Veteran concert goers know – if you want to avoid getting stuck in the parking lot for 40 minutes, you can’t wait for the end of the encore.
You have to get in your car as the band is coming back on stage, or sooner.
Maybe you can hear a little bit of the encore as you’re getting in your car, but if you wait much longer, you’re going to be sitting in traffic.
That’s where we are with the dollar today.
Smart money is already in their car (gold) and leaving the parking lot. The really smart money (you and I) is on the freeway, or home already, asleep in their beds.
Even our “allies” in the Middle East have started selling oil for Renminbi – and the end of the Petro Dollar is having a massive effect that is already impacting gold.
Earlier this week, we got an important note from what the orthodox money is thinking. Wharton Business School at the University of Pennsylvania released a report titled: “When Does Federal Debt Reach Unsustainable Levels?”
UPenn’s definition of unsustainable debt is 2.1 times GDP. Their answer: this threshold could be hit as soon as 14 years from now.
Under very rosy (read: unlikely) projections, it might take 20+ years – but that’s only if the Federal Government raises taxes on everyone, interest expense doesn’t spiral and pigs start growing wings.
UPenn says that 2.1X GDP is the “point of no return” because at that debt level, it becomes impossible to raise taxes enough to keep the country solvent. They go on to say that the only rational path forward is default. In fact, they say at 2.1X GDP, default is “certain.”
Note: they don’t mention cutting spending. I don’t blame them. Even Elon Musk was unable to cut spending in any meaningful way. Now the Trump administration is talking about increasing spending. And one of the last fiscal stewards in Congress, Thomas Massie, just lost his primary. There’s not even a stem in the tide anymore.
And I agree with UPenn about the 2.1X threshold, but I’d argue that we can’t raise taxes enough now, either. There’s certainly no political will – and there’s no telling how higher taxes would hurt the economy. It could be that we’re already close to the “Laffer Curve” maximum level of tax receipts the economy can produce.
How would we know? They’d raise taxes until we see an economic contraction? Fat chance.
For years, I’ve been saying that default through inflation/money printing is the only path for the US govt. For most of my career, this idea was considered fringe, and only widely shared among “goldbugs.”
Now we’re getting validation from an Ivy League University – hardly a fringe outfit.
It’s a signal to the world: you better head for your car, or you’re going to be in for some rough traffic. The encore is already underway.
Have a great weekend.
Best,
Garrett Goggin, CFA, CMT
Lead Analyst and Founder, Golden Portfolio
P.S. I mentioned the end of the petro dollar because it’s one of the most obvious bellwethers and it’s ongoing, right now.
That’s why I’ve put together a brief on this trend – and what it means for specific gold investments. Take a look.