"Blessed are the young, for they shall inherit the national debt."
~ Herbert Hoover
If you're like me, you probably sometimes come across an important economic or geopolitical event in screaming headlines and think, "That's bullish for gold." But then the metal moves in the opposite direction from what you were expecting. Doug Casey always tells us not to worry about short-term fluctuations — and he's absolutely right — but it's still frustrating at times.
Now, it's easy to dismiss these thoughts because gold has recently hit new all-time highs, topping $2,400 per ounce.
But remember, there've been plenty of corrections during this gold bull run. And trust me, there'll be many more.
When they happen, it’s easy to get distracted, lose patience, even sleep, and get shaken out of an otherwise winning investment.
That’s why it’s crucial that you always keep your eye on the ball. Which, I should say, is more like a snowball in this case.
Snowball's Gonna Snowball
Major financial, economic, or political shifts don’t just happen overnight. They're more like a snowball rolling downhill, picking up speed and size along the way. Eventually, they reach a tipping point, transforming into full-blown crises, catching the unprepared off guard.
And, of course, there’s no better example of this today than the the ever-growing snowball of the U.S. debt that has become so big it’s already engulfing our whole economy. Consider this chart.
Notice that government debt was practically nonexistent halfway through the 20th century, but has seen a dramatic increase in the following decades. This happened with the expansion of federal government spending under Presidents Franklin D. Roosevelt, Lyndon B. Johnson's, Richard Nixon. And debt just kept snowballing since.
But President Biden really took it to levels we hadn't seen before.
In the years since taking office in 2021, Biden went on a trillion-dollar spending spree with stimulus projects like the American Rescue Plan, the Infrastructure Investment and Jobs Act, and the Inflation Reduction Act.
The unmistakable result of such policies is the current national debt standing at $34.7 trillion — more than a quarter-million dollars for every household — compared to "just" $27.8 trillion in 2021. That's nearly a $7 trillion increase.
Numbers that big are almost meaningless, so consider this… The government has accumulated more debt during the Biden administration than it did from the time George Washington took office to George Bushes reelection in 2004.
And, like I said earlier, the problem with snowballs is that the bigger they get, the more snow they gather. Today, increases in debt total roughly $1 trillion every 100 days. That breaks down to roughly $300 billion per month, $10 billion per day, $417 million per hour, $7 million per minute, and $115,741 per second.
If that doesn’t give you pause, I don’t know what will.
The Company You Keep….
But let’s put all that in perspective, considering that today’s dollars don’t buy what a nickel did a hundred years ago. A good way to do that is to compare America’s historic debt levels to its gross domestic product (GDP).
As you can see from the chart above, except for the period of World War II and its immediate aftermath, never before has the U.S. been this deep in debt.
Even during the post-World War II era up to the 1980s, when government spending skyrocketed (partly thanks to initiatives like Lyndon B. Johnson's War on Poverty and the introduction of new social programs like Medicare and Medicaid), the economy usually outpaced the debt accumulation. This led to a declining debt-to-GDP ratio.
It all changed in the later decades, and then dramatically so under President Barack Obama, when America crossed into uncharted territory by surpassing the threshold of 100% debt to GDP in 2013.
Today, under Biden, America's $34.7 trillion debt is already about 125% of GDP. This places us in the company of nations like Venezuela, Sudan, and Lebanon on the list of Top 10 countries with the highest debt-to-GDP ratios.
Even if we exclude the three basket-case economies I mentioned earlier, none of these nations are exactly shining examples of economic strength (with the exception of Singapore). Even Japan, once a powerhouse, is now a mere shadow of its former self, with a projected GDP growth of only 1% this year. Not exactly a great club to be a part of.
What’s Next? Now, if you take another look at the debt-to-GDP chart above, you'll see that I've made some projections for the next decade.
This is based on the 4.3% average annual rate of debt-to-GDP growth since the U.S. started down its current path in response to the financial crisis of 2008.
Here’s the takeaway: If the rate persists, the U.S. will be deeper in debt relative to its GDP than Italy in 2027, deeper than Lebanon in 2029, Eritrea in 2031, Sudan in 2033. Going beyond a decade, America will surpass Venezuela by 2038 and even Japan by 2041.
Politicians are leading us toward that reality, and the journey won't be pretty. This is THE real crisis of our times.
Don't forget, unlike a country like Japan, the U.S. doesn't benefit from having around 90% of its debt owned domestically. Around 30%, or $8 trillion, of U.S. government debt is currently held by foreign nations. The U.S. can't just bank on foreigners to keep buying its debt as more of them start distancing themselves from the dollar, and its debt-to-GDP ratio surpasses that of Lebanon and Eritrea.
Neither can the U.S. just default on it because it would be political suicide for those at the top. So the only way for those in power to bail out the system is through the devaluation of the dollar (and the government’s debt).
Devalue or die.
Many think currency devaluations only occur in economically weak nations or places that are still developing, like those in Africa or Latin America. But I urge you to take another look at the list of countries the U.S. has recently joined above.
Regards,
Lau Vegys
P.S. Protecting yourself from this crisis is simple: convert as much government currency units as you can into real money: gold. The metal’s track record speaks for itself, which is why Doug always recommends holding it in your long-term investment portfolio while investing in gold stocks for even more profits. That's also why a big part of our Crisis Investing portfolio is focused on these stocks, which Doug himself owns.
Debt bombs away.