historically, with only one exception (Japan), debt at over 130% of GDP causes financial disasters. Higher interest rates make it impossible to finance the debt. Then, once the fuse is lit, it can't be extinguished... the deciders can't control what happens next. And ka-boom! Governments typically resort to printing money, counting on sustained periods of high inflation to reduce the debt burden.
Our high-confidence guess is that the US will hit the 130% mark before the end of the next presidential administration. Most likely, a financial emergency will arise as stubbornly high inflation keeps interest rates at uncomfortable levels.
Nearing $100 trillion in total debt already — government, household, and business — the US cannot afford high interest rates. Companies can’t refinance their bonds. Homeowners can’t refinance their mortgages. The feds themselves can’t borrow without driving interest rates even higher. Sooner or later, a major bankruptcy... or even a big sell-off in the stock market... might be enough to cause the government to panic and push the debt/GDP ratio over the 130% doomsday mark.
Since neither of the front runners show any awareness of the problem... let alone a willingness to solve it... we turn our attention to the back runner... RFK, Jr.
Not an insurrection
From what we can tell, RFK, Jr. is a very different kind of personality and an unlikely politician. He aims to get elected not by guaranteeing to support the status quo — with more money for everybody — but by challenging mainstream ideas.
He did that last week by wondering aloud if the January 6 riot at the Capitol really was an attempted insurrection:
Reasonable people, including Trump opponents, tell me there is little evidence of a true insurrection. They observe that the protesters carried no weapons, had no plans or ability to seize the reins of government, and that Trump himself had urged them to protest ‘peacefully.’
The J6 myth has become a part of America’s sacred fantasies. Questioning it is an unforgivable heresy. RFK was treated as though he had denied the Virgin Birth.
We all know there was never the slightest danger that a group of confused yahoos would take over the government or that Washington honchos would flee the Beltway... leaving the nuclear codes with the fellow with buffalo horns. It was never an ‘assault on our democracy.’
But challenging the mainstream is an extremely risky campaign strategy. It puts Kennedy at odds with almost all special interests... and cuts him off from the big money behind them. He’s the grandson of one of the richest men in America... but the fortune was spread across such a big family that it didn’t leave him with the kind of money you need for a maverick presidential bid. He brought in Nicole Shanahan as VP, we imagine, partly just to give his campaign a source of independent finance.
Suicide Trigger
RFK, Jr. called us a few months ago. He had read one of our posts. This was unusual; politicians don’t usually seek out dissenting views. Either he had an earnest interest in what we thought... or far too much time on his hands. We put him in touch with David Stockman, who has a much firmer grasp on federal finances than we do. David is now advising him on fiscal policy.
Stockman, a former budget director under Ronald Reagan, is proposing big budget cuts and a much smaller footprint for the American empire. It is the only way to avoid the 130% suicide trigger.
Whether or not this advice helps candidate Kennedy’s election prospects, we don’t know. Javier Milei won in Argentina by proposing radical cutbacks. But Argentina was at or near ‘the bottom.’ As Milei so eloquently put it, “There’s no more money.”
But there’s still a lot of money in the US. And the elites — who benefit from deficits and war — want it. They control the press, the bureaucracy, the military, Wall Street and Congress; they’ll do what they have to do to block a real reformer.
What will happen? We don’t know... but we’ll stick with our gold as we wait to find out.
Regards,
Bill Bonner
Market Note, by Dan Denning
Before today’s March CPI release from the Bureau of Labor Statistics, traders were pricing in a 53% chance of Fed rate cuts in June. After the release, which showed CPI running at 3.5% on an annualized basis, stock futures fell across the board. Energy, food, and shelter were all up over the last twelve months, with a change to the calculation of shelter costs showing a 5.7% increase year-over-year.
Can the Fed cut rates while inflation is running well above its 2% target? It can. But investors should consider the likelihood that Fed policy is not being driven by controlling inflation or producing price stability. It’s being driven by the need to keep government borrowing and refinancing costs from blowing up the budget.
One further note. Bloomberg reports that details of today’s CPI report—including the change to the ‘shelter’ calculation—were leaked by BLS to a ‘super user’ group of Wall Street economists and traders. It raises the issue of the government providing select traders on Wall Street with advance access to economic data that can move markets.