Via InternationalMan.com,
International Man: At $1.1 trillion, annualized interest on the US federal debt is now the second-largest budget item—and is on track to become the largest.
Meanwhile, long-term interest rates are climbing, even as the Fed lowers short-term rates.
Can the US government keep kicking the can down the road? Or will Trump have to reset the system?
Doug Casey: Starting in the 1960s, a growing number of people noticed the size of the debt and annual deficits. Even back then—when numbers were trivial compared to current levels—it was said this can only end up one of two ways: Either runaway inflation, where the dollar loses all value, or catastrophic deflation caused by massive defaults in debt.
It occurred to me, in the 1980s, that it could wind up with both happening, either in sequence or simultaneously in different sectors of the economy. While you couldn’t rule out a soft landing, the most likely eventual result would be financial and economic chaos.
Massive money printing and debt accumulation have gone on for something like 80 years, and the system has held together. Why should it end now? Maybe they can wring one more cycle out of the corrupt Keynesian system. That said, I think we have finally reached the actual crisis point. Although this certainly isn’t the first time the inevitable seemed imminent…
What’s genuinely different this time is Trump. For whatever reasons—yes, I know what the party line is—he and Elon are radically reforming the government and may yet change the downward trajectory of America. At least they’re throwing sand on the slippery slope.
I thoroughly approve of his massive firings of employees, disbanding agencies, and cutting the budget by hundreds of billions. The risk is that he might bring on a deflationary collapse. Many of the government grifters and their pals, who are getting rich through the likes of USAID, will have to radically reduce their spending. Many could wind up in bankruptcy, defaulting on their mortgages and other debt. That’s how a deflationary credit collapse could start.
Trump’s very familiar with bankruptcy proceedings. Having bankrupted numerous entities, he sees the dangers of bankruptcy. Will that scare him away from making more radical moves? I don’t think so. He sees a chance to both carve his name in stone and save what’s left of America. Plus, he sees what he’s doing as a path to personally bankrupt some of his enemies and hurt all of them. He has plenty of reason to be righteously vindictive.
He’s going for a full reset of the system. It’s risky because he has no philosophical core, just gut feelings. And no grasp of economics, just business experience (which is different). But something had to be done to keep the US from turning into a socialist cesspool like all the countries in Europe.
Along with massive deregulation, I expect he’ll do something with the monetary system.
The cuts that DOGE is making are spectacular and wonderful. If they can eliminate the deficit, then the government won’t have to print money. But not printing increasing amounts of dollars could easily set off a credit collapse, the deflation alternative.
On the other hand, Trump seems to have lots of spending schemes up his sleeve, which will need massive amounts of money. Like taking over Gaza, buying Greenland, and buying back the Panama Canal, among others. We’re talking many hundreds of billions. The unwinding of old distortions, only to replace them with new distortions and different government interventions.
The big monetary question is, when the system resets, what will gold have to do with it?
My guess is that gold is going to play a major role in the reset.
International Man: What past monetary resets have occurred in US history, and how do they compare to today’s situation?
What does it mean for the US dollar?
Doug Casey: The biggest reset in history occurred in 1933 when Roosevelt confiscated gold from US citizens at $20.50 per ounce before revaluing it to $35. That was a massive criminal theft, and it was done by executive order, not even an act of Congress.
The next reset was in 1964, when Johnson took all the silver out of US dimes, quarters, and half dollars, and fraudulently replacing it with pot metal that looked like silver to the casual observer.
The next big reset was in 1971 when Nixon ceased redeeming gold to foreign governments, much as Roosevelt had denied redeemability to American citizens.
Smaller monetary frauds were committed over the years, such as in 1982, when copper was taken out of the penny. It was replaced with zinc with a copper coating to make it look the same. But even using zinc, which trades for about $1.50 a pound, it costs about 3.7 cents to mint a penny.
Copper trades for about $4.50, which means old copper pennies are now worth about 10 cents in metal. Since it costs about 13 cents to mint a nickel, we can expect that they’ll soon be made of steel, like the Canadian nickel, or eliminated, as pennies soon will be.
The most recent monetary upset was the creation of Bitcoin, which was created as an alternative to the dollar. It’s a step towards obviating the role of government in the money business. I believe it will succeed.
I’d say the acceptance of Bitcoin belongs on a scale with these other events. Why? Because Bitcoin has caused the dollar to be recognized as a fiat currency in the popular jargon. Before Bitcoin, the word “fiat” was viewed as pedantic. Something only gold bugs cared about. Now, most everybody sees the dollar as just paper, a fiat currency.
This is a very good thing. The public is seeing reality.
International Man: The gold market is typically driven by paper trading, with large physical deliveries being rare.
However, someone in the US recently took possession of approximately 30 million ounces of physical gold. For context, the US government claims to hold 261 million ounces of gold—though many question the accuracy of that figure. These recent physical deliveries equal over 11% of the US government’s reported gold reserves.
What do you make of this? Historically, what have large movements of physical gold signaled?
Doug Casey: Large transfers of money usually signal fear. In a stable world with high levels of trust, it’s more convenient to store your gold at a central facility where ownership can be tracked not by necessarily moving the gold but by just changing the ownership of gold that’s in one place.
But when people take delivery of massive amounts of gold, it might signal a bank run. There’s fear that it may no longer be there.
All we know is that this is going on between major players and governments—you might say malefactors of great wealth, to use Teddy Roosevelt’s phrase. The retail public isn’t involved. The proof of that is that the premiums on gold coins are still close to historic lows, although they’re increasing.
There are lots of questions, but it seems to me that this is an overture to a major upset. That’s why people are taking possession of physical gold. They want it in their own possession.
International Man: The US government still values gold at approximately $42 per ounce on its balance sheet—significantly below its market price.
Could it revalue this gold to reflect its actual market value? And if so, what would be the implications?
Doug Casey: It’s always good to recognize the real value of anything.
Politically assigned values are usually phony and create distortions in the marketplace. It never ends well when you pretend lies are true.
I’m confident that the US, and possibly other governments, will soon revalue gold to at least its market price. Or perhaps a much, much higher price that would allow redemption of currencies with specific amounts of gold.
People talk about “backing” the dollar with 10%, 20%, or 40% of its stated value with gold. But that’s ridiculous. Redeemability, one for one, is what counts.
The dollar started out as a receipt for a specific amount of physical gold, 1/20th of an ounce. Is it possible Trump will raise the price of gold to a level where the dollar is again redeemable? I’d say yes. It would be part of the solution to the $37 trillion national debt.
I suspect he’s planning on revaluation of all government assets. The US government has title to many millions of acres of BLM and Forest Service land, which is carried on the books at basically zero. It amounts to about 1/3 of the total US land area, but it’s now dead capital. It should be revalued to what it’s worth. Better yet, it should be distributed to the citizens of the US or at least sold.
I’d add in redundant military bases. There are hundreds that should be closed. And they will be if Trump cuts military spending by 50%, which he has intimated. The US government has lots of assets that should be liquidated to pay off its most pressing debts. A giant garage sale to avoid bankruptcy.
That’s something Trump is very familiar with.
Going back to gold, the key is an audit to determine how much gold the US government actually owns—followed by making the dollar redeemable with a fixed amount of gold. I doubt that will happen. But it could, should, and would if we return to a stable, trust-based world.
International Man: Past monetary resets have generated incredible speculative opportunities.
How do these historical examples compare to the opportunities available today?
Doug Casey: The question is what gold “should” be priced at.
At around $3,000 an ounce, gold is now about where it should be—from a historical point of view—relative to houses, cars, clothes, meals, and so forth.
From that point of view, there’s not much speculative upside in gold. But if the dollar is transformed from a fiat currency into a receipt for gold—which it should be since that’s the only way to stabilize the system for the long term— a massively higher gold price is needed.
I spelled that out in my 1993 book, Crisis Investing for the Rest of the ’90s. I came up with numbers. Depending on which parts of the money supply you wanted to use, gold would have to be many thousands, perhaps $40,000 per ounce.
My podcast partner, Matt Smith, has done a great analysis, which has gone viral, discussing this. He found, whether in US dollar terms, Euros, Chinese Yuan, or other currencies, that the likely price for revalued gold is someplace between $20,000 and $30,000 per ounce.
I suggest everybody listen to that podcast (LINK) for a full explanation of why that’s the case.
So, what should you do?
If you haven’t built a significant holding of gold coins, do it now. Gold stocks are starting to move up after a long bear market, and if gold is revalued, gold stocks will explode upwards.
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