Category: simonblack

On January 16, 1917– at the peak of World War I, the imperial German Foreign Minister, Arthur Zimmerman, sent an encoded telegram destined for the President of Mexico.

Zimmerman wanted to form an alliance with Mexico, in the hopes that the United States would be too distracted with potential conflict at their southern border to even think about joining the war in Europe.

So, in his effort to strike a deal, Zimmerman promised not only a military alliance, but to help Mexico “reconquer her lost territories of Texas, New Mexico, and Arizona.”

Unfortunately for the German Empire, Zimmerman’s secret cable was intercepted and decoded by a British cryptography team; it was then shared with US President Woodrow Wilson, who released it to the newspapers on March 1st.

Americans were outraged, and five weeks later, the US joined the war… with the entire nation singularly focused on one goal: beating Germany.

The United States economy answered the call with remarkable vigor.

American businesses cranked out tanks, bullets, airplanes, fuel, provisions, and anything else needed for total victory. And as a result, companies which were vital to the war effort shot up in value.

The profits of the United States Steel Corporation, for example, more than quadrupled from 1915-1917, and the company became one of the first in history to be worth $1 billion.

Other companies, including Anaconda Copper, and various food and energy producers, also performed extremely well.

But eventually the war ended, and the roaring 20s began. The economy was flush with cash. Jobs were plentiful. Prosperity was everywhere.

And eventually the values of hard work and sacrifice were displaced by a culture of leisure and recreation.

These new values were reflected in the stock market.

Radio and motion picture were the hot new consumer technologies of that era. And the Radio Corporation of America– RCA– manufactured the radios and phonographs, produced music and records, owned broadcast stations (including the original NBC), and even bought movie theaters.

RCA was basically the Netflix and Apple of its day. And during the 1920s, RCA stock rose 200x… which was really a sign of the times. This was an era of peace and prosperity, so Americans prioritized consumption and recreation over production. And RCA was the ultimate consumer recreation stock.

But then the Great Depression set in at the end of the decade; RCA stock dropped 98% from a peak of $114.75 in 1929 to $2.62 in 1932.

Suddenly, American values had changed again. Money was no longer plentiful, and people had to make tough decisions about what to buy.

Hard work and sacrifice were back in vogue, and spending money on leisure and recreation seemed absolutely insane.

Once again, this shift in values was reflected in the stock market.

Recreation-oriented companies were out, while ‘boring’ companies like Proctor & Gamble– which efficiently manufactured the most critical consumer staples– became the best performers of the era.

Energy companies also did very well, because, when push comes to shove and consumers have to make decisions about where to allocate scarce resources, energy (along with food) almost invariably ranks towards the top.

This cycle has repeated again and again throughout history. During boom times, the world’s most critical resources like food, energy, and raw materials often become forgotten investments. Meanwhile, investors chase hot fads which are usually oriented towards consumer leisure and recreation.

We’ve seen this in our own recent history.

Netflix is a great example; it’s often (hilariously) referred to as a technology company. But Netflix is obviously in the recreation business.

So is Facebook (Meta) for that matter, whose products really just enable people to waste time by swiping and scrolling through endless butt selfies.

Apple designs the devices which people use to swipe and scroll. Amazon makes it super easy for people to spend money on stuff they don’t really need.

You get the idea. These are ultimately consumer recreation businesses… and there’s nothing wrong with that. But it is worth noting that the most valuable companies in the world are predominantly in this consumer recreation sector.

That’s because most of the last 15 years has been an era of abundance, similar to the Roaring 20s. And with so much boundless prosperity, consumer recreation once again became a major financial priority, whereas something as banal as energy production simply fell off the list of core economic values.

Think about it: we constantly hear famous economists praise the “American Consumer”. No one ever talks about the American Producer. And certainly not the American Energy Producer.

But values can and do shift very quickly. Just look at Pfizer.

As recently as 2019, Big Pharma had been among the most hated sectors in the world due to sky-high drug prices. But then the pandemic came along, and suddenly everyone started exuberantly supporting Big Pharma.

Priorities shifted. And Pfizer became one of the world’s most valuable companies.

I believe that priorities are on track to shift again, given how the US government’s massive debt problems will likely lead to sustained inflation within the next 5-7 years (if not sooner).

And as financial values and priorities shift, critical resources should take precedence over consumer recreation once again.

This doesn’t mean that consumer businesses will go bust. However, the sky-high valuations that we’ve seen (like 50x Price/Earnings ratios) for recreation-oriented businesses will not last.

Conversely, critical resource businesses will likely surge in value.

These are companies which have been mostly ignored (or even deliberately injured) … which means that many such businesses are selling for historically low valuations.

But over the next several years as priorities shift again, they could easily become the ‘must own’, best performing companies in the world.

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The ink was barely dry on the Treaty of Paris in the year 1763 when the financial panic set in. Government ministers across Europe began taking stock of their disastrous finances… and the picture was gruesome.

The world had been at war with itself for nearly a decade. And though the conflict became officially known as the Seven Years War, it might as well have been called ‘World War Zero’ because it involved just about every major power on the planet.

France, Russia, Britain, Spain, Portugal, and Prussia in Europe, the Mughal Empire in India, and even the Ojibwe and Cherokee tribes in North America, all fought in the war. And the conflict cost everyone dearly.  Especially France.

France was still technically the West’s dominant superpower at the war’s start in 1756; however, decades of overspending had taken a toll… and French finances were showing signs of strain.

As the Seven Years War raged on, France had to borrow more and more money to pay for it. So both the national debt, as well as its annual interest bill, rose quickly.

By the end of the war, the debt had grown so much that France was spending over HALF of its annual budget just to pay interest… which means obviously they were spending more on interest than on the military.

Economic historian Niall Ferguson has famously commented on this critical milestone:

“If you really want to see when an empire is getting vulnerable, the big giveaway is when the costs of servicing the debt exceed the cost of the defense budget.”

Throughout history, several empires in decline have reached that point– including France, the Ottoman Empire, and many more. And quite disturbingly, the latest empire set to join that club will be the United States– most likely this year.

I’ve been saying this for a while. But it’s now mainstream news given that the Wall Street Journal said Friday that “Interest costs are on pace to surpass defense this year. . .”

The US national debt currently stands at $34.3 trillion, a whopping 122% of US GDP. And as I’ve written extensively, the Congressional Budget Office forecasts an additional $20+ trillion in new debt over the next decade.

That’s an absurd level of debt. But the most alarming part is how quickly the annual interest bill is increasing.

15-20 years ago, interest on the national debt was a fairly trivial portion of the federal government’s annual budget. But in 2024, as the Journal corroborates, interest will likely surpass defense spending.

And it’s just going to keep getting worse. The US government is falling into the same trap that plagued France in the 1760s and 1770s: each year America will have to borrow more money just to be able to make interest payments on the money they’ve already borrowed.

Think about it: they have to go deeper into debt just to avoid default.  Crazy, right?

And to really understand the implications, it’s critical to ask the question: where will all the new debt come from? Who exactly is going to lend the US government $20+ trillion?

Well, one potential source is the US economy itself: the government could borrow money from banks, businesses, and even individuals. But that comes at a significant opportunity cost.

Banks, for example, make constant decisions about what to do with their cash. They could make home loans, business loans, or, yes, buy US government bonds.

This means that if they buy $20 trillion worth of Treasury bonds, they’ll have $20 trillion LESS available to make home loans. And with less capital in the housing market, home prices would likely fall, and mortgage rates rise.

Investors, similarly, have tens of trillions of dollars in the stock market. So, if investors bought trillions of dollars’ worth of government bonds, they’d have to sell their stocks first, resulting in falling stock prices.

Economists call this the “crowding out” effect; the idea is that, when a government borrows tons of money, it essentially monopolizes a nation’s savings, leaving fewer resources for the productive economy to put to work. And that’s a pretty high opportunity cost.

The alternative is for the central bank (i.e. Federal Reserve) to create trillions of dollars of ‘new’ money, then use that new money to buy Treasury bonds.

This way banks can keep making housing loans. Investors can keep their money in the stock market. The Fed simply creates new money out of thin air, then loans it to the Treasury.

$20 trillion is a ton of money, more than 50% of the size of the entire US economy. So clearly if the Federal Reserve creates such a vast sum of new money, the end result would be a lot of inflation.

I’ve written about this before; we experienced a peak 9% inflation when the Fed created $5 trillion in 2020-2021. So how high inflation be if they create $20+ trillion?

No one knows for sure, but it probably won’t be their famous 2% target.

Now, this isn’t a cause for panic. On the contrary, given that there’s such a strong case to be made for future inflation, there are plenty of sensible ways to prepare for it and potentially even benefit from it financially.

Governments and central banks, for example, are fantastic at going into debt and conjuring new money out of thin air. But they can’t summon a single barrel of oil into existence, nor clap their hands and make more productive technology appear.

In an era where politicians and central bankers have to create a tidal wave of money and debt just to avoid default, it’s sensible to have exposure to scarce, critical resources that stand the test of time.

These are known as real assets. And it just so happens that many of them are selling at historically low prices.

More on this soon.

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On September 18, 1928, at the peak of the ‘Roaring 20s’, an American investor by the name of Evelyn Gregory was sitting on a fat capital gain totaling over $133,000– worth more than $12 million in today’s money.

The top federal tax rate back then was 25%… but Evelyn wasn’t inclined to fork over such a vast sum to Uncle Sam.

So, she and her advisors engaged in a series of complex transactions designed to dramatically reduce her tax bill. In fact, her tax return that year reported a gain of just $76,007.88, instead of the full $133k.

What Evelyn did was legal… but extremely aggressive. And she ended up in a legal dispute with the IRS.

At a certain point the case ended up in US Court of Appeals for the Second Circuit, where legendary federal judge Billings ‘Learned’ Hand famously wrote:

“Anyone may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.”

(Hand went on to reiterate this view in subsequent rulings, writing later, for example, that “nobody owes any public duty to pay more than the law demands.”)

What’s really interesting about Judge Hand’s opinion is that it completely contradicted his personal beliefs.

Hand was a hard-core progressive. He believed that the government should spend big on social programs, and that it should all be paid for in higher taxes.

Frankly his political views would probably be closely aligned to Elizabeth Warren’s today.

Yet, even though he privately wished to live in a high-tax society, Judge Hand knew his primary duty was to the law– which was very clear on the matter of taxation: no one had a duty to pay any more than the law required. And taking legal steps to avoid taxes was perfectly fine.

But this was a different era in America. Judges like Learned Hand had the integrity to separate their personal beliefs from their public duty to interpret the law without passion or prejudice.

This is part of what’s known as the ‘Rule of Law’, the concept that laws in a civilized society are objective, fair, uniform, and evenly applied. And this has been a hallmark of advanced civilizations for thousands of years, going back to the Romans, Greeks, and even ancient Babylon.

History shows that societies start to break down when their rule of law becomes weaker– like when the ruling class isn’t subject to the same laws as everyone else, or when judges and kings begin making up ridiculous interpretations of the legal code.

This has been sadly happening for quite some time in the United States, and we’ve seen a number of recent instances.

In 2020, for example, three federal judges based in Illinois created a new policy which gives female and minority attorneys extra time to make their arguments in front of the court.

Someone’s life could be hanging in the balance of a court decision… yet these judges are more concerned about social justice than actual justice.

More recently, Judge Janet Protasiewicz ran for (and won) the Wisconsin Supreme Court last year, campaigning on an ultra-progressive political platform.

Rather than commit to upholding the law and objectively interpret the state’s Constitution, she essentially promised to completely ignore the law and instead rule in favor of her personal, woke ideology.

Unsurprisingly, billionaire activists like George Soros and J.B. Pritzker funneled tons of money into Protasiewicz’s campaign; she outspent her nearest opponent by 5-1 in what became the most expensive judicial race in American history.

We’ve seen similar behavior from several Attorneys General and District Attorneys– elected officials whose entire campaigns were based on a promise to prosecute a certain former President.

These are all despicable violations of their most solemn obligation to the Rule of Law– to apply the law fairly and interpret it objectively without injecting their personal beliefs.

The latest example came last week from the Hawaii Supreme Court.

It’s worth pointing out that even high school civics students know that the US Constitution is the supreme law of the land. Full stop.

But according to the esteemed justices of Hawaii’s Supreme Court, there is now a higher authority: the spirit of Aloha.

Yes I’m serious.

In a recent gun rights case, a man asserted his right to carry a firearm in public for self-defense.

But as the Hawaii Supreme Court ruled, “The spirit of Aloha clashes with a federally-mandated lifestyle that lets citizens walk around with deadly weapons during day-to-day activities.”

The Justices then claimed that, when interpreting laws, they may “contemplate and reside with the life force and give consideration to the ‘Aloha Spirit.’”

Come again? Was this a legal ruling or the opening remarks of a yoga retreat?

After some research, my team and I found an obscure section of the Hawaiian state statutes which actually defines with the “Aloha Spirit”:

“’Aloha Spirit’ is the coordination of mind and heart within each person. It brings each person to the self. Each person must think and emote good feelings to others.”

Unbelievable. You can practically smell the pot wafting from the halls of justice.

Honestly it sounds like Adam Neumann’s absurd mission statement for WeWork from a few years ago. But it’s hardly a foundation for a strong Rule of Law.

Pretending that the ‘Spirit of Aloha’ is a real legal framework ultimately gives justices the latitude to rule however they want, regardless of the actual law, based solely on their personal feelings.

Hey fellow justices! Should we thoroughly research case law and objectively interpret the Constitution? No, let’s emote good feelings and use the life force. Case closed.

Again, this isn’t some random judge making a rogue ruling— this is the highest court in the state of Hawaii. The justices don’t like people carrying around guns in public, so they made up an argument to ban it.

The concept of a separate, independent judiciary branch charged with objectively interpreting the law is one of the better ideas of modern society. It’s supposed to serve as a vital check and balance against government overreach and to protect individual freedom.

Yet America is quickly losing its responsible guardians of liberty. Before taking office, judges swear to set aside their personal beliefs and uphold the Constitution of the United States.

More and more of them now appear to be robe-wearing activists who lie through their teeth when taking the oath of office.

They think they’re doing good work. They think the ends justify the means. But all they’re doing is further eroding trust and confidence in the system.

We write a lot about the massive challenges facing the United States and the West in general.

The US government itself estimates, rather optimistically, that the national debt will increase by at least $20 trillion over the next ten years.

We’ve explained how this trend will likely result in major inflation and destroy the US dollar’s credibility as the global reserve currency.

On top of those serious economic and fiscal catastrophes, the US also faces myriad social problems, from the border and rising crime, to extreme disunity and polarization.

These trends from the justice system only make the problem worse; it’s hard to move forward and have a civilized society when people just make up whatever rules they want.

I’ve written before that America still has a narrow window of opportunity to turn things around. And that’s true.

But with these sorts of Inspired Idiots in charge, we shouldn’t hold our breath.

And that’s the entire reason to have a Plan B: even though the Inspired Idiots probably won’t fix anything, you can still take plenty of sensible, rational steps to ensure you’re in a position of strength regardless of what happens (or doesn’t happen) next.

This is a lot better idea than betting your entire future on the ‘life force’.

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I imagine life can often feel pretty difficult for today’s high school students.

On top of dealing with classic teenage drama like homework, hormones, pimples, parents, driving, dating, university selection, and more, students these days have to contend with a host of new challenges.

They suffered long periods of brutal Covid lockdowns. Active shooter drills are a normal part of student life. And, of course, there’s the nonstop anxiety and peer pressure of social media.

Plus, on top of everything else, students today have also been force-fed some pretty bizarre ideas.

Classical literature, advanced mathematics, and hard sciences have taken a back seat to social justice, climate justice, economic justice, etc. (as defined by the woke, fanatical left).

But there are early signs that this indoctrination is starting to break new ground.

Yesterday a close friend of mine who lives in Spain told me that his son, a high school senior, has been getting lessons in school about Central Bank Digital Currencies, or CBDCs.

If you’re not familiar with the concept, a CBDC is essentially a cryptocurrency that is controlled by the government and central bank. And so far, at least have a dozen CBDCs have been rolled out around the world, including in Russia, China, and India.

Now, governments already have the means to track you and monitor your finances.

They can force financial institutions and credit card issuers to turn over your entire financial history. They can order banks and brokerage firms to freeze your assets.

And if you remember what happened in Canada during the ‘Freedom Convoy’ protests, Justin Trudeau Castro used his ‘emergency powers’ cut the protestors off from the financial system.

They had no access to their bank accounts, ATM machines, or even crowdfunding platforms.

Governments already have the power to do all of these things.

But CBDCs take this power to a much higher level… because there’s no more middleman. Government authorities wouldn’t have to bother going to banks, brokerages, and credit card companies; they could simply deactivate your funds with a mouse click.

Have fun trying to buy groceries.

Now, even though only a handful of CBDCs have been rolled out around the world, there are over 100 central banks that are developing their own CBDCs. And that includes both the United States and the European Union.

My friend’s son (again, a high school senior in Spain) explained that his teachers are absolutely gushing over the idea of CBDCs.

In a class which covers banking, mortgages, and the financial system, they’re telling the kids that, probably within a year, the new ‘digital euro’ will be rolled out. And eventually it will become mandatory.

Cash will cease to exist, and all money will be registered with the European Central Bank.

Europe’s army of bureaucrats will know what’s happening, in real time, to every single euro in existence. And there will be no way of getting around it. Financial privacy will be a thing of the past.

The teachers expressed utter joy about this, and the curriculum seems designed to get the kids excited about it too.

They say the digital euro represents incredible progress, and that it will make life easier and simpler.

Businesses will be able to collect payments more easily. You’ll be able to spend everywhere directly from your phone, and maybe cut out the need for credit cards or even traditional bank accounts.

They also say that CBDCs will be an effective way to control money laundering, criminal activity, and terrorist financing. That’s why, they explain to the students, the EU has already begun to crack-down on cash and crypto transactions over €1,000.

According to my friend’s son, most students in his class appear pretty excited about CBDCs. Hardly anyone seems fazed by the loss of privacy or increased government authority over their lives.

But intelligent people—including my friend and his son— clearly see where this is going.

We’ve already seen people lose their jobs and canceled off the Internet for wrongthink. We’ve seen people frozen out of their bank accounts for standing up for their rights.

Frankly, the brutal use of the Prime Minister’s emergency powers against the Freedom Convoy protestors in Canada should have served as a giant wake-up call: if you hold your life’s savings in the financial system of your home country, you’re already taking an unnecessary risk.

And that’s regardless of what happens with CBDCs.

This means that having some savings outside of the financial system is a completely sensible idea. And fortunately, there are plenty of easy ways to do this, including liquid assets like physical gold and silver, cryptocurrency, and cash.

It’s hard to imagine there’s any downside for having direct access to some emergency savings. And this is one of the core principles of any Plan B: it makes sense, regardless of what happens (or doesn’t happen) next.

The CBDC trend is obviously nascent… so it’s not like the Federal Reserve or ECB is going to roll out their CBDCs tomorrow morning and make them mandatory. The sky is not falling, and there’s no reason to panic over this development.

But independent, thinking people ought to understand where this trend may lead… and more importantly, to take rational steps to minimize the consequences.

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Last week’s headlines were understandably dominated the special counsel’s report which chronicled President Biden’s “diminished faculties and faulty memory”.

So, it’s easy to understand why no one even noticed the Congressional Budget Office’s $20 trillion bombshell announcement that was released within hours of the special counsel report.

Granted, an investigation concluding that the President’s memory is “poor”, “hazy”, and “significantly limited” is a big deal… though most people probably weren’t surprised to hear this.

But frankly the Congressional Budget Office’s report is just as important– because it’s providing further evidence that the United States is headed rapidly towards complete fiscal ruin.

Every six months, the Congressional Budget Office releases a rolling 10-year “Budget and Economic Outlook”. And the most recent one from last year stated that the total cumulative deficit in the ten-year period from 2023 to 2033 would reach an astonishing $20 trillion.

This essentially means an average annual deficit of $2 trillion.

Last week the CBO released its updated forecast, this time for the ten-year period from 2024 through 2034. And their outlook has not improved: they’re still projecting a $2 trillion average annual deficit.

Perhaps more alarming is that the CBO sees the deficit problem becoming consistently worse.

“[D]eficits steadily mount,” the CBO explains, “reaching $2.6 trillion in 2034.” Relative to the size of the US economy, they estimate the 2034 deficit to reach 6.1% of GDP. That’s historic.

“Since the Great Depression, deficits have exceeded that level only during and shortly after World War II, the 2007-2009 financial crisis, and the coronavirus pandemic.”

Think about what they’re saying: the CBO projects spending to be so extreme that such levels have only been exceeded three times in modern history… and all three have been during times of national emergency.

Yet the CBO is not projecting any national emergency over the next ten years. Nowhere in their assumptions is the possibility of a war. Or a new financial crisis. Or another pandemic.

Rather, this historically high level of over-spending is simply the ‘new normal’ in the United States.

It’s also worth noting a number of other rosy assumptions in the CBO’s most recent forecast; they project, for example, that the US economy will return to an ‘everything is awesome’ era where interest rates are low, inflation is low, unemployment is low, and GDP growth is solid.

These are pretty optimistic assumptions. And I sincerely hope they’re right.

Because if they’re wrong about anything, i.e. if inflation remains high, or economic growth stalls, or there’s some national emergency, then their $20 trillion forecast will become much, much worse.

We actually already know the $20 trillion estimate will be worse; that’s because Social Security’s key trust funds are projected to run out of money in the early 2030s as well. And bailing out the trust funds will require trillions of dollars more, just as a down payment.

So, it’s not hard to see how, when viewed through a more realistic lens, the 10-year forecast could reach $25 to $30 TRILLION in total deficit spending… which essentially means new debt.

That is an absurd amount of money. Think about it like this: the CBO estimates that the size of the US economy will reach $48 trillion by 2034.

So, if the government ends up having to borrow $25 trillion, that would be equivalent to more than half of the entire US economy.

This would be debilitating for the economy. And that’s most likely why the Federal Reserve would step in to fund these deficits.

When the Treasury Department sells its bonds to private citizens and businesses, they’re essentially borrowing existing money that’s already circulating in the economy.

But when the government borrows from the Federal Reserve to finance its deficits, the Fed creates NEW money, which it then loans to the Treasury Department.

We all experienced this first-hand in 2020-2022 when the Fed created $5 trillion in new money for the government to spend. The end result was inflation that peaked at 9%.

Now the Congressional Budget Office is telling us, quite optimistically, what the government’s borrowing needs will be over the next decade. So how much inflation should we expect if the Fed has to create $20 trillion in money?

No one knows. But it probably won’t be the Fed’s magical 2% target.

Given this obvious inflation risk from the CBO’s baseline scenario, it would also be quite optimistic (and borderline naive) to assume that the US dollar will continue as the world’s dominant reserve currency beyond the next decade.

After all, what country could possibly be expected to continue buying US government bonds, or conducting cross-border trade in US dollars, in this scenario where inflation spikes and deficits soar?

And the dollar losing reserve status would only compound the problem. Without its dominance as the world’s reserve currency, foreign nations would no longer buy much US government debt… meaning that the Fed would have to print even more money to make up the difference.

Look, I’m not telling you this because I think you should be worried. This isn’t about doom and gloom. Quite the contrary– I’m incredibly optimistic about the future and the opportunities ahead.

But any rational, thinking person ought to take these risks seriously.

The federal government itself is telling us that its borrowing needs over the next decade will exceed $20 trillion, and that is under very optimistic assumptions.

To quote an old phrase from World War I, “the situation is serious, but it’s not hopeless.” And there are plenty of hedges– both financially and personally– which can dramatically reduce the impact of these future risks.

From a financial perspective, I’d start with real assets, i.e. the world’s most critical and valuable resources which cannot be conjured out of thin air by central banks and politicians.

Gold is an obvious one, which we will discuss more… because there is pretty clear scope for gold prices to soar past $10,000 or more.

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“Can Selecting the Most Qualified Candidate Be Unfair?” asked researchers in a recent study published by the American Psychological Association.

And the short answer, according to this new ‘science’, is a resounding YES: hiring the most qualified people based purely on their merit and talent is unfair.

Naturally they don’t actually discuss WHY. They just take it as a well-known fact that merit-based hiring is bad, while diversity & inclusion hiring is good.

The actual experiments that the researchers discussed in their paper had to do with how easily they could brainwash and manipulate people into believing that “merit-based hiring and promotion processes [are] significantly less fair.”

Quite easily, it turns out. The results of their experiments show that they can easily “disrupt the perceived fairness of meritocracy”.

They’re also excited to take their research even further by “exploring whether the manipulations developed here can be effective” in other ways, like making “diversity policies” less “polarizing”.

By lifting its countenance upon this research and publishing it in the Journal of Experimental Psychology, this ideological drivel is now considered ‘science’.

So, the next time some Inspired Idiot wails about how wonderful diversity and inclusion is… and justify their position by saying things like “studies show” and “the science says”, we can thank the American Psychological Association.

Now, this is just one research paper written by a few fanatical academics pushing their agenda. It’s hardly anything to get bent out of shape about.

But it is a small example of the direction of the nation. And that direction can be summed up in a single word: WRONG.

I’ve written extensively how the problems facing the US aren’t even really political at this point. It’s a question of arithmetic.

The government’s own baseline forecast estimates an additional $20 trillion in new debt over the next decade, on top of the $34 trillion debt they already have.

Most likely this will result in a substantial amount of inflation, plus loss of reserve status for the US dollar, over the next 5-7 years.

I’ve also argued that the US has a very narrow window of opportunity to turn things around. And one of the key ways to do that is to increase productivity.

If there were a true economic bonanza in the US— a surge in production of goods and services— then that would largely solve the problem.

Massive economic growth would lead to a major increase in tax revenue… meaning that the government could solve its perennial deficit problem simply by generating more revenue, as opposed to cutting costs.

And by the way, I’m not talking about raising tax rates.

Just look at the history of taxation in the US: since the end of World War II, the top individual income tax rates in the US have varied tremendously— from as low as 28% in the 1980s, to as high as 91% in the 1960s. Yet despite these fluctuations, the government’s overall tax revenue (as a percentage of GDP) has been very consistent— around 17% of GDP.

In other words, it doesn’t matter how high they raise tax rates. Overall tax revenue, i.e. the government’s ‘slice’ of the economic pie, will remain the same.

The implication? The only real way to generate more tax revenue is to make the pie bigger.

And it doesn’t take a genius to figure out how to do this: stop debilitating large and small businesses with mountains of rules and regulations.

Every day there seem to be calls for more anti-business, anti-capitalism, anti-productivity policies. New reports to file. Wealth taxes. Or my favorite, the Labor Department’s recent 800-page proposal to make sure your small business builds enough bathrooms to conform to everyone’s gender identity.

These sorts of things take economic productivity backward, not forward.

And this new ‘science’ by the American Psychology Association— demanding that businesses should NOT hire people based on merit— is just another small step backward.

It’s the wrong direction, plain and simple. And it’s why I’m not holding my breath that the Inspired Idiots in charge will suddenly start doing what’s necessary to turn the ship around.

Again, though, this should not be a cause for panic or dread.

I’ve also written extensively that rational, thinking people can mitigate the consequences of this Rule by Inspired Idiots.

Gold, for example, tends to perform extremely well in the chaotic, inflationary times that I anticipate. And one potential low-cost approach would be to buy options on long-term gold futures as a hedge against inflation down the road.

We’ll explain more about this, as well as the benefit of owning real assets, next week.

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Thousands of years ago during the late Bronze Age– most likely between 1100 and 1200 BC, two ancient civilizations were exhausted after nearly a decade of warfare.

On one side was the ancient Achaean peoples led by the Mycenaean king Agamemnon. On the other was a legendary Hittite city that had already been in existence for more than 2,000 years.

Back then the city was called Wilusa. Today we know it as Troy.

The general consensus among historians today is that, most likely, the war did take place. But it obviously lacked the drama and intrigue of Homer’s epic tale, the Iliad.

 We all know the story: after nine grueling years of war, Odysseus hatched a plan to sneak through the impenetrable gates of Troy. Guided by Athena, the goddess of wisdom and warfare, the Greeks built a hollow statue of a horse and hid their soldiers inside.

The horse was left as a gift for the Trojans with an inscription of goodwill and peace. And, according to Homer’s legend, the Trojans took the bait.

But there were a few people who predicted severe consequences, including a Trojan priest named Laocoon, who famously warned, “Timeo Danaos et dona ferentes.”

Translation: “Beware of Greeks bearing gifts.”

This was a time in human history in which oracles and prophets were a normal part of life. People in the ancient world regularly sought counsel from ‘seers’ who claimed to have some special power to predict the future.

And frankly this addiction to prophesy lasted for thousands of years. Even famous historical leaders into the 19^th and 20^th centuries like Napoleon, Joseph Stalin, and Adolf Hitler reportedly took advice from fortune tellers and astrologers.

But if we really analyze Laocoon’s legendary warning about the Trojan Horse, he wasn’t making a prediction about the future. He was just looking at obvious facts and exercising good judgment and common sense.

That’s what good ‘predictions’ are anyhow. No one has a crystal ball to see the future like some prophetic oracle from ancient mythology.

And I wanted to be clear about this point… because when we write about future financial consequences, like a debt crisis down the road, or the US dollar losing its reserve status, etc., we’re not making ‘predictions’.

Rather, we’re looking at obvious facts and trends, then exercising good judgment and common sense. And the facts are very clear.

We don’t peer into a crystal ball when we say that the US national debt is set to increase by $20 trillion over the next decade. This is publicly available information pulled directly from the Congressional Budget Office’s own forecast.

It’s not some magical prophesy when we say that Social Security’s trust funds will run out of money in a decade. This information comes directly from the official report of the Social Security Board of Trustees.

Nor are we exercising any special powers when we say that the Federal Reserve is completely insolvent. We’re just looking at the Fed’s own quarterly financial statements which show an unbelievable $1.3 TRILLION in unrealized losses.

You get the idea. There’s nothing mystical about the ‘predictions’ we’re making; we’re simply citing official reports and connecting the dots that almost everyone in the ‘expert class’ chooses to ignore.

Sure, we think that an insolvent Federal Reserve, plus $20 trillion in new debt, plus Social Security’s bankruptcy, will probably have consequences. But we’re also careful to acknowledge where we might be wrong.

I’ve written several times that the US government still has a very narrow window of opportunity to get its house in order. Sadly, they are not taking advantage of that window.

It’s also possible that an AI-led economic boom could dramatically increase productivity and tax revenue in the US, similar to the Internet boom in the 1990s.

But given that there are so many prominent figures in both government and within the AI community itself, trying to restrain AI’s growth, I’m skeptical that an economic boom will happen in time to forestall the most severe consequences of America’s gargantuan debt.

This is why we feel that our analysis is on very solid ground. And that leads me to solutions.

There’s an old Danish proverb (frequently mis-attributed to Mark Twain) which translates as “Predictions are hard. Especially about the future.”

But sometimes they’re not. Or better yet, I’d say that predictions are hard… except when you’re not actually making predictions.

Again, we’re looking at clear and obvious facts.

Social Security, for example, states that the program will “become depleted and unable to pay scheduled benefits” within 10-12 years. That’s not a ‘prediction’. That’s arithmetic.

For rational, thinking people, however, this should not be a cause for panic. Instead, it should a reason to take action and solve the problem on an individual basis… rather than wait for Inspired Idiots in the government to fix it.

And there are plenty of options. Setting up a more robust retirement structure like a solo 401(k), for instance, allows you to contribute a lot more money for retirement, plus it provides a wider range of investment options like real estate, crypto, and more.

And even if the Inspired Idiots miraculously come together to solve the Social Security problem, you won’t be worse off for having set aside more money for retirement.

Ditto for other risks we discuss.

Real assets, for example, generally tend to perform very well during inflationary periods. Yet many real asset producers are currently trading at historic lows.

There are highly profitable, debt-free, dividend-paying companies out there whose share prices are extremely cheap. And if the future inflation scenario we’ve outlined takes hold, those types of companies typically experience extreme gains.

But if we turn out to be wrong, it’s hard to imagine being worse off buying shares of a successful, dividend-paying business at historic lows.

This is a great way to think about a Plan B: consider solutions that make sense regardless of what happens (or doesn’t happen) next.

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It’s interesting to see how so many mainstream voices are starting to express concern about the gargantuan size of the US national debt.

For most of the past decade, even as the debt spiraled out of control and passed $20 trillion, $25 trillion, $30 trillion, etc., hardly anyone in the media said a word about it. If anything, they would insist that the ‘debt doesn’t matter.’

That tune is finally starting to change. And the latest example came last night when 60 Minutes interviewed the Chairman of the Federal Reserve, Jerome Powell.

The US national debt now stands at more than $34 trillion. It will surpass $35 trillion by the summer and likely $36 trillion by the end of the year.

It’s growing so quickly that the interviewer asked about the debt, “Thirty years from now, it is projected to be $144 trillion. . . [I]s the national debt a danger to the economy in your view? I have the sense this worries you very much.”

The answer to almost any sentient human being, of course, is “absolutely yes.” And the Fed Chairman admitted as such. Sort of. He said:

“In the long run, the US is on an unsustainable fiscal path. . . Over the long run, of course it does [worry me very much] . . . It’s time for us to get back to putting a priority on fiscal sustainability. And sooner is better than later.”

Now a term like “the long run” is a funny thing because it can mean just about anything. To some people in finance and economics, “the long run” can mean five years. To others, fifty years.

Saying “the long run” is like asking your audience to fill in the blanks with whatever timeframe they think that means.

 But this is intellectually dishonest… and it frankly makes the country worse off.

We’ve written about this extensively here at Schiff Sovereign: the US government’s own internal projections (which come from the White House and the Congressional Budget Office) forecast that the debt will increase by $20 trillion over the next decade.

And this is a true crisis in the making.

Consider that, by 2033, the government will have to spend 100% of federal tax revenue simply to pay for THREE things: Social Security, Medicare, and Interest on the Debt.

EVERYTHING else in government, including military spending, veterans’ benefits, and the electricity bill at the White House, will have to be funded with more debt… which only makes the problem worse.

This will be a fiscal black hole from which there is no escape. And it’s less than 10 years away.

We’re not being sensationalist or dramatic here; this is a simple arithmetic problem based on the government’s own projections. And frankly those projections are optimistic.

Their estimate for $20 trillion in new debt, for example, does not include any money for Social Security, which will require a multi-trillion-dollar bailout over the next decade. Their estimate also assumes there will be no war, no new pandemic, no national emergency, and no new idiotic, expensive legislation.

So, a more conservative estimate of the national debt is probably closer to $60 trillion or more by 2033. This means that interest payments on the national debt will take a greater and greater share of tax revenue.

The Congressional Budget Office forecasts admit this, stating that as the national debt increases, “the cost of financing the nation’s debt grows, [and] net outlays for interest increase substantially. . .”

The US government’s interest expense “rose by 35% last year, [and] are projected to increase by 35% again this year.”

No institution, not even the US government, can possibly expect to stay solvent when their interest expense grows by large double digits each year.

Now, it’s not like this is top secret information. The Congressional Budget Office posts this forecast on its website for the entire world to see. Surely the Fed has access to the Internet. Surely, they’ve seen these projections.

Yet the way 60 Minutes set up its question– by referencing the debt 30 years into the future– to how the Fed Chairman kept saying “the long run” and “sooner is better than later”, all gives people a false sense of security that the US has more time to resolve this crisis than it actually does.

This is an arithmetic problem, plain and simple. And the realistic window of opportunity to solve it is 5-7 years, at most.

The other disingenuous part about the Chairman’s comments was that, in addition to using terms like “the long run”, he encouraged “fiscal sustainability” without mentioning any specifics.

To some, “fiscal sustainability” might mean slashing welfare programs. To others, raising taxes on corporations and wealthy people.

So once again the Fed Chairman tacitly asked the audience to fill in the blanks and imagine for themselves what “fiscal sustainability” means.

This is also intellectually dishonest.

Social Security is, by far, the #1 most expensive line item in the federal budget. It dwarfs even Defense spending.

So, there is no “fiscal sustainability” at this point without making major cuts to Social Security. Nothing else– no other budget cuts– will matter unless there is a complete overhaul of retirement benefits and qualifications. It’s the only real lever the government has to balance the budget.

Ultimately this means defaulting on decades of promises that the US government has made to people currently in the work force.

Naturally no one wants to talk about this… including the Fed Chairman. So again, it’s left to the audience’s imagination to fill in the blanks.

Personally, I’m not holding my breath a solid majority in Congress will have the willingness and courage to cut entitlements. And frankly I presume the Inspired Idiots in charge will keep making things worse.

But the good news is that there is still a reasonable window for any independent-minded individual to take completely rational steps to reduce the consequences of what lies ahead.

And we’ll continue to talk about more of these solutions in the future.

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Last week when I wrote about the dumbest guy of the week, I should have known it wouldn’t be a one-time thing.

A week ago I wrote about Congressman Jamaal Bowman, who was demanding that the US government make “at a minimum” $14 trillion worth of reparations payments.

(Remember, this is the same guy who ‘accidentally’ pulled the fire alarm in the Capitol on September 30, 2023, which just happened to disrupt a critical Congressional vote that he was hoping to stall.)

As a member of Congress, Bowman surely knows that the national debt is already $34 trillion. He surely knows that last year’s deficit was nearly $2 trillion. He surely knows that Congress itself projects another $20 trillion in new debt over the next decade.

Yet in addition to all that debt, Mr. Bowman wants to dole out an additional $14 trillion in reparation payments.

And his plan for how to come up with the money? “We [spend] it into existence,” he says. In other words, more debt.

One can only marvel at this intellectual giant’s grasp of economics.

But the competition for the biggest Inspired Idiot is fierce. And this week the Senator from Massachusetts, Elizabeth Warren, carries the torch.

First some quick background.

In August 2022, Amazon announced plans to acquire iRobot, which makes the robotic ‘Roomba’ vacuum cleaner, for $1.7 billion.

And boy did that infuriate Elizabeth Warren.

She quickly wrote a letter to the Federal Trade Commission (FTC) urging it to “use its authority to oppose the Amazon–iRobot transaction.”

Why? Well according to Warren’s inspired idiot logic, she claimed that the deal “could harm consumers”, as if we helpless little people will somehow suffer grievous bodily injury if Amazon buys a vacuum cleaner company.

Now, Amazon was probably planning to use the iRobot device to harvest even more consumer data, just like Amazon does with just about all of its other products and services.

Call me old-fashioned, but I believe consumers are capable of making that decision themselves, i.e. whether they are willing to trade privacy for convenience. I’m not. Others are.

But Ms. Warren is making the decision for everyone. She clearly knows what’s in your family’s best interest more than you do. And thank goodness we have people like Elizabeth Warren making these decisions on our behalf.

So, this week, after nearly 18 months of pressure from Senator Warren— plus more regulatory scrutiny from inspired idiots in the European Union— Amazon finally walked away from the deal… citing insurmountable regulatory hurdles.

The immediate response was that iRobot, devoid of additional funding that Amazon would have provided, immediately laid off one-third of its work force.

You did it Lizzy! You saved the day!

Regulatory red tape almost always hurts the economy. But in this case, there’s a clear line of destruction, from a single Inspired Idiot to hundreds of people who lost their jobs as a direct result of her fanaticism.

I remember a similar case in 2019 when New York Rep. AOC opposed a planned Amazon headquarters that would have brought tens of thousands of jobs, and hundreds of millions in tax revenue to New York.

Her major beef was that, in exchange for billions in investment, Amazon would have received a partial tax break. AOC wasn’t having any of that.

So she chased Amazon out of town… then actually celebrated the lost investment, lost job growth, and lost tax revenue as a victory for the people!

It’s no surprise that, over the past five years, other large companies and wealthy individuals have fled the state to lower tax, more business-friendly jurisdictions (like Florida). And New York now has a massive financial deficit.

Bizarrely, voters keep re-electing these Inspired Idiots.

AOC hasn’t lost her job. Elizabeth Warren hasn’t lost her job. But iRobot staff have lost theirs.

Now, Sen. Warren has been a very special talent this week… because in addition to slaying the jobs of hundreds of workers at iRobot, she also sent another nasty letter to the CEO of Walgreens.

Walgreens recently announced that they were closing several locations in some of the crappiest neighborhoods in Massachusetts, Warren’s home state.

Naturally Warren whined that “these closures are occurring within the larger legacy of historic racial and economic discrimination that has created significant pharmacy and food deserts and lack of access to transportation in these neighborhoods.”

Yes, that may be true. I imagine no impoverished neighborhood would want to lose a vital drug store.

But maybe they ought to consider the reasons why Walgreens is leaving, which are completely obvious: it’s unprofitable (and dangerous) to operate in high-crime areas where half of your merchandise is shoplifted.

Yet Inspired Idiots like Warren (and the people who run these big cities) decriminalize shoplifting. Local prosecutors won’t do anything. The police can’t do anything. Security guards in the stores can’t do anything.

Why should any rational business owner continue operating in such an environment?

One of the honorable mentions this week goes to Rep. Ayanna Pressley, another Inspired Idiot who made these comments on the Walgreens matter:

“When a Walgreens leaves a neighborhood, they disrupt an entire community, and they take with them baby formula, diapers, asthma inhalers, lifesaving medications, and of course jobs. These closures are not arbitrary, and they are not innocent. They are life threatening acts of racial and economic discrimination… Shame on you Walgreens!”

Now, the three politicians who signed this angry letter to Walgreens— Senators Warren and Markey, plus Rep. Ayanna Pressley, have a combined 76 years in government.

You’d think that with 76 years they could have done something to lift their constituents out of grinding poverty by now.

But no, the problem is clearly racist pharmacies which—gasp—make perfectly rational business decisions to close unprofitable stores.

Warren obviously has enough pull to torpedo the Amazon/iRobot deal. But apparently, she’s a helpless babe when it comes to actually cleaning up the streets and delivering economic opportunity for her constituents.

These stories are important to highlight. The country is on a clear trajectory to the mother of all financial crises over the next 5 to 10 years, and there is only a narrow window to escape that outcome.

Averting disaster should be politicians’ top priority— encouraging productivity, cutting red tape, and being friendly to both large and small businesses.

But their approach instead is to shame companies, over-regulate the economy, and destroy jobs.

These people are dangerous lunatics, and they’re making things worse— not better. This is why it’s so critical to have a rock-solid Plan B for what’s coming down the road.

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Yesterday the Treasury Department announced that they expected to increase the national debt by a whopping $760 billion this quarter alone… and another $202 billion next quarter.

In short that means almost $1 trillion added to the national debt just in the first half of this year. And, again, these are the Treasury Department’s own estimates.

Obviously, that’s a pretty horrible result; even a senior Treasury official acknowledged that they have “significantly increased” their bond sales and the national debt. Not that they’re doing anything to stop the trend.

But there’s an even greater risk that the Treasury Department faces this year that is hardly being discussed anywhere.

Over the next twelve months, more than $6 trillion in existing US government debt is set to mature… and will need to be paid back somehow.

So, to give you an example, back in 2014, the federal government issued $264 billion in 10-year Treasury notes.

Well, it’s now 2024, i.e. ten years later. Meaning that $264 billion worth of 10-year notes issued in 2014 will become due and payable this year.

In 2017, they issued $368.8 billion worth of 7-year notes. And those 7-year notes issued in 2017 are due and payable this year.

You get the idea. The point is that the total sum of Treasury Bonds, Notes, and Bills outstanding that will become due and payable this year exceeds $6 trillion.

So, in ADDITION to the $1 trillion in NEW debt that they’re forecasting just in the first six months of 2024, the Treasury Department is also going to have to pay back $6 trillion of existing debt.

Naturally the Treasury Department doesn’t have $6 trillion lying around to pay back its bondholders. So instead of paying anyone back, they just borrow new money to repay the old money.

Now, this doesn’t actually increase the national debt. If they borrow $6 trillion in new bonds, but then pay back $6 trillion in old bonds, the net change to the debt is ZERO.

So, what’s the problem?

The problem is that interest rates are MUCH higher than they were 2, 3, 5, 7, and 10 years ago when those old bonds were first issued.

In 2021, for example, the Treasury Department issued almost $1 trillion in 3-year bonds back when interest rates were nearly 0%.

But since those 3-year bonds from 2021 are due and payable this year, the Treasury Department will have to borrow new money at today’s interest rates… which are hovering around FOUR percent.

And higher interest rates mean that the government’s annual interest bill will soar.

Think about it like this– $6+ trillion of existing debt needs to be refinanced. And given how much higher interest rates are, this will likely cost the government more than $200 billion per year in additional interest payments.

PLUS, they’re expecting $1 trillion of new debt in the first six months of the year, plus probably another $1 trillion in the second half of the year.

Altogether, the government’s total interest bill could easily increase by more than $300 billion per year in 2024.

And this same trend will continue in 2025, 2026, and beyond.

Right now, gross interest on the debt is already roughly $1 trillion per year. But in three years’ time, annual interest could surpass $2 trillion annually. And in 10 years, annual interest could reach $4 to $5 trillion.

Anyone who thinks this isn’t an obvious, catastrophic problem in the making (which demands immediate attention) needs to have his/her head examined.

And yet the government is full of people who shake hands with thin air and happily ignore the present and future carnage that they’re creating.

Don’t hold your breath for the Inspired Idiots in charge to fix this; I’ve written before that there is a VERY narrow window of opportunity to solve this problem… but they’re doing absolutely nothing about it.

But that doesn’t mean that you or I have to be held hostage by their incompetence.

I’ve argued that one of the highly probable consequences of this mess will be SIGNIFICANT inflation. After all, most likely it will be the Federal Reserve that facilitates all this new debt.

This is what the Fed has done for most of the past 15 years. Just look at the huge run-up in the national debt between 2020 and 2022; over 80% of that money (~$5 trillion) came from the Federal Reserve.

And if creating $5 trillion in new money resulted in 9% inflation, how much inflation will we see if the Fed creates $15 to $20 trillion of new money? No one knows for sure, but it probably won’t be 2%.

But if we can make such a strong argument for inflation… and anticipate a steep rise in prices over the next 5-10 years, there’s no reason why we can’t take steps NOW to reduce the impact of future inflation, or even benefit from it.

This doesn’t even necessarily require a lot of capital. For example, one could invest in long-term options on certain assets (including gold or silver futures), so that a small amount of money could pay out very large returns down the road.

The key point is that there are plenty of sensible ways to plan for future inflation, which we will continue to discuss in future letters.

But this isn’t even Plan B thinking anymore. Anticipating inflation should be Plan A.

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