Editor’s note: If you’ve been keeping up with the Dispatch, you know our experts are critical of the government’s response to the recent coronavirus – including rampant money printing and other seemingly endless stimulus programs.
And as our colleague Tom Dyson explains today, this irresponsible course of action will only worsen America’s growing debt burden… without leaving many options to get back on track.
So it’s more important than ever to not only protect your wealth, but take advantage of opportunities for growing your wealth. And last night, Tom held the Emergency Investment Summit – a special presentation where he shared the details on an investment that could hand investors 10x gains.
If you missed it, don’t delay. Watch the urgent replay right here.
Then, be sure to read Tom’s dispatch below.
By Tom Dyson, editor, Postcards From the Fringe
Earlier this month, Ken Rogoff proposed the Federal Reserve adopt “deeply negative interest rates.” Maybe -5%.
Who is Ken Rogoff and why is this an important signpost?
As we’ve pointed out many times, we are in the final stages of the greatest financial experiment the world has ever seen. A bankrupt government is trying to prop up a collapsing debt bubble using the central bank’s money printer.
Ken Rogoff is a prominent Harvard economist and former chief economist of the International Monetary Fund. He’s authored several controversial publications, including The Curse of Cash, a step-by-step guide to eliminating cash from the economy… and This Time Is Different, a study of government debt crises – and their resolutions – going back 200 years.
Now, he’s calling for deeply negative interest rates in a paper titled, The Case for Deeply Negative Interest Rates.
This is interesting because it demonstrates how deeply broken the financial system is. Here’s what I mean…
Only Four Ways Out for the Government
As you know, the U.S. government is deep in debt ($25 trillion and counting). Now, there are several ways a government typically reduces its debt burden.
First, by “growing its way out.” If the economy grows faster than the debt pile, over time, the debt becomes less of a burden. The U.S. “grew its way out” of its heavy World War II debt with strong economic growth through the late ’40s, ’50s, and early ’60s.
Second, by “inflating away the debt.” Inflation erodes the debt burden because the government gets to repay its debts in watered down dollars that aren’t as valuable as the dollars it borrowed in the first place. It’s effectively a default on the debt, but a very subtle one. The inflation of the ’70s is an example. It reduced the government’s debt burden after it borrowed heavily to finance the Vietnam War.
A third way a government can reduce its debt burden is through austerity. In other words, by raising taxes and cutting government spending.
This is unpopular politically, so in the government’s current situation, a combination of option one (growing its way out) and option two (inflating the debt away) would be ideal. Then, compounding can do its work for 20 years and the problem will be solved.
But unfortunately for the U.S. Treasury right now, there is no inflation and there is no economic growth.
The fourth and only remaining way out is default. That’s when the government simply says, “We cannot pay.”
Rogoff’s suggestion is a subtle variant of this last option. Deeply negative interest rates – say of -5% – are a form of default on 5% of the government debt each year. The problem is, while mathematically deeply negative interest rates would reduce the debt burden each year… no one knows what the unintended consequences would be for the dollar if we had a negative interest rate.
But here’s what I think…
That a prominent Harvard economist is calling for deeply negative interest rates implies the system must be thoroughly broken. I don’t want any part of it.
So I’m sitting on the sidelines in gold, waiting to see which of the various methods above the government chooses to reduce its debt burden… and disappoint its creditors.
Editor, Postcards From the Fringe
P.S. If you don’t know, my ex-wife Kate and I went “all in” on gold nearly two years ago, as a way to keep our wealth safe while we wait for the Dow-to-Gold ratio to fall. In fact, I invested nearly $1 million of my own money into this strategy. But there’s more to it than just buying bullion…
Last night, I shared the details of my strategy in my Emergency Investment Summit presentation. If you missed it, don’t worry. I made a replay available to you here.