I’m Rooting For Gold To Go To Zero. Too Bad It Won’t
Notes From the Field By Simon Black August 15, 2023
By the time Wang Mang seized the imperial throne of China’s Han dynasty in the year 9 AD, he had already been a long-standing politician and government bureaucrat with decades of experience.
Not that Wang’s experience was especially helpful to the people of China.
As a seasoned politician, Wang’s biggest skills were setting up his opponents, cheating his way to the throne, and coming up with terrible ideas to destroy prosperity.
China’s Han dynasty had once been the pinnacle of civilization, most likely even surpassing the grandeur and wealth of the Roman Republic and ancient Greece. But Wang was one of the key figures who helped tear it down.
As emperor he was a total disaster. Wang had a thing for social and economic justice… so he imposed a bunch of idiotic land reforms to reduce inequality and form a more egalitarian society.
Instead of the ‘justice’ that he had envisioned, agricultural production plummeted and a lot of people went hungry.
Failing to see his error in judgment, Wang Mang doubled down by nationalizing entire industries, which only stifled investment and entrepreneurship.
Soon the Chinese economy was in the dumps. Prices soared. So the Emperor then (naturally) hatched the genius idea of imposing severe price controls… resulting in even more shortages and economic hardship.
He then tried to fix the shortages by taking over the labor market and essentially try to control what everyone did and where they worked.
But Emperor Wang wasn’t quite finished with his crusade for justice. He tried to pay for his mistakes by severely debasing the currency… which caused even more inflation and social unrest.
Wang Mang’s story is one of how complete and total incompetence results in disastrous consequences for an entire nation. History has witnessed countless other examples… and we’re seeing it play out again in our own time.
Today’s incompetent leadership is just as bad as Wang Mang; as I spelled out in yesterday’s missive, the US government has lost all ability to live within its means. They have spent trillions of dollars on their perverted ‘justice’ programs and environmental crusades.
Spending has gotten so bad that a $2 trillion yearly deficit is NOTHING anymore. Yet the continued accumulation of these deficits has created a gargantuan national debt.
As I mentioned yesterday, MOST of US national debt will mature over the next several years. Since the Treasury Department clearly does not have the money to pay back $25+ trillion in debt, their only option will be to issue NEW debt to pay off the old debt.
The problem, of course, is that the new debt comes with MUCH higher interest rates… and I explained that simply paying interest on the debt could exceed $2 trillion within the next five years.
On top of that, mandatory entitlement spending like Social Security and Medicare will hit $3 trillion. This means that just paying for Social Security/Medicare, and interest on the debt, could exceed 100% of tax revenue.
This scenario is potentially just five years away. At that point, it will be almost impossible for investors to have confidence in US government bonds.
US government bonds have long been considered the safest asset in the world. But if the Treasury Department has to blow $2 trillion just to pay interest, investors will quickly start looking for other safe havens. And one of those will be gold.
Think about it: there’s (currently) $32+ trillion in total US government bonds. This is MUCH larger than the gold market. So if even a small fraction of that US debt were to flow into gold instead, the gold price would go through the roof.
But there’s another scenario to consider, which frankly I think is more likely: the Fed steps in to save the US government.
One of the key reasons why the US government is in trouble (aside from their horrific spending habits) is that interest rates are so much higher than they used to be.
So the Fed can help the government out by slashing interest rates back down to 0%, which will make it affordable for the US government to finance its debt.
But this would come at a consequence; if the Fed slashes rates back down to zero, this would almost certainly result in another nasty bout of inflation… which would also mean higher gold prices.
So either scenario is bullish for gold.
Of course these two scenarios don’t even scratch the surface of all the political, financial, and economic problems in the US.
For example, there are still major risks lurking in the US banking system, including the fact that the Federal Reserve itself is hopelessly insolvent.
Social Security has less than a decade until it needs a bailout to the tune of tens of trillions of dollars.
And there’s also the likely possibility of the US dollar losing its dominance as the global reserve currency, likely this decade.
Gold should perform extremely well in any of these scenarios.
So in what scenario does gold NOT do well?
Well, gold does poorly in the “everything is just fine” scenario.
The war ends. Sensible politicians reign in spending. China plays nice and stops threatening to invade Taiwan. Economic growth goes through the roof. Inflation falls due to high levels of productivity and relative peace. Global trade booms.
As I’ve written before, this scenario is completely achievable, presuming competent leaders were in charge. And I’m really rooting for it.
In this scenario, gold would become a pointless relic… but I would happily welcome that outcome because everything else would be fantastic.
Unfortunately that scenario is unlikely… because the world is being run by a bunch of morons like Wang Mang.
If you feel like the trend in the world is more stupidity, more war, more socialism, more bad leadership, then you really ought to consider owning gold. In my view, a $5,000+ gold price is a pretty conservative estimate of where things go from here.
To your freedom, Simon Black, Founder Sovereign Man