America’s $36 trillion national debt is just the tip of a $100+ trillion iceberg

America’s $36 trillion national debt is just the tip of a $100+ trillion iceberg 

So James, yesterday you wrote about Warren Buffett’s annual letter to shareholders of Berkshire Hathaway and how the tone has shifted significantly. You used 2008 as an example in the midst of the 2008 global financial crisis. Just a few months later, Warren Buffett was still striking this really positive tone.

 

America’s been through worse. America is going to come back. And it seems like that tone has shifted.

 

Absolutely. I mean, he’s been a perennial cheerleader for the United States and with good reason. I mean, there is a lot to cheer about.

 

Look, for all of its faults, capitalism in America has still produced more wealth and prosperity than any other country in any other system in the history of the world. And to the point that even during the 2008 financial crisis, which he published that letter in February 2009, late February, I want to say. And so, I mean, the financial crisis had been raging for five months.

 

And he still said, hey, it’s going to be okay. I mean, this was the worst financial crisis that most people alive had ever experienced in their lives. And this guy’s saying, look, I know it sucks, but it’s going to be okay.

 

This country has been through worse. We’re going to prevail. We’re going to come out of this the other end.

 

It’s going to be fine. And America’s best days still lie ahead. America’s best days still lie ahead.

 

This was the February 2009 letter. And now here we are, the 2024 annual letter that just came out the other day. Now all of a sudden, there’s no financial crisis.

 

Inflation is a lot lower than it was. There’s no crazy. There’s no economic scare.

 

There’s no depression. There’s no recession. There’s no stock market crash.

 

There’s nothing that, in theory, that sort of the average person would be so freaked out about, at least to the level of what was going on during the 2008 economic crisis. And yet, even though there was not really anything really horrific happening in 2024 right now, the tone was definitely different. And instead, I just pulled up right here.

 

I mean, he’s talking about paper money can see its value evaporate. Fiscal folly, reckless practice has become habitual. The US has come close to the edge.

 

Fixed coupon bonds, he’s basically talking about treasury securities provide no protection against runaway currency. Runaway currency really is referring to inflation. He goes on in the end talking about, yeah, America’s great, but hey, politicians, you have an obligation.

 

Never forget that we need you to maintain a stable currency, and that requires both wisdom and vigilance on your part. So the interesting thing here is that he said all this. This is number one, a totally different tone from hooray, capitalism in America, totally different tone.

 

It wasn’t pessimistic. It wasn’t saying, oh, I think everything’s going to crash and everything sucks. He’s not saying that, but he’s saying there’s some serious problems here, and we need you to do better, and everybody does, and they need to do better.

 

So he’s saying that if the politicians don’t maintain this US dollar, a strong US dollar, and a stable currency, that’s going to have all these cascading effects throughout the economy for businesses. Exactly. Exactly.

 

Yeah. And so it was an interesting shift in tone. What I thought even more remarkable was that it happened at a time when there is no crisis, right? I mean, no front and center present crisis that people would be freaking out about and experiencing on the same level as there was in 2008, early 2009.

 

And that was a really interesting shift. That’s a really interesting shift. And so we talk about these things a lot, the deficits and the debt.

 

And so what are those specific things that Warren Buffett might say are going to cause that stability in the currency to completely erode? Well, we talk about a lot of this stuff. I mean, we talk about social security. We talk about the debt.

 

We talk about interest on the debt. There’s actually, and just to kind of help explain it to some folks, I know you summarize some of these charts. You guys pulled up some charts that come directly from the federal government’s financial statement.

 

There’s a few things that I think people can look at. We’ve referred to some of these before in previous episodes where we said, you should look this up. There’s literally one you can, I’m not going to say Google because I don’t use Google.

 

I use Brave. It’s not a great verb. You can’t say I’m going to brave it.

 

But anyways, you can go in whatever search engine you use and look for financial report of the US government. And it’s literally something from the treasury department that they put out, just like any company or corporation puts out an annual financial report, an annual report. The government does this as well.

 

And there’s actually a couple of versions of it. Another one is from the treasury department and the treasury department is called the agency financial report. And so these contain like a lot of the really nitty gritty details.

 

And so you’ve got this one pulled up here. So this is an interesting thing here. This is something we’ve written about previously.

 

You can actually see there’s a few line items here. One of them is the, you can see there in kind of that top box, which says net operating cost and budget deficit. So this is a little bit of, this gets a little bit technical.

 

They talk about the budget deficit every year and they say, oh, the budget deficit was in for fiscal year 24, it was 1.8 trillion. For fiscal year 23, it was 1.7 trillion. So the deficit got worse between fiscal year 23 and fiscal year 24.

 

Remember the fiscal year for the US government runs from October 1st to September 30th. That’s the fiscal year, which is not unusual. A lot of big companies have different fiscal years.

 

Apple’s fiscal year, I think ends on March 31st and begins on April 1st. So there’s a lot, every company has the right to do this and the government does this as well. And so there’s a difference between budget deficit, which is the one they talk about versus net operating costs.

 

It’s actually kind of an interesting difference. The net operating cost is usually higher. And the reason why is because the net operating cost is what the budget deficit would be if the federal government followed normal US GAAP accounting standards that any other company would have to do.

 

So if the federal government followed the same accounting standards that Apple has to follow and that any business basically has to follow, that the budget deficit would actually look like the net operating cost. You’re saying it should be equal? Well, if they were following normal GAAP accounting standards, GAAP is generally accepted accounting principles. So this is basically the accounting standard that US companies have to follow.

 

Companies that are not in the United States- That the US government makes companies follow? Well, it’s actually, it’s a different, there’s something called the PCAB, the Public Company Account Oversight Board that comes up with different standards. So it’s a little bit more complicated than that. But the point is, is that all the stock exchanges will weigh in and different things like that.

 

And there’s some companies that are international and they follow a different standard called the International Financial Reporting Standards or IFRS. And again, this is way too inside baseball. But the point is that the government doesn’t follow regular accounting standards.

 

So here’s an example. The biggest difference between the two of those is that if you’re General Motors, actually, it’d be a great example. If you’re General Motors and you have a bunch of workers and every year you incur certain pension liabilities because you have some workers and when they retire, you still have to pay them a pension, a portion of their salary as a pension as part of their retirement.

 

Well, that’s a cost you actually have to incur. You have to recognize certain costs and certain liabilities, even though you’re not paying them today, you still have to accrue certain costs and liabilities and expenses. And that hits your bottom line.

 

Well, in the budget deficit, they don’t do that. So they have all military personnel, government employees, all these people that they owe certain pension liabilities to, they don’t actually book that as part of the budget deficit. So it is a cost.

 

It’s a future cost, but it’s a cost that you actually do need to book. And they don’t actually do that when they… Is that what federal employee and veteran benefits payable is on this sheet, or is that not reflected here? It’s not really fully reflected. And so that’s kind of the idea between what the… And I don’t want to dwell on this too much, but there’s a difference.

 

And so if you want to look at the actual… If the federal government were USGov, Inc., and it was actually a publicly traded corporation on the stock exchange, whatever, net operating costs would actually be its real number. They would say, we lost $2.4 trillion this year. That would be their bottom line.

 

And of course, they’d say, oh, that’s better than the $3.4 trillion we lost last year. And it’s like, oh my God. And of course, if it were a public truck company, everybody’d be fired, everybody’d be out on their butts, and they’d bring in new people and new management.

 

But these guys just lose money year after year after year. They have no plan. Very seldom is there really any plan.

 

There’s a lot of talk, but seemingly very little action, very little improvement. That’s kind of an interesting point that you said that it would also be investors would not be very happy with that. And if you think about it, the investors are kind of the people buying the US debt to keep funding these investments.

 

That’s correct. There are actually investors in the US government, and those are foreign governments, they’re the US Central Bank, they’re US banks, and they’re even individuals. And so there are investors.

 

But for the time being, people still buy this US debt. But if we keep going down here, this is where it gets really interesting. Because rather than kind of hash out the difference between budget deficit, let’s just accept the budget deficit for what it is.

 

And it’s kind of more of a, let’s say, cash equivalent, like cash loss. Let’s go back up. I just want to go through some of the… So you can see the government lists its assets.

 

And I remember, God, a long time ago, I was having a conversation with a buddy of mine, and he was talking about it. He said, yeah, the US got a lot of debt, but boy, look at the assets. They have so many assets.

 

And he’s like, how do you value… How do you value? Well, he said, his comment to me was, how do you value the United States Marine Corps? And I go, yeah, that’s an interesting point. And it’s sort of like the Marine Corps, in some respects, is sort of like the world’s largest derivatives contract. You could really make a lot of things happen.

 

It’s sort of like a risk policy, in a way, and it helps protect you, it helps hedge certain other events, because at the end of the day, nobody really wants to mess with the United States, in some capacity. And so, certainly, at least not on a head-on collision, because of the Army, the Navy, the Marines, etc. The military is extraordinary.

 

But they actually do take a stab at valuing this. And you can see cash and monetary assets, loans, property, plant equipment, all these things. And so you’ve got cash and other monetary assets, which in theory, in there, we’d have to look at the fine print, but that might even include the gold reserves and certain things like that.

 

So you’ve got cash. I mean, the government has hundreds of billions of dollars actually in cash, and they have other monetary assets. So they value that reasonably well.

 

So it’s $1.1, $1.2 trillion. So there are some assets there. Inventory and related property, a couple hundred billion dollars there.

 

We’ll get to some of that. But I mean, if you lump all this stuff and you see property, plant and equipment, this is a normal thing you would see in an accounting financial statement. If you look at, again, you look at Apple’s balance sheet, it’s going to have a line for property, plant and equipment, PP&E.

 

This is a normal thing in accounting. And this would be the land that they own, the buildings that they own, the warehouses and those sorts of things. PP&E, it’s pretty big.

 

So like in the United States, it’s $1.3 trillion. This is all the land that’s, you mentioned Mount Rushmore, this is Mount Rushmore. This is, in many respects, this is tanks.

 

This is aircraft carriers. This is these sorts of things. So when they say, how do you value some of that stuff? Well, they actually do it here.

 

They actually do it here. They say, well, we got $1.3 trillion of federal buildings, federal land, military equipment and other hardware, et cetera. Is there valuing that at the price they paid for it? Usually what you would do is you would value it at book and then maybe they depreciate it over time.

 

They’re probably making up their own depreciation metrics, but they would depreciate that stuff over time. And we’ll get back to that. And then you’ve got loans receivable net, $1.7 trillion.

 

What is that? Most of that is student debt. Most of that is student debt. So the government was trying to get rid of that? One of their main… Right, exactly.

 

One of their large items of assets, they were like, let’s just delete this. So the federal debt, and then they have it here. They say, well, federal debt and interest payable, $28 trillion.

 

That’s not actually true because of course the real debt is $36 trillion. The federal debt where they show $20 trillion here, they break the debt down into two different categories. They say basically it’s public debt and there’s non-public debt.

 

So public debt is $28 trillion. The non-public debt is what they owe to social security and what they owe to, basically what they call the non-marketable debt. And a lot of that’s kind of internal, what they say that we owe to ourselves, the defense department, the highway trust fund, all of these different things that they owe, that the federal government owes to itself.

 

That’s another $8 trillion. That’s what gets you to $36 trillion in debt. So they’ve got that… Not including that? No, they’ll have it buried here in some of these other liabilities basically.

 

And so what they have here is they subtract, they say, okay, here’s our total assets. So the total assets, cash, property, plant and equipment, et cetera, et cetera, all these things minus the liabilities, you have a net financial position or essentially net worth of the federal government is basically minus $40 trillion. $39,883,883,000,000,000.

 

It’s almost $40 trillion is their sort of negative net worth. But wait, there’s more because on top of that, they say, well, we also have… Scroll down just a little bit. On top of that, we also have social security and Medicare liabilities.

 

And as we’ve talked about a lot, social security and Medicare right now, they’re underfunded. Basically, they’re unfunded. I mean, these are insolvent programs.

 

So they say, okay, and this is something that social security and Medicare trustees, they put out every year in their own financial reports. And they say, all right, here’s how much money we have to pay between now and over the next 75 years. They look at short term, medium term and long range scenarios.

 

And over the next however many decades, based on the way you look at it, here’s the total, here’s that sort of net present value of all the money that we have to pay in the future. Here’s the assets with which we have to pay that. So we’re in a huge deficit.

 

How big is that deficit? Well, with social security, they put it right here in black and white, $25.4 trillion. That’s how underfunded the social security program is. So if they actually expect to be able to make payments to beneficiaries, not necessarily today, but out in the future, 10 years from now, 20 years from now, 50 years from now, et cetera, they’re short by $25.4 trillion.

 

Medicare is even worse. It’s $52.8 trillion short. So the $52.8 trillion Medicare deficit plus $25.4 trillion social security deficit.

 

So you have a deficit of $78.3 trillion just between those two social programs. That’s how short they are. On top of that is the difference between their assets and liabilities is the other almost $40 trillion.

 

So you’re talking about a government that’s basically $118 trillion in the whole. That’s ultimately kind of the US GAAP accounting standard negative net worth of the that would be the net worth would be basically minus $118 trillion, which is, that’s a lot of money. Pretty rough.

 

That’s a lot of money. Now there are some kind of upsides and downsides to this because this is just accounting. And I think anybody that’s in business or accounting or finance kind of understands that you can play with a lot of these numbers.

 

So let’s look at kind of the upside and downside of some of these. So just, sorry, go back up a little bit to the assets. So we can see here, assets, cash and other monetary assets, 1.1 trillion.

 

That’s mostly accurate. I think there’s some actual upside there because the government has supposedly, at least what they say, right, is go back to the 1930s and the treasury department went and confiscated everybody’s gold in the United States, including the gold that used to be owned by the federal reserve. So the federal reserve had a bunch of gold.

 

Federal reserve is still, you know, it’s only two decades old really at this point. And the treasury department comes in, FDR issued an executive order and he went out and confiscated everybody’s gold. You had to go and turn over your gold to the government if you were an individual.

 

And they even did this to the federal reserve. So the federal reserve turned over its gold. Supposedly the federal government had this giant, you know, cash or just got giant gold hoard in Fort Knox, right? And what they ended up doing was they issued gold certificates, right? To, for example, the federal reserve.

 

So on the federal reserve’s balance sheet, they don’t have gold. They have these gold certificates. And it’s a weird thing because these gold certificates, the fed owns are not redeemable.

 

They just sort of say like, look at these things, they have value, but they don’t have value because they’re non-transferable and they’re not redeemable for cash. They’re not redeemable for gold. You can’t exchange them.

 

They can’t sell them. So basically the government has all this gold, but they only value the gold at like $22 and 22 cents an ounce. Well, I don’t know if you noticed, the gold’s actually $3,000 an ounce.

 

So there’s a lot of upside there, potentially in the amount of gold that the federal government has that they’re undervaluing on this balance sheet. And it was valued at $22 an ounce because that’s what the dollar was worth when they confiscated it. That’s what the statutory, right.

 

That’s what the statutory rate was. And so they put that on their books at that statutory, legal statutory rate of $22 and 22 cents an ounce. And so the actual market, if the government actually has the gold that they say they do, and if they were actually to sell it at market price, now granted like flooding the market with that much gold all at one time is going to cause the gold price to fall.

 

But if you were to value it at market, yeah, there’s a lot there. There’s a lot there. The actual value of that is, you know, we’re talking maybe you get, you know, I mean, it’s not going to be tens of trillions of dollars, but it’s a lot.

 

You know, it’s definitely hundreds of billions of dollars to maybe a couple trillion dollars more in upside. So instead of being $118 trillion in the hole, maybe you’re $115 trillion in the hole. So, you know, you’re making some forward progress there.

 

So suppose they didn’t sell it though. Suppose, you know how people float this idea of like minting a trillion dollar coin and depositing it at the treasury or something. But what if in this scenario, they took the gold, deposited it at the Federal Reserve and cleared some of those debts? Like in theory, is that a way to pay down some of that? Yeah.

 

I mean, you could pay down, you could, in theory, pay off some of the debt that the treasury department owes to the Fed and say, oh, here you go. Here’s some gold and use that to pay it off. And the Fed would probably accept that as payment, probably at market value as well.

 

And then the Fed would have to, you know, they’d have to make some adjustments to their own books. So, you know, but the point is there’s some upside there. So it’s not quite as bleak when they say total assets of the US are worth $5.6 trillion.

 

Well, there’s actually more than that because they’ve got some gold upside. On the other hand, you know, well, it’s actually another one where there’s more upside is property, right? If they were to start selling, you know, uh, you know, residential lots at Yellowstone national park, you know, or Yosemite or whatever, like what, what’s, what is a, what is a quarter acre lot, you know, right next to El Capitan, you know, what, what, what is that with old faithful with a view of old faithful in, in, uh, in Yellowstone or a view of the, you know, whatever you’re, you’re, you’re, you’re having lunch right on top of George Washington at Mount Rushmore or whatever, you know, maybe a spa with the hot springs and Yellowstone. What is that? What is that worth? What is that worth? And so, so, so if they actually started selling off the land, you know, it’s probably worth quite a bit.

 

Um, the office buildings, the government’s got a lot of office buildings. I don’t know about that. You know, what are the office buildings worth right now? It’s a tough, it’s a tough market for office property in the United States right now.

 

And they have so much of that property. If they dumped it on the market, that would just crash it entirely. If the government started dumping all their office property, the entire office market would crash.

 

It would cause office property values to plummet, which would actually end up being a huge problem for the banking system, which is already struggling with declining values and office properties and increased delinquency in their office property loan portfolios. And so it would be a huge problem, the banking system, but you know, there is in theory also some upside in the property market, um, in, in, in, you know, from terms of government owned property, uh, you know, with respect to they, they go, okay, well we got, we got however much money in terms of like, we got aircraft carriers, we’ve got fighter jets and whatever. Meh, they don’t really sell that stuff though.

 

You know, it’s not like, it’s not like that. Those things are easily tradable for cash. Um, like you could do with gold.

 

And in theory you could do with, with land. If you have a fighter jet, they don’t like to sell that stuff. You know, maybe at a certain point they give it to allies.

 

Um, you know, supposedly they, they, they did some of this with Ukraine, with, with Israel from time to time and these sorts of things, but that’s not, um, I don’t think there’s actual, I don’t, there doesn’t seem to me that there’s actually a lot of monetary value in decommissioned military equipment. Um, some of that stuff actually still more of a liability than it is an asset. So there’s some upside, there’s some downside here.

 

Um, uh, but you know, at the end of the day, like it doesn’t, you know, there’s other things that I would say that are not on here at all. And some things that are not on here is what is the value, for example, of all the minerals, all the oil, all the, you know, all these things that, that in many respects, the federal government does have certain royalty rights on. You’ve got the green river formation, which, you know, could be the, you know, far and away the largest, you know, oil shale reserves ever in the history of the world, completely dwarfing so many of the other, uh, formations.

 

That’s, you know, that’s a long way out, but in theory, eventually someday the better technology will exist to go in and grab that stuff and exploit it. And if so, what is that worth to the federal government? That’s not really on the balance sheet here, right? So there’s, there’s potentially a lot more upside here. So it’s not, you know, if we’re intellectually honest, it’s not as bleak as saying you got $5.6 trillion in assets and you have $45 trillion in liabilities.

 

It’s not quite as bleak. Should they be putting taxpayers on the balance sheet? Well, they do. Um, they do actually.

 

They, they, they take a net present value of all future tax revenue minus the present value of all future expenses under current plan. And they take the net present value of those two taxpayer revenue, tax revenue minus, uh, government expenses over the next 75 years, basically. And they do that.

 

That’s this number here at the bottom where they say total federal non-interest net expenditures. That’s the net present value of basically the next several decades of expenses, you know, offset by tax revenue and it’s minus $72.7 trillion. So that, you know, in that respect, taxpayers actually are on the books.

 

They, they calculate that stuff. And so that’s, by the way, in addition to the $118 trillion. So if you add that in and say under current plan, if nothing changes, they’re knocking on the door of $200 trillion of insolvency.

 

That’s, those are the numbers. And so the, you know, you get back to Warren Buffett, uh, and he’s talking about, you know, you need to do better. You got to do better.

 

These are actually the numbers here. And, and you know, we’re not making this stuff up. This is literally straight from the treasury department’s annual report, uh, of us government finances.

 

I know you’ve got probably a couple of other things. If you want to scroll down and walk through some of those. Yeah.

 

So this one is the reconciliations of the net operating cost and budget deficit. And I think you were telling me that if this was a business, this would be kind of the balance sheet versus the income statement. Is that correct? Uh, it’s more, yeah, it’s more like the difference between, uh, like an income statement and cashflow statement, uh, is, is a maybe a little bit better analogy, uh, because companies do a lot of things, you know, there’s, there’s certain expenses that they, that they incur that hit their income statement, like depreciation, which don’t actually impact their statement of cash flows.

 

It doesn’t actually cost you cash out of pocket. And that’s the same thing, even with incurring pension liabilities and things, it doesn’t necessarily hit you this year. It doesn’t hit you today, but it’s an expense that you have to occur.

 

And, and, and, and, you know, you’re going to have to pay that at some point. So they incur it. And so there’s a difference.

 

They have to reconcile differences between their income statement, their cashflow statement. So that’s kind of the difference here, but this just gives you a sense, like what we were talking about. You can see how they they’re adding back.

 

You got hundreds of billions of dollars of, um, federal employee and veterans benefits and these sorts of things that they didn’t include in the budget deficit, but they would have to include if they were actually following accounting standards. Now, is this what they would say when they, uh, remember when Biden used to say that he cut the deficit in half, I’m seeing that it’s worse, or it was worse in 2023 than it was in 2024. He did say that he was bragging about that, but, you know, and he was right.

 

The deficit went down, but, um, only because they stopped a lot of this COVID stuff. So, I mean, he was, he was bragging about it. Like he, like he did something, you know, and he didn’t do anything.

 

It was nothing that he did. There was no action that Joe Biden took to reduce the deficit. If anything, like you talked about in the, in the previous chart, you have, you know, $1.7 trillion of loans, which are assets to the US government, right? This is student debt.

 

So the US government loans money to young people and the young people have to pay that money back. So for the government, it’s an asset and Joe Biden was trying to cancel it. So he was trying to make that, he was trying to make that, that, that whole, uh, you know, negative net worth of the federal government.

 

He was trying to make it worse, not better. So, yeah, I mean, there’s nothing that guy did, but yeah, in theory, you know, the deficit was definitely down, but only because they stopped with the trillions and trillions of dollars of COVID bailouts. And then on the next page, we just have the breakdown by, uh, agency and that’s the, uh, gross cost of each one.

 

Oh, and this is where we also saw the, uh, interest, um, or what they’re claiming is the. The interest on the debt, right? So you’ve got department of health and human services, that’s Medicare, 1.9 trillion, social security, uh, 1.5 trillion department of fence, a trillion dollars. And then interest on the debt, it says 900 billion.

 

That number is not actually true. The, the real number is 1.1 trillion. And if you actually look up, um, I could share it.

 

We were sharing it. Um, uh, if you want to share it, I’ll stop. Yeah, sure.

 

Um, let me just look at this real quick, just so people can see it. So this is the agency, this is the treasure agency financial report. So you can see here, federal debt interest costs net $1,075,000,000.

 

And so what is that? What’s the difference between the two? Why does one of them say 900 billion? The other says a trillion. Well, because on, on the one that you showed, they said, um, federal interest costs on federal debt held by the public. And so remember the difference between the two is they break down the debt into public versus non-public or marketable versus non-marketable.

 

And so this one by the treasury department here, this actually includes not only the public debt, but also the part of the debt that’s owed, for example, to social security, because, you know, let’s be honest, you got to count that too. I mean, it, it, it’s, it’s still debt. You still owe it.

 

It’s a debt that is owed. And every time people go, oh, it doesn’t matter because we owe it to ourselves. That’s, that’s like some of the biggest bullshit ever, because it’s like, you’re saying that, oh, it’s okay.

 

If we default on social security. No, it’s not okay. If you default on social security, there’s 50 million people that depend on that money every single month.

 

You can’t default on social security. It’s not okay. So this is, you know, the more sort of accurate accounting is they show one, basically $1.1 trillion in annual interest expense.

 

And again, this was just last year. So it’s, it’s a, it’s a big number. It’s a big deal.

 

And Buffett’s right. When he talks about this and said, this is a huge problem. You have to maintain a sound currency.

 

And like we talked about in the beginning, currency is where all of the decisions, all of the problems, everything sort of boils down to it. It’s all reflected in the currency. And so the finances, but it’s not just the finances, right? It’s also the, the way that the leadership displays themselves on the global stage and what people, if they have faith in the United States government, we, you know, we talked about this, we’ve been talking about this for a while.

 

We’ve been saying, I mean, even during the Biden years, we were saying this is a huge problem, but it is fixable. It is fixable, but there is an extremely narrow window of opportunity to fix this. You don’t have decades and decades to fix this.

 

I mean, some of these things, I mean, it is, it is absurd. I mean, there’s some of these things they say, hold on, there’s, there’s one here. Let me, let me pull this up.

 

One second. This is the, cause I mean, this is like, they say this stuff themselves. So here’s one where you go, okay.

 

Government costs. Oh yeah, here we go. The debt to GDP ratio was approximately 98% at the end of FY 24.

 

Okay. And again, that’s actually not true because that they’re only counting public debt. They’re not counting the non-public debt.

 

They’re not counting the debt they owe to social security. If you include that, it’s like 125, 130%. But okay, let’s, let’s stick with this fantasy that we’re only talking about the debt owed to the public.

 

So that debt to GDP ratio, public debt to GDP was 98% at the end of FY 24, which is ridiculously high. Under current policy and based on this report’s assumptions, it is projected to reach 535% by 2099. Where’d they get 2099 from? They look 75 years in the future.

 

So 2024 plus 75, you get to 2099, 535%. And how you say this so matter of factly, the projected continuous rise of the debt to GDP ratio indicates that current policy is unsustainable. So you think, really? So this is, this is what these guys are saying.

 

They also say, actually a little bit later in the report, let me just go back to this cause this is also important for people to understand. Uh, where is it right here? Um, ah, here we go. Interest costs is this one right here.

 

Interest costs related to federal debt securities held by the public. Again, always the focus on debt held by the public was the largest increase, $231 billion due larger to an increase in the outstanding debt and an increase in interest rates. This is something we’ve been writing about for a long time.

 

Okay. The idea is that they’re saying, they’re saying, yes, the deficit increased, et cetera. But the single largest thing that increased of all the, you know, defense spending, social security spending, the single largest increase in government spending was interest on the debt.

 

This isn’t our analysis. This is literally straight from the treasury department’s annual report. So such a wild number to imagine if they were to debate spending $250 billion on something new and that is essentially thrown away on interest on the debt.

 

There’s no discussion. There’s no discussion about it. It doesn’t make the news.

 

It doesn’t make the headlines. And again, it’s not, it’s not to say they spent, it’s not to say Joe, that they spent $231 billion on interest. They spent $1.1 trillion on interest, right? They’re saying we spent $231 billion more on interest and how much discussion was there on this? Almost none, almost none.

 

Right. I mean, it’s, it’s, this is, this is now one of the largest line items aside from social security, Medicare, social security, and interest on the debt. Those are the top three.

 

And those three alone consume all of tax revenue. 100% of tax revenue is consumed by, by basically these programs. So everything else, the military, the light bill at the white house, all that stuff has to be borrowed, has to be funded by more debt, that extra debt that they, you know, they borrow more money and guess what? You got to pay interest on that too.

 

And what does that do? It makes the interest bill increase even more. And the whole thing just becomes very, very unsustainable very quickly. And like you said, that shows up in the, the dollar and the currency, and that’s going to be through inflation.

 

But, but Warren Buffett actually also had some advice on that, on how to protect yourself from inflation. He said that a well-run business can generally avoid the effects of inflation as long as their products are still in demand by the American public. That’s correct.

 

I mean, desired, I think the term he used. Desired, right. As long as they’re desired by the citizenry is what he said.

 

And, and that’s that’s right. I mean, that’s something we’ve been right about for a while too. I don’t think desired is really the right word.

 

I would say needed. You know, I think, I think, especially if you’re dealing with pretty serious inflation, which everybody’s had to deal with over the last couple of years, and it’s come down a lot. But everybody remembers when it was, when it was really, really bad.

 

And, you know, most people had to make tough decisions, you know, decisions that, that, that we didn’t like to say, well, I’m going to do this. I’m going to cut back on that because it was just, it was just getting out of control. I mean, you know, even, even, you know, whether people, you know, had very little money or people that are very wealthy.

 

I mean, at a certain point, everybody started cut back, man, this is insane. This is crazy. Like, I don’t, I don’t, I don’t want to do this anymore.

 

Well, it doesn’t matter how much money you have. At some point, you just look at the price of something and you’re, you don’t want to spend that on it. That’s right.

 

That’s right. Yeah. I mean, and it’s, it just, it was just getting out of control.

 

I mean and, and so everybody kind of remembers that. And that’s sort of the idea is that you start cutting back on things that you might want and said, focus on the things that you need. And, and that’s kind of been our whole view for a long time is to say there’s, there’s things that are just really critical.

 

There’s certain resources, certain assets, certain businesses that provide products and services that are absolutely critical. And we, you know, that’s sort of how we define real assets. You could get by without, you know, a new, you know, brand new iPhone, for example.

 

I mean, they come out with a new iPhone. It’s like, okay, you’re going to go stand in line on day one and buy the new iPhone. You know, maybe you get by without that, but you know, you got to have energy to power your house.

 

You know, you got, I mean, these certain things like that become, there’s no, there’s no contest in terms of what’s more critical, what’s more essential. And, you know, it’s the companies that sort of provide those, the most valuable, critical, necessary goods and services and resources for an economy to function. Those are the things that in good times, when boom times, nobody thinks about that stuff.

 

That’s the, oh, that’s boring. Nobody like who wants to think about that when we’ve got some, some new sexy thing that everybody wants to sort of focus on and get excited about recreation is in. But at the same time, when that, you know, when that situation turns, when it reverses and the scenario is different, all of a sudden it’s times a little bit more difficult and inflation, et cetera, people stop focusing on the, the ones on the new sexy stuff, on the recreational things, they focus on the things that they absolutely need.

 

And that’s, you know, we think that’s, we think that’s really where the opportunity is because again, we’ve been talking about those are things that right now that stuff is really cheap. It’s really, really cheap, you know, by comparison to, to a lot of other, you know, the more kind of high flying, sexy assets that are out there that really popular companies, really popular stocks, the need, the critical companies, a lot of these are really, really, really cheap. So, you know, it, it provides a lot of downside protection because they’re already cheap, but there’s a lot of upside potential there as well.

 

I guess it’s worth kind of talking about before we go, like the, you know, some of the different scenarios, because I think some of these things we, we, we talked about, you know, we talk a lot about gold, we talk about energy, we talked about, I mean, uranium, platinum, all sorts of things. I mean, some of the, some of these very essential, and it’s not just commodities not by a long shot, productive technology is hugely important. There are certain things you can even probably lump in, you know, things in the healthcare industry, et cetera.

 

I mean, they’re really critical need resources and assets, but there are, you know, there are different scenarios and there’s scenarios that we looked at and say, well, you know, look for, for a long time, we’ve been saying, hey, there’s a possibility here that maybe the government gets this fiscal situation under control. And we’ve been saying this again, since the, since the Biden administration, we said, there’s a chance to pull this off. There’s a chance to pull this off.

 

I don’t see anything from, from, you know, when, when Joe Biden was in power, I didn’t see anything in that administration that would make me think, oh yeah, they’re going to, they’re going to turn the corner and start cutting the deficit. I didn’t see that. And after the election, you know, we, we, you know, obviously new information, we changed our view on it and said, look, there’s a chance here.

 

I’m not saying it’s a hundred percent guaranteed, but I think there’s, you know, I’m telling you there’s a chance. And there is there, there, there wasn’t, I think there still is. And there’s certain things I think we can look at and go, okay, this is good.

 

This is a step in the right direction. There’s certain, certain things we go, oh my God, this is so insane. Why are they doing this? And that doesn’t help.

 

And we talked about a couple of the things, you know, really that are necessary. Number one is you got to make cuts. You have to cut, you just have to cut the deficit.

 

We’ve explored this before. There’s clearly so many places to cut. I mean, there’s just so many places to cut and, and they’re starting to uncover the scams and the boondoggles and a lot of these departments where you kind of look at this and go, okay, is there anybody now who can credibly say that they can’t cut a couple hundred billion dollars? That’s sort of the magic number, right? Because the reality is you have a $30 trillion economy.

 

And if you can manage to have, I mean, it would be, it would be such a shame. I mean, two and a half percent inflation and two and a half percent real growth. So, but you add those two together, you get to basically 5% nominal growth on $30 trillion.

 

That’s $1.5 trillion. Okay. And essentially what that means is you can run a $1.5 trillion deficit and still be okay.

 

Your debt to GDP ratio would still be, basically it wouldn’t improve, but it wouldn’t get any worse. So you sort of- It wouldn’t get to that a hundred year or 75 year projection of 500%. You stop the decline.

 

And so how do you go from, they were $1.8 trillion last year. So can you cut $300 billion to get to 1.5? You grow by 5% nominally and you maintain your debt to GDP ratio as it is. Yeah, that’s completely achievable.

 

Can you find $300 billion to cut? Of course you can find $300 billion to cut. Of course you can, right? There’s so, I mean, there’s just this clearly, clearly so much waste in government. So yes, you can do that.

 

The second thing you’ve got to do is you’ve got to slash regulations. We talk about this a lot too. You’ve got to slash regulations.

 

You’ve got to unleash the power of capitalism in the United States. Something that has been able to, in the past, generate 5%, 6%, 7% real, not nominal, but sort of inflation adjusted, real economic growth, additional productivity. Is that still possible? Absolutely.

 

Absolutely. Now you’ve got, again, AI and technology and potentially an energy renaissance and all these things. So yeah, you can do that.

 

You can absolutely get to that. The one we have talked about a little bit, but not as much, the third sort of pillar of this is you’ve got to restore confidence in the United States. And there’s part of that, that is happening right now.

 

And so you’ve got now foreign companies and as well, US companies are saying, Hey, we want to invest a lot of money. Apple said, Oh, we’re going to put $500 billion in the US. Some of that’s already baked in.

 

Some of that, they already spent, some of that’s just kind of pie in the sky accounting magic to come up with a fancy looking number. But yeah, like, I mean, Apple’s clearly going to invest a lot more in the United States. I think there’s a lot of companies that are going to invest more in the United States.

 

And so they wouldn’t do that if they weren’t confident. But at the same time, there’s also a lot of reasons why confidence is falling. And this like, this like trade war stuff is so facepalmingly maddening.

 

And you just kind of look at this and say, why, why do you do this? Why do you do this? Why do you, you know, why do you cozy up to Russia, but you slap Japan in the face or not Japan? Sorry, you actually did with the, with the Nippon steel deal. But you slap Canada in the face, you slap Western Europe in the face. I don’t really get it, you know, and so these are the, I don’t, I don’t think that helps at all.

 

We wrote about that very clearly. I think we were very critical of, of that and said, look, like this is, this is a dumb idea. It’s a dumb idea because what you’re doing is number one is you are giving businesses uncertainty, businesses that have to plan years in advance.

 

And you were saying, hey, there’s, you know, where there’s tariffs today. Oh, just kidding. There’s not tariffs today, but maybe we’ll have tariffs in a month and we’ll see what happens.

 

I mean, businesses can’t plan on that. They need a certain level of stability. If they’re going to go and actually invest any amount of money, let alone hundreds of billions or even trillions of dollars, they have to have some kind of predictability and you’re taking away the predictability by constantly making these threats.

 

We’re going to do this. We’re going to do that. And that’s a huge problem.

 

It’s a stupid idea. I don’t think that’s really going to move the needle. And this is what we were talking about earlier with the confidence side of the US dollar where it’s not giving anybody confidence.

 

It doesn’t give anybody confidence. The other one that’s actually, I think even worse is the way that they’re treating allied countries right now. And again, the idea of, you know, it’s like, you know, they didn’t have to have that whole row, that public row with Zelensky.

 

They didn’t have to, I mean, like to go out of their way to try and push a UN resolution to make nice with Russia. I mean, it was just, there’s no point in that, you know, it was obvious. Again, everybody can feel however they feel, but I mean, it’s obvious Russia was the aggressor and to try and rewrite history and pretend that that wasn’t the case is stupid.

 

Everybody made a lot of mistakes, you know, leading up to that. But I mean, Russia was the one that invaded and to sort of just to sort of try and rewrite the history made so many people in Europe and around the world go, oh my God. And it just doesn’t, it doesn’t instill confidence in anybody on top of that, to go and threaten them with tariffs and threaten them with all these other things.

 

None of that stuff instills confidence. The last piece of it is this thing that actually, you know, listeners sent to us and it’s kind of informally being referred to as the Mar-a-Lago Accords. And this is this idea that the treasury department will go around to allied countries, especially in Europe, and sort of force them to basically accept almost a default on the debt.

 

Right. They’re going to say, okay, we owe you trillions and trillions of dollars, but instead we’re going to swap out those bonds with these like long-term, super long-term, zero coupon, zero interest bonds. And, you know, and like, you’re just going to do that because we have the United States Marine Corps and you’re just going to do that because you rely on us for security, et cetera.

 

And it’s those sorts of things. And we, and we said this, and I want to say it was like after the election, but before the inauguration, it might’ve been before the election, but Donald Trump was going around saying, you know, if I find out that anybody is trying to move away from the dollar, we’re going to, we’re going to issue tariff, we’re going to impose tariffs. We’re going to do these things.

 

And we wrote about this and said, no, that’s a terrible idea. That’s a terrible idea. It’s going to drive people further away from the dollar.

 

Right. That’s the point. That’s why people don’t want to use the dollar anymore is because of threats.

 

And we, we made this argument so many times, and we said, look, if you, if you have your money in a bank and the bank calls you up every day and says, I’m going to freeze your account, I’m going to freeze your assets. I’m going to steal your money. Would you actually continue using that bank? No, of course not.

 

Nobody’s going to do that. And that’s the deal is that the US government, and it was the same way under Joe Biden, frankly, it goes back to Obama. Even really, I mean, George W. Bush, but Obama took this just off the charts.

 

Joe Biden did it and Trump’s doing it now where they’re just threatening, threatening, threatening. And if you keep threatening people, why, why would you expect them to keep buying your bonds? Right. And you need these countries to buy your bonds.

 

You have $36 trillion in debt. You need these countries to buy your bonds. And even somebody would say, well, it’s only $28 trillion in public debt.

 

Well, that’s actually not true. Right. Because social security now is actually selling off its debt, basically redeeming it from the treasury department.

 

So the treasury department now has to trade out that social security, non-public, non-marketable debt and sell it to foreign countries. And for years, social security was buying US debt with their excess funds that they were paying out. Right.

 

Because now social security is actually running a deficit. So every year, instead of buying more US government bonds, they’re actually selling their government bonds. They’re redeeming their government bonds and getting paid back by the treasury department.

 

So the treasury department has to go and sell new bonds to foreign countries and banks and businesses and central banks, et cetera. And so you need that confidence. You have to have that confidence.

 

And so I think, I think what these guys are doing, what this administration is doing, and I think the president in particular is, is, is I think creating a loss of confidence. I mean, I think there’s a lot of places that are losing confidence. And I think they look at this going, I don’t, I don’t want to buy these bonds.

 

I don’t want to keep supporting these guys. This is ludicrous. And everybody’s got to, everybody’s got a clutch and everybody’s got a lever here, right? Europe has this big lever.

 

They say, okay, fine. You want to do this? We’re just going to stop buying your bond. We’re going to sell, we’re going to dump your bonds.

 

And, you know, everybody kind of always, I’m going to say everybody, but I mean, there’s always this fear that China was going to be the one to do that. That China was going to one day just dump all their bonds, the US treasury bonds, and the dollar is going to plummet as a result. And it was just going to be a disaster.

 

Well, I mean, maybe Europe’s going to be the one that does it now. Maybe it’s France that ends up doing it. I mean, it’s, it’s just, it’s so precarious right now.

 

And, and, and I think in that respect, they’re not really doing the right thing in terms of billions. Like the world is starving for American leadership and they’re not providing it right. They are instead going and saying, oh, well, let’s pretend that, you know, Russia wasn’t the aggressor and let’s, let’s threaten everybody with, with tariffs or whatever.

 

And it’s insane. It doesn’t make any sense. Yeah.

 

I think there’s a lot of good movement on, you know, let’s see what happens with budget cuts. Let’s see what happens with what doge does. Let’s see what happens with unleashing American productivity and cutting regulations, but you have to have the support of foreign countries because they have so much, they own so much US government debt and you have to have that support.

 

Otherwise it just, the math just doesn’t work. It doesn’t work. Otherwise the central bank, the federal reserve is going to have to print all that money.

 

And that’s going to be extremely inflationary. They’re gonna have to print all that money to buy those bonds from foreign governments. And the rate of inflation that you’re going to get as a result of that is, is absolutely ridiculous.

 

It’s absolutely ridiculous. So Buffett’s right. I mean, they do have an obligation.

 

And when he says, never forget, we need you to maintain a stable currency. And that requires both wisdom and vigilance on your part. And there’s some things that we’re seeing that are, you know, that are solid and there’s other things.

 

I mean, we said this early on, we said, Hey, after the election, you go, there’s a chance now and we got to wait and see what happens. Well, we’ve been a month in and these guys have been moving lightning fast and some things are good and some things are really not good. And so I think it’s too early to draw a conclusion, but I think the, you know, I mean, we talk about gold a lot and there’s a reason why I think the gold market’s been pretty awake for this to see that there’s definitely some issues here.

 

Gold seems to thrive on instability, right? Well, I mean, yeah, I think there’s a lot of traders that, that, I mean, almost like they have their little cue card and they say, okay, you know, the AI algorithms and stuff know that, okay, when this happens, when there’s some, something unstable that happens, that that’s good for gold. But at the end of the day, it’s all about supply and demand. Are there more people buying gold and selling gold? Is there more gold coming onto the market than not? We talked in previous episodes about supply problems in the gold market.

 

So you’ve got, you know, kind of diminishing supply and the same time what’s driving demand. It’s these foreign governments and central banks that are losing confidence in the United States. That’s really what it is.

 

Foreign governments and central banks that are looking at the dollar, looking at, looking at the US government, looking at the lack of stability in the US government, looking at, you know, kind of just this sort of shoot from the hip approach that doesn’t seem like a, an administration that has a long-term plan and is really kind of carefully considering and weighing consequences, et cetera. And they’re going, I’m out, I’m out. And so, you know, It’s kind of interesting that one other thing Buffett said was that sometimes you have to just hang out and wait when you don’t have a good opportunity, but he’s talking about deploying like billions of dollars, hundreds of billions of dollars, hundreds of billions.

 

And when you’re a smaller investor or a smaller person trying to hedge, you have these other opportunities where you can put money in investments that are much smaller. Some of the market caps on the companies that we talk about in the fourth pillar are like a couple hundred million dollars. Yeah.

 

Or, I mean, some, some, some lot bigger than that, some, some smaller than that even, but yeah, that’s, you’re right. I think that’s a great way to close it out is that what he’s ultimately saying is, look, you know, there’s some problems here. Again, the tone was different.

 

There’s no crisis right now, but even during the 2008 financial crisis and other crises, Buffett was a cheerleader. Everything’s positive. Everything’s great.

 

Now all of a sudden there’s no crisis. And he’s saying, look, there’s some problems here and you got to do better. You got to maintain the sound currency.

 

Sound currency is the result of all these issues, the loss of confidence, the fiscal challenges, the deficit spending, all those things at all. At the end of the day gets reflected in the currency. And so he’s saying, you got to do better.

 

You got to maintain a stable currency and to maintain a stable currency, you got to do these things. And if they’re not doing that, you know, he’s saying, look, that could turn people’s lives upside down, but you know what? A well-managed business can weather that storm very, very well, especially if their product or service is something that’s still, he used the word desired. We use the word needed.

 

We use the word critical. We say, if it’s critical, if a company provides something that’s critical, you know, it’s still going to do, it should do extremely well, even in an inflationary scenario, even in a, even in a, in a, look, in a boom scenario, that’s still going to do well. The business is going to be profitable.

 

They make money. That’s what you want in a deflationary scenario. They throw off much needed cash and they do very well in an inflationary scenario.

 

They, you know, they, they rise because the value of their product or service ends up offsetting the rate of inflation. I mean, we see this with oil, we see this with gold, we see this with a lot of commodities. So it’s just something that makes a lot of sense.

 

And it just so happens to be that at this particular moment, a lot of the companies that are in this particular space happen to be trading at just ridiculously cheap valuations. And we’ve talked about this a lot simply because this opportunity is sort of here and now, and we keep saying it’s not going to last, it’s not going to last. And it’s just important to call this out.

 

And as long as it’s still around, we’re still, we’re going to keep talking about it, reminding people that there are some really, really great businesses in this real asset space that are dirt cheap at laughably cheap valuations that are profitable, have pristine balance sheets, are extremely well managed. It’s just not something that you see. It’s something you see very, very seldomly.

 

And, and I think, you know, it aligns with everything that, that even Warren Buffett was saying the other day, it’s just great. It’s a great hedge against some of this uncertainty. And, you know, it’s pretty clear.

 

We’re seeing a lot of this right now. That’s probably a good place to leave it off. Okay.

 

Thanks, James. Okay. Good stuff.

 

Thanks.