Category: simonblack

It’s barely been a year since the 2023 bank crisis in which several large banks, including Silicon Valley Bank and Signature Bank, failed.

At the time, I wrote that the bank failures weren’t over, and that there would be more.

But it’s been quiet for most of the last year; the banking system has been pretty calm thanks in large part to an emergency program that the Federal Reserve created to bail out other troubled banks.

They called the Bank Term Funding Program (BTFP), and it essentially expired a few weeks ago. In other words, no more emergency lending to troubled banks.

Barely a month later, we have already witnessed our first casualty: Pennsylvania-based Republic First (not to be confused with First Republic, which failed last year) was shut down by regulators on Friday afternoon.

Republic First had the same issues as the others that failed last year — too many ‘unrealized bond losses’ on their balance sheet.

Just like Silicon Valley Bank, Signature Bank, etc. last year, Republic First had used their customers’ deposits to buy US Treasury bonds in 2021 and 2022, back when bond prices were at all-time highs.

By early 2023, the situation had reversed. Bond prices had plummeted; even supposedly ‘safe’ and ‘stable’ US Treasury bonds had fallen substantially in price, and banks were sitting on huge losses.

Remember that bonds prices fall when interest rates rise. So when the Fed jacked up interest rates from 0% to 5% in an attempt to control inflation, they were simultaneously creating huge losses in the bond market… which also meant huge losses for banks.

Silicon Valley Bank was just the tip of the iceberg. Plenty of other banks (including Bank of America) had racked up enormous bond losses. In fact the total unrealized losses in the banking sector last year amounted to a whopping $620 billion.

The Fed knew they had an enormous problem on their hands. So they created this Bank Term Funding Program, which was basically a giant game of ‘make believe’.

Through the BTFP, banks were allowed to borrow money from the Fed using their cratering bond portfolios as collateral. But instead of valuing the bonds at the actual market price, everyone simply pretended that the bonds were still worth 100 cents on the dollar.

In other words, the banks just made up prices for their assets, and the Fed allowed them to do it.

(It’s ironic that a certain former President is on trial in New York City for inflating the value of his assets, even though banks were inflating the value of their bonds through the BTFP.)

The Fed managed to prevent any further embarrassing bank failures last year by sprinkling this magical fairy dust across the banking system.

But now that the BTFP has expired, it has become obvious that problems in the banking system haven’t gone away. Republic First’s failure a few days ago is just one symptom.

Think about it: Bond prices are still down (because interest rates remain much higher than they were in 2021-2022). Banks are still sitting on massive unrealized losses.

And now that the Fed has stopped playing ‘make believe’, the bank failures have started up again.

It’s not to say that ALL banks are in terrible shape; some banks wisely used the last twelve months to get their financial houses in order.

Unfortunately most didn’t… which is why there’s still more more than HALF A TRILLION dollars in unrealized losses in the US banking system. This means that Republic First probably won’t be the only failure, unless the Fed steps in with its magical fairy dust again.

Also bear in mind that losses from their US Treasury portfolios aren’t the only problem in the banking system; for example, plenty of banks are sitting on huge potential losses from loans they made on office properties.

I don’t think the scope of this problem is anywhere near the 2008 financial crisis, which brought down some of the world’s largest banks. Not even close.

But the reality is that there are still a lot of banks with a lot of unrealized losses. And the biggest one of all happens to be the Federal Reserve.

According to its own financial statements, just released last month, the Fed’s total unrealized losses are almost $1 TRILLION — $948.4 BILLION to be more precise. And the vast majority of those unrealized losses come from US Treasuries.

So just like Silicon Valley Bank, Signature, First Republic, and now Republic First, the Federal Reserve has rendered itself completely insolvent.

In fact, total Federal Reserve capital is just $51 billion… versus $948 billion in losses. This means the Fed is insolvent 19 times over.

Think about that: the largest, most important central bank in the world… the steward of the global reserve currency… is completely insolvent on a mark-to-market basis.

You’d think that would be front page news. But no one ever talks about it. No one even wants to talk about it.

Of course plenty of people will insist that it doesn’t matter, just like they insist that the national debt doesn’t matter.

But this is yet more absurd fantasy; just look at the facts:

• The FDIC’s published reports show more than $500 billion in unrealized losses in the US banking sector.
• The Federal Reserve, which in theory would bail out the banking sector, is itself insolvent by $900 billion.
• The US government, which would bail out the Fed, is insolvent by more than $50 trillion.

It’s just debt on top of debt on top of debt. Losses on top of losses on top of losses.

Just like the BTFP, everyone wants to play a giant game of ‘make believe’ and pretend that the Fed’s solvency is not a problem, that the US government’s enormous debt is not a problem.

On the contrary, they’re huge challenges. And the ultimate consequence is going to be the loss of the US dollar as the global reserve currency.

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The barbarian chief of the Federal Trade Commission (FTC), Lina “Genghis” Khan, has some of the most bewildering priorities I’ve ever seen.

The FTC is the federal government’s most prominent business regulator; yet she doesn’t seem the slightest bit concerned that US economic growth is coming to a screeching halt. Or that stagflation is once lurking. Or that the American manufacturing sector continues to be in a major recession.

She’s not even focused on trying to fix her own agency.

Remember, a recent Congressional investigation found the FTC to be a “toxic work environment” and “beset by dysfunction and chaos stemming from poor leadership and ideological bullying of its Chair [Khan]”. Sounds like a great place to work!

But Genghis Khan isn’t concerned about any of that.

Instead, she has fixed her warmongering gaze on… LUXURY HANDBAGS. And she is prepared to wield all the taxpayer resources at her disposal to ensure that no leather purse is left behind.

Squarely in Genghis Khan’s crosshairs are two American luxury goods producers– Coach and Michael Kors– who are currently attempting to merge; the deal was overwhelmingly approved by shareholders.

And obviously the merger makes sense to investors; giant legacy brands like Coach and Michael Kors suffer from an outdated business model that makes it increasingly difficult to compete with smaller, leaner businesses that sell almost exclusively online.

Coach and Michael Kohrs waste mountains of cash each year on expensive rents at shopping malls that simply no longer attract the foot traffic they once did.

These are massive costs for legacy brands that younger fashion startups don’t incur.

Similarly, because they are enormous companies, Coach and Michael Kors have to waste even more money on corporate administrative costs (like audit fees, company filings, huge bureaucracies, idiotic DEI initiatives) which, again, younger fashion startups don’t have.

At a certain point it makes sense for companies to merge, consolidate their assets, streamline their operations, and boost competitiveness. No wonder shareholders approved the deal.

But Genghis Khan cannot tolerate rational investors in a capitalist society making sensible financial decisions about what to do with their own privately owned shares.

So now she’s trying to block the deal, claiming that the merger will “eliminate fierce head-to-head competition.”

Come again? Has Genghis Khan serious never heard of Louis Vuitton, Gucci, Hermes, Chanel, Prada, Burberry, Valentino, Giorgio Armani, Dolce & Gabbana, Bulgari, Ferragamo, Tom Ford, Tory Burch, Oscar de la Renta, Diesel, etc.

There’s PLENTY of competition in the luxury handbag industry.

But let’s suspend all reality for a moment and pretend that we live in an alternate universe where Genghis Khan is actually correct… and that the Michael Kors / Coach merger would kill competition.

The obvious question, of course, is… who cares?!?! Does Genghis Khan also worry if there will be less competition among private jet manufacturers? Or luxury superyachts?

And that’s the point: this deal shouldn’t even be on the radar of America’s most prominent business regulator.

But wait! There’s more!

In addition to her war on luxury handbag producers, Genghis Khan also unveiled a gargantuan, 570-page regulation last week that, among other things, bans most noncompete agreements.

This is yet another core tenet of capitalism: two willing counterparties voluntarily entering into an agreement with one another.

Noncompete agreements are completely normal in business.

Companies often have to invest a great deal of time and money to train an employee, whether to operate heavy equipment, work on a complicated project, etc.

The company is willing to make the investment in the employee. They just want to ensure they’ll receive a return of that investment, and that the employee can’t just quit and sell those skills somewhere else.

It’s not unreasonable to want to protect your investment.

It’s also a completely voluntary arrangement. If the employee doesn’t want to sign, they don’t have to take the job. And with such a strong labor market, there are plenty of other jobs out there.

But Genghis Khan doesn’t think this voluntary arrangement is OK. Genghis Khan believes that all noncompetes are the result of evil capitalist exploitation.

Just imagine if the US military was subject to this same regulation.

Think about it: when people join the Navy to become a pilot, the military spends a ton of taxpayer money to train them how to land an $80 million fighter jet on a $13 billion aircraft carrier. In exchange, the new recruit agrees to spend the next 8 years flying for the Navy.

This is basically the military equivalent of a noncompete agreement. The taxpayers agree to pay for your training. The pilot agrees to serve for eight years. It’s a great deal for everyone.

But according to Genghis Khan’s logic, Navy pilots should be able to quit as soon as they graduate from flight school and go work for Delta Airlines.

Banning noncompetes is bad for capitalism and bad for the US economy. It means that businesses will be less likely to hire and invest in employee training. It means fewer jobs. It means lower productivity. It means being less competitive in the global economy.

Naturally Genghis Khan understands none of these consequences. And this is one of the key characteristics of Inspired Idiots: they think they’re doing amazing work, and they don’t realize they’re destroying the very economic system which made the United States the most prosperous nation in the history of the world.

They think they know better than everyone… and that they’re more capable of making decisions than you are.

She can’t allow company shareholders to make business decisions. She can’t allow workers to make voluntary employment decisions.

The rest of us are all apparently too stupid and feeble to make our own decisions. She and she alone must decide what’s right for everyone.

And that paternalistic, destructive, nanny state narcissism is perhaps the worst hallmark of Inspired Idiots.

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According to this morning’s dismal publication from the US Bureau of Economic Analysis, US GDP growth crashed to just 1.6%, while inflation keeps rising at a 3.4% rate.

And ‘core’ inflation, which excludes food and energy, was up even higher at 3.7%!

All of these numbers are much worse than expected… and frankly Americans should be outraged.

Think about it: the United States is home to the world’s largest and most successful companies, many of which are on the bleeding edge of technology and productivity. America’s labor market is filled with talented workers. The country is teeming with abundant natural resources. Capital markets are the deepest and most attractive in the world.

And yet despite so much potential, this economy could only eke out a miserable 1.6% growth… with inflation continuing to persist.

This is not an accident.

It is a result of blatant mismanagement, naivety, and even incompetence, at the White House, Congress, and the Federal Reserve.

It also proves how they STILL don’t understand the basics of inflation.

Just think back to the pandemic. We all remember how they were paying people to stay home and not work. Gee what a surprise: with fewer people working and producing, ‘supply’, i.e. overall availability of goods and services, fell.

Meanwhile they shoveled money into the economy at an unprecedented rate with Paycheck Protection Program “loans”, stimulus checks, and bailouts galore.

And with absolutely nothing to do but sit at home and spend money, demand went through the roof.

The end result was not only the worst inflation in decades, but full-blown shortages ranging from microchips to baby formula.

We’re obviously long out of the pandemic. However, the fundamental supply and demand conditions have hardly changed.

Relative to supply, this White House never misses an opportunity to frustrate business in every way possible.

The FTC goes out of its way to block every value-creating, efficiency-inducing business mergers because they think all mergers are bad for unions (which is absurd). These mergers could ultimately save consumers money and provide more value in the economy, but the FTC tries to kill every deal they can.

Despite rising energy prices, the Biden White House prevents energy producers from drilling for more oil. They refuse to lease federal lands to energy companies, even though it’s required by law.

Cheaper energy makes the economy more productive and reduces inflation. But the White House goes in the opposite direction and drives prices higher.

Now Biden wants to raise the capital gains tax to nearly 45%— the highest level in history.

Higher taxes are clearly bad for productivity because they create penalties and disincentives to invest in new businesses— which create new products, new supply, and new jobs.

The Biden people also have a fanaticism about the environment, and nearly everything they do to address climate change further disrupts business productivity.

Their Byzantine rules create additional business costs, reduce productivity, and at the end of the day, have very little positive benefit for the environment. The cost/benefit is totally out of whack.

Similarly, the demand side is little different than what it was during the pandemic.

Interest rates are much higher, and though consumer and business demand has cooled, government demand hasn’t cooled at all. It keeps going up.

The budget deficit was nearly $2 trillion last year, which was all paid for by borrowing against future prosperity. And if they keep doing that, there’s not going to be any future prosperity left to borrow against.

All that excess deficit money is dumped into the economy, and it has a similar effect to when the Fed prints money… except that it’s worse in many respects, because government spending is allocated by politicians who have a unblemished track record of waste.

So even though they spent trillions in the economy, the economy is not getting trillions in benefit because so much of it is wasted.

You see the trend— reduced supply, increased demand, higher inflation, slower growth.

But even after seeing the same story repeat for years, they still don’t get it.

The “experts” are still talking about WHEN the Fed is going to cut rates. And even after releasing these horrible numbers today, people still think that the bad news is only going to delay the Fed cutting rates.

Hardly anybody is saying that the Fed shouldn’t cut at all, and almost no one is saying they should RAISE rates.

Inflation is never going away unless all three pieces are working in sync: the government has to stop the deficits. The White House has to stop its jihad against capitalism. And the Fed has to get real about interest rates.

But we don’t see any of these three things happening. Not one. So, most likely we’ll continue to see more of the same story.

In fact, we can’t even call this story inflation anymore. This is already becoming stagflation.

I’ve been very clear that gold is a great asset to own during inflation… and stagflation. It wasn’t long ago that some idiot Wall Street firm downgraded gold mining giant Newmont because they “didn’t see any upside in gold”.

(Boy were they wrong. Newmont stock has soared since then.)

It goes to show you how people still believe in these fairy tales— that inflation is going to end, that the government can keep deficit spending indefinitely without consequences, and that the dollar is going to be just fine.

These are utter fantasies.

The balance sheets of BOTH the US government AND the Federal Reserve are both catastrophes already, and that spells serious trouble for the dollar, and for inflation.

Gold is a fantastic antidote to these troubles. And it’s extraordinary how few people understand that.

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In 1972, while excavating to build a factory on the Black Sea coast of Bulgaria, a backhoe operator noticed gold objects glimmering in the bucket of his machine.

The construction worker had accidentally discovered the Varna Necropolis.

Dating back to around 4500 BC, the jewelry found in this ancient burial site is the earliest evidence of the use of gold by humans, and archeologists believe that they were considered a status symbol in ancient burial rituals.

Thousands of years ago, gold was likely collected from the earth’s surface in the form of nuggets or river dust.

It wasn’t until about 3500 BC, on a hilltop located in the modern-day country of Georgia, that a group of people from the prehistoric Kura-Araxes dug the oldest known gold mine.

Known as Sakdrisi-Kachagiani, the gold mine predates Ancient Egypt and even Mesopotamia.

By around 2000 BC, commercial transactions involving gold were being recorded on cuneiform tablets in modern-day Turkey. Materials like tin and textiles were traded for a particular weight of gold, because the first known gold coins weren’t minted until around the 6th Century BC.

King Croesus of Lydia in modern-day Turkey, used these coins to standardize the weight and purity of gold.

After that, gold coins were used directly in commerce for thousands of years, until the United Kingdom formally adopted the gold standard in the early 1800s. This was the first monetary system where a country’s paper money had a value directly linked to gold.

And even today, over 50 years since the US abandoned its own gold standard, central banks around the world still hold vast quantities of gold as a reserve to store value.

Individuals and large financial institutions do the same. And gold jewelry is still extremely valuable.

That’s quite a track record. For over 6,000 years, humans have valued gold.

Fifteen years ago, Bitcoin was created. And today there are countless millions of people who believe crypto has value too.

Now, gold and crypto are completely different and seldom belong in the same sentence. But for some reason there are often heated debates between proponents of each who argue bitterly over whether Gold or crypto is better.

No other asset classes attract such conflict or controversy. You don’t see passionate oil investors engaging in riotous debates with natural gas speculators. There is no heated argument over wheat vs. soybeans.

But gold and crypto are for sometimes positioned as diametrically opposed, and this is just silly. Each asset has its function.

Gold has an enormous amount of value— and I have actually argued that it is still undervalued, even at its all-time high.

I’ve written extensively about the US government’s financial woes; the national debt is closing in on $35 trillion, and that figure is set to grow by $20+ trillion over the next decade according to the government’s own financial forecasts.

In addition to the new debt, the amount of debt the US government has to refinance over the next 5-7 years is staggering— literally tens of trillions of dollars. And all of it will be refinanced at a higher interest rate.

This means that interest payments on the national debt will keep growing like a malignant tumor.

In fact this year the amount of interest paid on the national debt will exceed defense spending for the first time in US history. And it will only keep rising.

Gold will most likely do very well in that scenario. But more importantly, foreign governments will likely move away from the US dollar as the global reserve currency over the next 5-10 years… and gold is the most likely asset to replace the dollar.

Central banks are already buying more gold as a reserve. And when the dollar loses its dominant global reserve status, countries are likely to turn to gold as a stable alternative that they can trust… because they already own it.

Simultaneously, crypto also has a lot of benefits. If you hold 100% of your savings in the financial system— whether at a bank, brokerage, etc., you might be surprised to find how easily it is to lose access to your funds.

Government agencies can seize your account (without due process) even by mistake. Banks can fail. They can freeze your account and force you to prove that you’re not doing anything wrong.

Plus even the most mundane bank transfers these days are heavily scrutinized. I had an exasperating conversation with a bank not long ago when I tried to send money to my sister… and they required all sorts of paperwork and justification to send my own money to my family.

Crypto is a great way to bypass that mess… to simply send money from point A to point B directly, without any middleman whatsoever.

Crypto exists digitally, so it can be moved across borders easily and at no cost. And if you know what you’re doing, you can hold it yourself, without any third party or even special security equipment… and this is an incredibly unique feature.

The idea behind a Plan B is to figure out what you want to accomplish and figure out which tools are available to help you achieve your goals.

Well, it’s a pretty smart goal to want to have protection against the declining currency of the world’s most heavily indebted nation. It’s also a reasonable goal to want to some assets that are completely beyond the financial system.

Crypto and gold are two completely separate tools for completely separate purposes. There’s no sense in debating crypto vs. gold. To me the answer is both.

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Veronica Perez was skeptical when city workers found her under the Los Angeles highway overpass she called home.

They presented her with an opportunity to move into a private room—a converted hotel room, part of a state initiative where some units were renovated at costs approaching $400,000 each.

Before long, Veronica found herself receiving three meals a day delivered straight to her door and participating in weekly painting classes. Additionally, she began receiving free medical care.

This was one of several California state programs meant to address homelessness. Others spent up to $4,000 per person a month putting the homeless up in motels and hotels, including some name-brand hotels like the Radisson.

California’s extreme and highly ineffective spending on homelessness has become the stuff of legend. But now the numbers have become clearer.

Last week, the state auditor released a scathing report finding that there were no systems set up to monitor the money, let alone the outcomes. In short, there is no accountability in place to determine whether these programs are worth the cost. (They’re not.)

But California’s state government continues shoveling money into a bottomless pit of incompetence.

In the five years from 2018 through 2022, California spent a total of $24 billion to address homelessness.

At the start of this period, around 140,000 California residents were homeless.

So, the state spent around $34,285 per homeless person, per year.

That amount is actually pretty close to California’s per-capita income of $45,491. So, it should have been enough to get every single homeless person off the streets.

Instead, by 2023, the number of homeless Californians had climbed to over 180,000.

And just 15,000 more people were living in California’s homeless shelters in 2023 compared to 2018. So, if you decide to call that success, it only cost taxpayers $1.6 million per homeless person taken off the streets— what a bargain!

But this wasn’t a one-off. This is consistently how California in particular, and governments in general, operate.

In 2008, California voters approved a $10 billion project to build a 500-mile high-speed rail that would connect Los Angeles to San Francisco by 2020.

Guess what? It didn’t happen.

It’s now four years after the original 2020 deadline. The government now believes it can complete a 171-mile rail (as opposed to 500 miles) between the cities of Merced and Bakersfield (instead of LA and San Francisco).

They also think they can complete this different project by… 2033 (instead of 2020). And at a cost of $35 billion (instead of $10 billion).

You might also like to know that ALL federal taxpayers from the other 49 states have chipped in, thanks to various COVID bailouts, infrastructure bills, etc. Total federal money allocated towards the failed rail project so far is $6.6 billion, and that’s just getting started.

Just like the failed homeless programs, the government has taken taxpayer money and thrown it down a bottomless pit of incompetence.

This is one of the reasons why tax planning is such an important part of a Plan B. Well, tax planning should frankly be Plan A.

The reality is that just about everyone has completely legitimate ways to legally reduce the amount that you owe.

I’m not talking about any obscure loophole or exotic tax structure. Sometimes it’s as simple as maximizing deductions (like contributions to retirement accounts, health savings accounts, etc.)

And for people who are more flexible with their lives and decisions, moving to a lower tax state can result in huge savings.

Moving to Puerto Rico can cap qualifying business income at just 4% tax, and investment income at 0%. Or moving abroad entitles you to claim the Foreign Earned Income Exclusion (which is $126,500 for single taxpayers, or $253,000 per couple).

Bottom line, there are always legitimate ways to reduce what you owe while still being 100% compliant with the tax code. And with so many Inspired Idiots in charge who keep throwing your money away, it really makes sense to consider your options.

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Billionaire Peter Thiel has one. Former Google CEO Eric Schmidt has one. Actress Kirsten Dunst has one. Singer Ricky Martin has one.

Frankly the list of American celebrities, billionaires, and famous business moguls who have second passports is incredibly lengthy… and those are just the ones that we know about.

It’s not panic, and it’s not paranoia. Almost all of these people live and work in the United States, and they recognize that the US– despite overwhelming and incredibly frustrating problems, is still a good place to be.

But they also understand the worrying trends and enormous challenges ahead… and that having a second passport is a great tool to diversify those risks.

The concept is simple; when everything in your life– your nationality, your business, your residence, your savings, your investments, your retirement, etc. is all tied to the same country, then it means you’re putting all of your proverbial eggs in one basket.

If that single country has major problems, whether social, political, or economic, then everything you’ve worked for is at risk.

Diversification is key in controlling that risk.

You can diversify your finances quite easily by investing in gold, foreign currencies, international stocks, or even crypto. And you can diversify personal risk for yourself and your family by obtaining legal residency in a foreign country– which gives you the right to live, work, invest, and retire abroad in a place where you really enjoy spending time.

Becoming a dual citizen of another country takes that personal diversification to an even higher level… because it comes with a second passport, i.e. a valuable document that can be used for travel and business.

But the biggest misconception about second passports is that they’re only for the rich and famous. And that’s just completely wrong.

In fact, two weeks ago, the President of El Salvador announced that his country will be giving away 5,000 free passports “to highly skilled scientists, engineers, doctors, artists, and philosophers from abroad.”

He said that there would be no taxes or tariffs related to moving or importing any belongings, including intellectual property.

And he indicated that they intentionally chose a small number: 5,000 new citizens would represent “less than 0.1% of our population, so granting them full citizen status, including voting rights, poses no issue.”

“Despite the small number,” he added, “their contributions will have a huge impact on our society and the future of our country.”

He’s right. El Salvador will likely receive a ton of benefit from the 5,000 skilled immigrants they welcome, and very little downside.

(This is the opposite of US immigration policy, which makes it extremely difficult for talented, skilled people to obtain legal residency… yet with open arms they welcome millions of illegal migrants who cross the southern border without so much as a background check.)

The details of El Salvador’s skilled passport program haven’t been released yet. But since the whole point is to improve the country’s economy and quality of life, it’s likely to require the applicant to relocate to El Salvador to work in the country.

Most likely the program in El Salvador won’t entice too many people from North America or Europe. But I imagine a vast number of engineers from India, doctors from Africa, etc. would be willing to move.

After all, an El Salvadoran passport is a much, much better travel document than a passport from, say, India, Bangladesh, or Ghana, because it includes visa free travel to Europe, most of Latin America, and much of Asia.

Fortunately, El Salvador isn’t the only chance to get a practically free passport.

The first thing anyone pursuing second citizenship should check is if they are part of the “lucky bloodline club”. Several European countries allow people to claim citizenship through ancestry.

Italy, Ireland, Greece, Poland, and others offer citizenship to those who can trace their descent through official documentation.

Each country varies on how many generations they allow you to go back. But if you qualify, the total cost will be minor– procuring documents, getting translations, and government application fees.

Another fairly inexpensive way to acquire a second passport is to naturalize in a country by spending a certain amount of time living there.

For example, anyone who is interested in moving to Argentina can qualify to apply for naturalization and citizenship after just two years of living there as a legal resident. It takes five years in Portugal, and ten years in Spain, Italy, and Greece.

Also, certain foreign countries, such as Mexico and Brazil, grant citizenship to any children born on their soil. They also grant permanent residency to the parents, with an expedited path to citizenship.

This is a great gift to give a child, to be born with more access to the world that they can pass down to future generations. It’s one reason my wife and I chose to have both of our children in Mexico.

When it comes to El Salvador, we’ll withhold final judgment on the program until the details come out.

But if you want a second passport, there are plenty of paths that will get you there.

And again, it’s an insurance policy that makes a whole lot of sense in such an uncertain world.

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It’s barely six months into the US government’s ‘fiscal year’ (which started on October 1, 2023) and the federal budget deficit is already $1.1 trillion.

This number is utterly astonishing.

Of course, anyone paying attention to the rapidly dwindling US financial condition knows that the national debt is now hovering around $35 trillion.

That’s up $2 trillion in the last year alone, and up nearly $20 trillion over the last decade.

More importantly, the Congressional Budget Office has projected that the US national debt will increase by another $20 trillion over the next decade.

Those numbers are obviously bad. Horrendous, really.

But what’s even worse is how much NEW debt the government actually needs to sell each year just to repay its OLD debt.

Remember, whenever the government borrows money, they issue bonds in various denominations; these bonds can be as short as 28 days, all the way up to 30 years.

Whenever these bonds mature, the Treasury Department is obviously supposed to pay them back in full. Of course the federal government doesn’t actually have money to repay its debts. So instead they issue new debt to pay back the old debt.

And the amount of money they have to raise just to repay old debts is staggering.

Last year alone the Treasury Department had to raise nearly $20 trillion to repay maturing bonds. Plus they borrowed an additional $2.4 trillion in brand new debt on top of the $20 trillion.

Unbelievable.

And so far in just in the first three months of 2024, the Treasury Department has issued a record $7.2 trillion in government bonds– shattering the previous record for quarterly debt issuance that was set in 2020 during the pandemic.

Out of last quarter’s $7.2 trillion debt issuance, roughly $600 billion of that was brand new debt… meaning that a whopping $6.6 trillion was borrowed to refinance existing debt.

To put that number in context, the total combined value of all bank deposits in the United States is $17.5 trillion. So merely refinancing the federal debt that matured last quarter alone required equivalent of 37% of all US bank deposits.

Now, in theory, refinancing US government bonds shouldn’t be such a big deal. After all, most bondholders typically just roll over their maturing bonds into new bonds. And the majority of the maturing bonds are short-term anyhow.

So it’s quite common that some money market fund– which owns primarily 90-day Treasury Bills– will simply purchase more 90-day Treasury Bills whenever their existing ones mature.

No big deal, right?

Well, the problem is that bond investors are rightfully getting spooked by outrageous federal deficits, and they’re starting to demand a higher rate of return to compensate for the extra risk.

This is a major reason why interest rates have been rising– government bonds have lost a lot of appeal, and many investors no longer view them as the sacrosanct, risk-free investments they once were.

Two years ago, a 90-day T-bill paid about 0.5%. Today it’s over 5%. That’s a 10X increase in the government’s interest expense.

Another major trend is that bond investors have shifted towards the shorter duration maturities. So instead of buying 10-year notes and 30-year bonds, they’re buying 90-day bills that have to be refinanced every three months.

This makes sense; with so much risk and uncertainty, few rational investors want to loan money to the federal government for three decades. Short-term bonds are a lot safer.

But this trend towards short-term bonds means that the Treasury Department has to constantly be in the market refinancing record amounts of debt, just like last quarter’s $6.6 trillion.

It also means that the government’s annual interest bill will continue to skyrocket– because today’s interest rates are so much higher than they were in the past.

Back in 2019, for example, investors were buying 5-year notes with a yield of less than 2%.

Those 5-year notes from 2019 are about to mature. And for investors who are willing to roll over their funds and reinvest in, say, 90-day T-bills, the new yield is 5.25%.

In other words, the government’s interest expense will increase more than 2.5x.

Remember that this year’s interest expense on the national debt is already set to exceed the national defense budget. And if this trend continues, the government’s annual interest bill will surpass $2 trillion over the next few years.

This is why we believe the Federal Reserve will ultimately step in and ‘fix’ this problem by expanding the money supply and slashing interest rates.

The US government cannot afford to pay 5% interest on the national debt. Frankly they can’t even afford to pay 1%. The Fed understands this reality, and they know that the clock is ticking.

That’s why the Fed has been so vocal about cutting interest rates over the past few months, even though inflation has been rising.

Minutes from the Fed’s meeting last month showed that they still anticipate cutting rates 2-3 times this year.

And just yesterday the Fed Chairman said that while rates may stay at current levels “longer than expected”, he all but ruled out any further interest rate increases despite rising inflation numbers.

As a final piece of evidence to support our view, the Fed has already reduced its ‘quantitative tightening’ program… which is essentially the first step towards a new round of quantitative easing, i.e. money printing.

As my partner Peter Schiff says, the Fed has lost the inflation war. But I would say they’re actually deserting the battlefield by abandoning their responsibility to keep inflation low.

The Fed believes that the insolvency of the US government is a far worse outcome than inflation, i.e. inflation is the ‘lesser of the two evils’.

And it seems clear that they’re already positioning their monetary policy to bail out the federal government.

Bottom line: this means more inflation. But don’t panic. It’s something you can prepare for, and even benefit from. More on that soon.

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When the barbarian king Rugila died in the year 434 AD, Roman Emperor Theodosius II likely rejoiced that his mortal enemy was no more.

Rugila (and his father Uldin) had been invading and terrorizing Roman territory for decades; but the Empire was so weak at that point that Theodosius was powerless to stop them.

By the early 400s, Rome was an almost unrecognizable shell of its former greatness. Nearly two centuries civil war, plague, inflation, invasion, and economic malaise had sapped the empire of its strength and reputation… and foreign kingdoms didn’t hesitate to take advantage.

In the early 420s, Theodosius finally resorted to paying off King Rugila, essentially bribing him with an offer of 350 pounds of gold ANNUALLY.

Rugila took the money… probably bewildered at how easily he was able to bend the supposedly powerful Roman Empire to his will.

Theodosius subserviently made the payments year after year, and managed to pretend that the deal was a win for Rome.

The Emperor acted as if he was still powerful and in charge of the situation. He even tried to convince his subjects that the annual tribute was payment for some bogus service that the barbarians were supposedly providing, rather than the ransom money it really was.

And that’s why King Rugila’s death was probably such welcome news to the Emperor. Finally, the menace was gone.

But unfortunately for Theodosius, Rugila’s successor would prove to be a far greater threat.

His name was Attila, known to history of course as Attila the Hun. And he wasted no time picking up where his father and grandfather left off: capitalizing on the Roman leadership’s weakness and cowardice.

Attila’s first order of business was to renegotiate the peace deal and make even more demands of the Roman Empire. Theodosius caved almost immediately.

It became known as the Treaty of Margus; Attila walked away with DOUBLE the annual tribute (an increase from 350 to 700 pounds of gold). Plus, he forced the Emperor to eliminate trade sanctions against the Huns and open up Rome’s vast markets to Hun merchants.

Lastly, Attila negotiated a prisoner swap, receiving some very high value Hun nobles who had taken refuge in the Roman Empire. In exchange, Theodosius received a few low-level soldiers… and the Emperor had to pay an additional ransom for each one of them.

Like his father Rugila, Attila was probably astonished that the ruler of the supposedly most powerful empire in the world had no backbone, no confidence, no will to stand and fight.

So naturally Attila’s demands did not end with the Treaty of Margus. He knew an obvious advantage when he saw one, and he continued to exploit Roman weakness until the end of his life.

Despite promises of peace, for example, Attila constantly found new excuses to set aside the treaty and make incursions into Roman territory.

He crossed the Danube and laid waste to Rome’s provinces in the Balkans, forcing Theodosius to renegotiate the peace treaty once again. This time the annual tribute was tripled to 2,100 pounds of gold.

A few years later, Attila demanded to marry the sister of Valentinian, the ruler of the western portion of the Roman Empire. Valentinian refused the proposal (as well as Attila’s demand for half of the western lands), so Attila invaded Italy, plundering and pillaging along the way.

Attila finally died in 453 AD before he had the chance to completely destroy the empire. But other barbarian kings also saw the ineptitude and weakness of Roman leadership, and they followed in Attila’s footsteps.

That’s the thing about cowardice and weakness: adversaries tend to notice and take advantage. It’s no different today.

Iran, Russia, and China have all paid close attention to the weakness and cowardice of the Biden administration. They see the social and financial decay of the United States. The political instability. The woke priorities of the Defense Department. And they can barely believe their eyes.

They know that the guy with five decades of experience has no backbone… that he’s a corrupt, brainless stooge who bends to the most radical wing of his party. He stands for nothing, abandons his allies, and gives away the farm for absolutely nothing in return.

He traded away the most valuable Russian prisoner in US custody for a WNBA player. He freed up potentially tens of billions of dollars for Iran in exchange for little more than a phony promise that they won’t develop nuclear weapons. (But it seems the Ayatollah pinky swore, so it’s all good.)

He allows invasions and incursions of US territory… and not only does nothing but sues state governments to prevent them from securing the border.

He tries to prevent allies from defending themselves. He pathetically attempts to use the Strategic Petroleum Reserve to boost his sagging approval rating. And he caves anytime a belligerent nation threatens violence.

These are all signs of obvious weakness that adversaries are all too happy to exploit. Iran is just the most recent example.

After this weekend’s attack against Israel, Iran specifically warned the US against responding. Biden immediately wilted. It’s pretty clear who wears the pants in the relationship.

And just like the case of Attila, it never ends. Any treaty that is signed, any agreement that is reached, is simply a lie. They’ll never keep their word, and they’ll continue milking the obvious cowardice that is on display for the world to see.

Now, this story of weakness isn’t just about Joe Biden.  Congress is also weak and ineffective. Many courts and judges now ignore the rule of law and are simply activists in robes. The military is suffering a very public recruiting crisis, along with outdated weapons systems and critically low mission readiness.

It goes beyond government too. Big Media is a left-wing propaganda machine. Premier universities cultivate radicalism. Even Boeing can’t seem to build a quality aircraft anymore.

Optics matter, and the end result is undeniable: America appears far, far weaker from even just a few years ago. And adversaries have no intention of letting up.

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There’s no limit to how much Inspired Idiots around the world hate oil companies.

It seems like almost every day there’s a story about protestors who superglue themselves to the pavement in order to block traffic. Or deface an art museum. Or interrupt a public sporting event.

Recently they even glitter-bombed the Constitution in Washington DC… because apparently the Founding Fathers caused climate change.

Bear in mind that everything these Inspired Idiots use to ‘protest’ is derived from oil.

The adhesive they use to glue their asses to the pavement is derived from oil. The plastic bottle that the glue comes in is derived from oil. The plastic glitter they use is derived from oil. The paint they use to deface buildings and artwork is derived from oil.

They travel to their protest sites by some means of transportation that, in some way, is powered by oil. Even the food that they eat is grown from oil-based fertilizers and harvested with tractors who use oil-based fuels.

Not to mention everything they consume is transported by planes, ships, trains, and trucks, which typically run on oil-based fuels.

But in addition from their blatant ignorance, their chosen tactics are laughably hypocritical.

These idiots go into the street and stop traffic, causing hours-long delays. The result? All those cars on the road are just sitting idle and burning more fuel. It sort of defeats the purpose of making the world cleaner and greener.

And their ‘solutions’ for a greener world are even more idiotic.

They demand, for example, that there should be no more oil, including heating oil. No more natural gas. No more wood-burning stoves (because the smoke will pollute the air).

So basically everyone in northern climates should just freeze to death… or move to an equatorial climate where no heating is required. Except that you’ll have to walk with your own two feet on plant-based sandals to make sure you don’t consume any oil on your way down to the tropics.

This is the hallmark of Inspired Idiots. They have no idea just how stupid they really are. They honestly believe that the world can “just stop oil” and there won’t be catastrophic, Stone Age consequences.

But it all becomes even more remarkable when the government gets involved.

The city of Honolulu, Hawaii is currently suing Exxon Mobil, Shell, Sunoco, Chevron, and several other oil companies for causing climate change.

Now, plenty of groups have sued oil companies in the past over climate change… and generally these types of lawsuits have been thrown out by rational judges.

But the city of Honolulu is trying a new approach.

Instead of suing the companies for extracting and selling oil, they are suing for misleading the public on the dangers of their product.

And they claim the City of Honolulu has suffered direct damages, in the form of flooding, beach erosion, and damage to coral reefs.

Now, a sane judge would throw this case out. But lucky for the activists, they’re in the jurisdiction of the Hawaii courts.

Remember that, in February, the Hawaii Supreme Court ruled that “the spirit of Aloha” supersedes the US Constitution. So, it should be no surprise that the Hawaii Supreme Court has allowed this case against the oil companies to proceed.

The reality, of course, is that billions of people willingly choose each day to use oil in some capacity, including superglue and glitter.

And most rational people can probably understand that oil has literally fueled the innovation and growth that is responsible for our incredibly high standards of living.

So, suing the oil companies, and trying to “just stop oil” is biting the hand that feeds.

Sure, it would be great to reduce oil consumption… Geez if only there were another technology that was multiples more energy efficient than oil, but was simultaneously clean and green?

Oh wait, that technology already exists. It’s called nuclear.

But the green fanatics don’t like nuclear either… because they are Inspired Idiots. So their one-track minds are focused on stopping oil.

Just imagine if Honolulu’s lawsuit succeeds, and the city is awarded punitive damages; it would open up the floodgates for class action lawsuits around the world. Every city, state, and country in the world would be able to sue in the name of climate change.

No oil company would survive, and no investor or entrepreneur would touch the sector. The cost of energy would skyrocket… which would increase the cost of everything. Powering your home. Heating your home. Food. Medicine. EVERYTHING.

It also means that the US will become almost completely dependent on foreign adversaries for its energy… Because guess which country dominates the market for solar panels, batteries, and the essential minerals they require? China!

So all of these lawsuits, Electric Vehicle mandates, solar panel pushes, etc. ultimately weaken US national security.

In fact, two former chairmen of the Joint Chiefs of Staff recently commented that lawsuits like the Honolulu case absolutely threaten US national security by putting America’s energy independence at risk.

You’d think the guy with five decades of experience would understand this.

Yet even the President of the United States rarely misses an opportunity to demonize the oil companies and push the United States closer to depending on China for energy.

Mr. Biden has blasted the oil companies for producing too much and causing climate change, but then complained that they weren’t producing enough oil when gas prices soared.

The self-proclaimed capitalist has also threatened to “go after” the oil companies’ profits.

He passed punitive taxes deliberately to punish the industry. He breaks US federal law by refusing to auction off concessions of federal land. He requires outrageous climate regulations, including fanatical decrees from the SEC to disclose nebulous ‘climate liabilities’ to investors.

And naturally he supports these ridiculous charades, like Honolulu’s lawsuit against the oil companies.

It’s extraordinary how many Inspired Idiots have taken over some of the most important institutions in the country. The media. The education system. The White House. Some of the highest courts in the land.

The result of this cultural jihad is that we actually live in a world where extremely powerful people are deliberately trying to destroy their country’s most critical resource. It’s mind-blowing.

And it’s an obvious reason to have a Plan B.

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[Note from James: The first thing I did this morning when I saw the US government’s latest inflation numbers was to call my friend and partner Peter Schiff to enjoy a good rant about how the Fed has completely lost the war with inflation. Peter’s thoughts are below, and I agree entirely.]

Bill Martin had a pretty serious problem in 1969.

As the Chairman of the Federal Reserve (back when people had the audacity to say “chairman” instead of “chair”, as if we are pieces of furniture), Martin was one of the few people who could say that he had central banking in his blood.

His father, William McChesney Martin Sr., was actually one of the original architects of the Federal Reserve Act of 1913, and then later served on its Board of Governors and as President of the St. Louis Federal Reserve Bank.

Bill followed in his father’s footsteps, first cutting his teeth on Wall Street, then becoming President of the New York Stock Exchange at age 31.

Following a period of military service during World War II, Bill Martin was ultimately made Chairman of the Federal Reserve by President Truman in 1951. And to this day he is still the longest serving chairman in Fed history.

Martin’s problem started surfacing in the mid 1960s. Lyndon Johnson was President, and the United States was spending an unbelievable amount of money fighting a war in Vietnam, while simultaneously funding Johnson’s “Great Society” welfare programs.

With so much government spending (most of which was financed by debt), inflation started to rise. And by 1969, US inflation reached 6%.

People weren’t happy, politicians weren’t happy, and Martin was in trouble. So he did what Central Bankers are trained to do— he aggressively raised interest rates.

The Federal Funds rate, in fact, reached 10% by the summer of ‘69, right around the time Woodstock kicked off and Neil Armstrong walked on the moon.

High interest rates cooled the economy, and inflation soon started to fall. By 1972, inflation had come down to around 3%— and everyone was convinced that the problem was over.

But we all know the rest of the story— inflation didn’t go away; the remainder of the 1970s was the worst inflationary period in US history, and inflation didn’t come back down to the Fed’s 2% target level until 1986!

There are a lot of similarities to today.

Just like the 1960s, the US government is spending outrageous sums of money that it cannot afford, most of which is financed by more debt.

Inflation shot up to a peak of 9% during 2022— in large part due to the government’s spending binge during the pandemic. But the Fed aggressively hiked rates, and inflation fell back to around 3%.

But the government just released its latest statistics this morning showing that inflation is rising once again for the third month in a row. On an annualized basis, in fact, inflation is more than 5%.

Naturally this doesn’t come as a shock to anyone who goes grocery shopping… or shopping for just about anything else. Apparently, you lose all sense of reality when you get a PhD in economics.

For the past several months, the Fed has tried to tap-dance its way out of reality. They keep claiming that the recent spikes in inflation data have been “seasonal” aberrations.

Well, there’s no mistaking it now. Inflation is not falling to 2%. It’s not falling at all.

The Fed clearly claimed victory over inflation way too early, based on a complete fantasy that they had fixed it. And they’ve already been talking very publicly about when (and not if) they will cut rates.

They’re missing the entire point.

Americans aren’t looking for lower inflation. They don’t even want zero inflation (although that would help). People want prices to go back down to pre-pandemic levels— which is what they promised back in 2022 with all the talk of “transitory” inflation.

Well, that ship has completely sailed. But the Fed still seems to think that they’ve won the inflation war and that interest rates are going to come down soon.

Notice that no one is even talking about whether interest rates need to go up even higher.

Nor is anyone suggesting that inflation may simply be beyond the Fed’s control.

As long as the federal government continues overspending by trillions of dollars each year, there’s very little that the Fed can realistically do to tame inflation.

Sure, in theory they could keep raising rates to bring down inflation… and maybe even cause a recession. But as we’ve talked about many times before, there’s just no way they can do that: higher rates will bankrupt the federal government.

Remember that the $35 trillion worth of US government bonds have to be refinanced every six years (on average).

Back in 2021, for example, the Treasury Department issued 3-year bonds (technically they’re called notes) at close to 0%.

Now it’s 2024 and those 3-year notes need to be repaid. Well, the government never actually repays anything. They just issue new bonds to pay off the old bonds, essentially refinancing the national debt every few years.

The problem, of course, is that interest rates are much higher now. Bonds that were issued at 0% a few years ago are now costing the government 5%.

This means that the government’s annual interest bill is about to skyrocket.

Prior to the pandemic the government’s annual interest expense was about $500 billion. This year it will surpass $1 trillion. And if rates stay at these levels (or go higher) the annual interest bill will pass $2 trillion in a few years.

The Federal Reserve knows this; the risk of bankrupting the Treasury Departments with higher interest rates is a real possibility.

Higher rates also cause a lot of other problems in the US economy, including real estate, bank solvency, the stock market and more.

All of these risks exist because the Fed kept interest rates so low for so long— the better part of 15 years. They created enormous financial bubbles, and they’ve created a legacy of inflation and financial destruction.

It should be obvious by now that the Fed has lost… and that they are not in control of the situation.

Remember, just because inflation has declined from its peak, doesn’t mean that it’s going away.

Ultimately, we believe this is bullish for gold. Even though the gold price is near its all-time high, these realities will probably continue to push gold much higher in the long run.

And people are starting to figure this out.

Individuals and ETFs that have been selling gold for years are starting to reverse.

Even Costco is selling around $200 million a month in gold bars.

Remember, we’re in 1972 right now. This is likely just the beginning.

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