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Economists, mathematicians and diverse figures from David Hume of the 1750’s to Rheinhart & Rogoff of the modern era, have consistently known what the Austrian School has warned for decades, namely: Debt destroys nations and their currencies.
Should We Be Concerned? - Global debt is now careening toward $400T and US public debt alone is whistling past a $37T graveyard. This represents the greatest, as well as most unsustainable, debt crisis in the history of financial markets.Thus, if debt is a destroyer of economies and currencies, and if debt levels now are the highest on human record, should we not be, well…concerned? The answer is as obvious as the question is rhetorical.
Debt Destroys Options—Powell Example
Debt also has a way of limiting choices among bad options for debt-ridden as well as debt-culpable nations, markets and central bankers. All such culprits share a collective guilt in promulgating a fantasy policy that debt problems can be solved with more debt, which is then monetized by currencies created out of thin air.
Take Fed Chairman Powell as an example. He tried to “fight” what he called “temporary inflation” by raising rates, an option available to Volcker in 1980, when debt was low, but completely unavialble to Powell in the 2020’s, when debt was to the moon. By raising rates, Powell sent bond prices down and hence bond yields skyward, a simple reality which meant he only succeeded in making the cost of debt not only too high for a string of failed banks, small businesses, the S&P and middle-class aspirations, but also for Uncle Sam’s own bar tab.
Economists call such an irony “fiscal dominance,” a scenario by which trying to raise rates to fight inflation, only makes debt too expensive for the policy to succeed. As a result, Powell, having lost the war on inflation, was forced to pivot toward lowering rates. Or stated more simply, the bond market wouldn’t allow the Fed to do much of anything that it otherwise wanted.
Debt Destroys Option—The Trump Example
Fast forward to April of 2025, and we see a similar irony (and weakness) facing the Trump White House, which, like the Fed, had some grand aspirations but only weak results. On April 2, or “Liberation Day,” Trump launched a now well-known tariff war on traditional trading partners around the world, with the bulk of his ire aimed at China in an otherwise legitimate effort to re-shore American manufacturing. The hope was that the USA, as home of the world reserve currency and infamous Tier-1, 10-Year UST (“risk-free-return”), had enough monetary, political and financial leverage to make the world kiss the ring of US interests, which is what the USA has been doing since 1944 with relative impunity.
Unfortunately, the USA of 2025 is not the USA of 1944. Within minutes of “Liberation Day,” equity markets gave up $10T in market cap in a frenzy of volatility which sent the VIX (volatility index) past 60 and 10-Year UST prices to the floor. The yields on that “risk free return” then went to the moon—as high as 4.5% in a matter of hours.
Yields Matter
Rising yields (i.e., rising debt costs) scared the debt-soaked USA into a corner, and just like Powell was forced to pivot in a dovish dance and capitulate to his war on inflation, Trump was immediately forced to capitulate in his tariff war on China. Why? Because the bond market would not let him act as forcefully as he spoke.
Trust Matters
The USA is losing leverage, power, respect and trust because less and less counter-parties, nations and actors trust its IOU’s. This is particularly true of China, once (but no longer) a major buyer of USTs. Rather than flee to the safety of the UST in a moment of volatility, the world dumped those bonds in April. Why? Very simple: The world is losing faith, trust and interest in: 1) an IOU issued by a nation over its skis in unsustainable debt and 2) in a nation that has also weaponized that IOU in 2022 against a major political adversary. In other words, not only is the world reserve currency and IOU debt-soaked and hence discredited, it is politically weaponized—a veritable double whammy against it.
False Sighs of Market Relief
And so, Trump quickly caved and the markets immediately recaptured an another $4T in instant market cap as the globe breathed a temporary sigh of relief…The Western media declared this otherwise policy fiasco as just a clever moment in the “art of the deal.” Crazy. The markets, grotesquely over-valued by every metric and unloved by even Warren Buffett, who is hundreds of billions in cash, continues to keep its nose above water (for now) on headlines rather than fundamentals.
The Comical Tier-1 UST
And as for that so-called Tier-1 asset, the laughable 10-Year UST, when measured against actual rather than reported inflation, it is offering a negative return, which technically makes it a defaulting bond. In short, the so-called “risk-free-return” of Uncle Sam’s IOU is objectively nothing more than “return-free-risk.”
The World Is Catching On
If WE see this, of course, the rest of the world does too. This explains why as early as 2014, central banks have been net dumping USTs and net purchasing physical gold, which even the BIS had to concede in 2023 as a better Tier-1 asset than a UST. This process of dumping Uncle Sam’s IOUs in favor of physical gold only got stronger once the USA, in a moment of myopic insanity, weaponized a neutral reserve asset against Russia in 2022. Prior to that moment of, well, stupid…annual central bank purchasing of gold stood at 118 tons, but after 2022, that annual number skyrocketed to over 290 tons.
Told You So
Such de-dollarizing is a theme we foresaw in 2022, and the pace is undeniable as the BRICS+ nations steadily trade outside the USD, including 20% less global oil purchases outside the once sacred petrodollar. Recent outflows of physical gold from the COMEX, moreover, are yet just another sign of counter-parties (whales) seeking physical gold while retail guppies still chase market tops and dangerously “de-worsified” (or diversified?) bond allocations. In short, the move away from the UST and USD is not a “gold bug” argument, it is an objective turning point in the global financial system/disorder.
Tomorrow’s Dollar
None of this means that the USD or UST is dead, or that the Yuan or Rubble (or any other currency) is soon to replace the USD as a world reserve currency. Nor does it mean the USD will soon become “gold-backed.” What it does mean is that the USD is openly losing its hegemony, which means the US is openly running out of options and leverage. We also know that the Fed’s real mandate is keeping its bond market bought and hence its bond yields (and cost of debt) down.
Fake Money vs. Real Problems
But if less parties are buying those bonds to keep yields down, the buyer of last resort will have to be the Fed. This is because there is no money in the USA—in tax receipts or GDP—to naturally buy those bonds. The Fed’s only source of liquidity to purchase the same is a mouse-clicker at the Eccles Building. In other words, fake money to solve a fatal/real problem. The inevitable bazooka money to come from the Fed will only serve to further debase the inherent purchasing power of an already debased fiat dollar, an inevitability of which we have warned for years.
Enter Gold
In such an otherwise obvious backdrop of fiat decline, the world knows that it is far safer to use physical gold as store of value than a UST or USD. And as we have also warned for years, gold will not rise because gold is somehow magically strengthening. No. Gold is rising, and will continue to rise, because fiat money in general, and the USD in particular, will continue to fall in this historical debt trap. It’s just that simple. Even the IMF and the BIS have openly stated as much.
Don’t Be a Guppy
So, if the whales are swimming toward gold, why are so many investor guppies still hoping traditional assets will save them? And if the banking system, which has a long and objective history of failing to safely store and manage precious metals, let alone admit to their superiority—why would any gold investor store their metals there?
Currency risk, banking risk, inflation risk and geopolitical risk—their signs are literally all around us, and the solution, which we have argued for decades, is right in front of us. Store physical gold in segregated accounts within private vaults in protected/legal jurisdictions outside of the banking system. Save in gold. Spend in fiat. It’s what the whales are and have been doing, so why keep acting like a guppy? EG
