A Completely Foreseeable Crisis

A new golden age for America… The decline is over.

—Donald J. Trump

The future of civilization is assured.

—Elon Musk

It was a winter wonderland here at the farm yesterday. We hunkered down in front of the fire to watch the inauguration. It was unlikely to produce anything really new… but you never know. At the very least, it would help us gauge the zeitgeist of our era.

As expected, the inauguration was a mixture of decent sentiments… with indecent proposals… fraudulent pomposity mixed with solemn deceit… and a few delightful zingers mixed with blah-blah.

“I was saved by God to make America great again,” said the new President.

We don’t know God’s mind any better than he does. But our guess is that he is precisely wrong about what his real historical mission is. He came to Washington yesterday to praise the American empire. His real role is to bury it.

America has been in noticeable decline for the last quarter of a century. The people most responsible for that decline were on display yesterday — George W. Bush, Barack Obama, Donald J. Trump, and Joe Biden.

And now, in electing Trump again, is it likely that he will radically change course? Will he do something different… something he didn’t dare to do during his first term?

Mr. Trump spoke about the challenges he sees ahead. Alas, he didn’t seem to notice the one that is most likely to trip him up. The Panamanians are apparently over-charging for the use of the canal. Foreigners don’t respect us. And there’s a flood of immigrants pouring across an unguarded border along the Rio Grande.

Are there just two genders? What if you’re ‘undecided?’

Should Mt. McKinley be named after one of America’s so-so presidents rather than by some ‘Indian handle?’ Does anyone really care if the Gulf of Mexico is called the Gulf of America?

Maybe they do. But changing names is not going to prevent the real calamity, now advancing on Team Trump. Nor will sending people to Mars. Janet Yellen:

Treasury currently expects to reach the new limit between January 14 and January 23, at which time it will be necessary for Treasury to start taking extraordinary measures.

What measures will be taken? None were mentioned, extraordinary or otherwise. Instead, Mr. Trump turned his attention elsewhere.

His first time at bat was marked by the ‘national emergency’ he declared in March 2020. He thought that the Covid virus threatened the whole country and decided to use the police power of the feds to try to stop it.

This time, he’s introducing two more national emergencies. The immigrant situation has brought forth one of them. The other involves the energy industry (see Dan’s note below). Why can’t they be handled in the regular course of calm and careful federal business? Where’s the fire? He didn’t say.

Federal finances, meanwhile, are aflame.

Last year’s deficit ran over $2 trillion, bringing the total since 2020 to over $11 trillion. The largest contribution to that total came from Mr. Trump himself, whose 2020 deficit bulged over $3.3 trillion.

So far this year, the deficit is running at a nearly $3 trillion annual rate (sure to slow down when tax revenue picks up in April.)

There is some loose talk in Washington about how higher growth — from tax cuts and ‘drill, baby, drill’ energy policies — will close some of the deficit gap. Tax cuts — at the margin — can increase GDP. But the math doesn’t work. If the tax take is 20% of GDP, the latter has to rise by 5 times as much to bring in the same revenue. Cut taxes by $1 trillion, for example, and GDP would have to increase by $5 trillion to recoup the lost income.

As for making it easier to drill for oil, the probable result will be lower oil prices…putting marginal producers, now producing oil, natural gas, coal, solar and other forms of energy at higher prices, out of business. Besides, fuel has been cheaper in the past; no big increase in GDP growth was observed.

The presumptive new Treasury secretary, Scott Bessent says that the feds don’t have an income problem; they have a ‘spending problem.’

Mr. Trump’s DOGE was supposed to do something about that. But the Musk part of the DOGE has already admitted that eliminating the deficit was merely ‘aspirational,’ not something you could count on.

And in yesterday’s news, we discovered that the other half of the DOGE leadership – Mr. Ramaswamy – is bailing out completely. Business Insider with the news:

Vivek Ramaswamy is leaving President Donald Trump’s Department of Government Efficiency. Instead of leading the group with Elon Musk, he’s expected to run for governor of Ohio, according to various media reports.

Unless we missed it, at yesterday’s inauguration there was no mention of the fiscal crisis now bearing down on the US. It will come like a thief in the night… unbidden, unexpected, and unwelcome…but completely foreseeable.

Regards,

Bill Bonner

A new golden age for America… The decline is over.

—Donald J. Trump

The future of civilization is assured.

—Elon Musk

As expected, the inauguration was a mixture of decent sentiments… with indecent proposals… fraudulent pomposity mixed with solemn deceit… and a few delightful zingers mixed with blah-blah.

“I was saved by God to make America great again,” said the new President.

And now, in electing Trump again, is it likely that he will radically change course? Will he do something different… something he didn’t dare to do during his first term?

Are there just two genders? What if you’re ‘undecided?’

Should Mt. McKinley be named after one of America’s so-so presidents rather than by some ‘Indian handle?’ Does anyone really care if the Gulf of Mexico is called the Gulf of America?

Maybe they do. But changing names is not going to prevent the real calamity, now advancing on Team Trump. Nor will sending people to Mars. Janet Yellen:

Treasury currently expects to reach the new limit between January 14 and January 23, at which time it will be necessary for Treasury to start taking extraordinary measures.

What measures will be taken? None were mentioned, extraordinary or otherwise. Instead, Mr. Trump turned his attention elsewhere.

Federal finances, meanwhile, are aflame.

So far this year, the deficit is running at a nearly $3 trillion annual rate (sure to slow down when tax revenue picks up in April.)

The presumptive new Treasury secretary, Scott Bessent says that the feds don’t have an income problem; they have a ‘spending problem.’

And in yesterday’s news, we discovered that the other half of the DOGE leadership – Mr. Ramaswamy – is bailing out completely. Business Insider with the news:

Vivek Ramaswamy is leaving President Donald Trump’s Department of Government Efficiency. Instead of leading the group with Elon Musk, he’s expected to run for governor of Ohio, according to various media reports.

Regards,

Bill Bonner

Back in April, when we published what we called the Trump Great Reset Strategy, we described the grand realignment we believed President Trump and his acolytes were embarking on in three phases.

At the time, it read like a conceptual map. As the months passed, it began to feel like a set of operating instructions written in advance of turbulence.

As you can expect, any grandiose plan would get all kinds of blowback… but this year exhibited all manner of Trump Derangement Syndrome on top of the difficulty of steering a sclerotic empire clear of the rocky shores.

The “phases” were never about optimism or pessimism. They were about sequencing — how stress surfaces, how systems adapt, and what must hold before confidence can regenerate. And in the end, what do we do with our money?!

Relative to GDP, the net international investment claim on the U.S. economy was 20% in 2003. It had swollen to 65% by 2023. Practically every type of American company, bond, or real estate asset now has some degree of foreign ownership.

But it’s even worse than that. As the federal deficit has pumped up the GDP figures, and made a larger share of the economy dependent on government spending, the quality and sustainability of GDP have deteriorated. So, foreigners, to the extent they are paying attention, are accumulating claims on an economy that has been eroded by inefficient, government-directed spending and “investments.” Why should foreign creditors maintain confidence in the integrity of these paper claims? Only to the extent that their economies are even worse off. And in the case of China, that’s probably true.

As global government interest expense climbed, gold quietly followed it higher. The IIF estimates that interest costs on government debt now run at nearly $4.9 trillion annually. Over the same span, gold prices have tracked that burden almost one-for-one.

Silver has recently gone along for the ride, with even more enthusiasm.

Since early 2023, Japan’s 10-year government bond yield has risen roughly 150 basis points, touching levels not seen since the 1990s.

Over that same period, gold prices have surged about 135%, while silver is up roughly 175%. Zoom out two years, and the divergence becomes starker still: gold up 114%, silver up 178%, while the S&P 500 gained 44%.

According to the American Association of Individual Investors, the average retail investor has about a 70% allocation to stocks. That’s well over the traditional 60/40 split between stocks and bonds. Even a 60/40 allocation ignores real estate, gold, collectibles, and private assets.

A pullback in the 10% range – which is likely in any given year – will prompt investors to scream as if it’s the end of the world.

Our “panic now, avoid the rush” strategy is simple.

Take tech profits off the table, raise some cash, and focus on industry-leading companies that pay dividends. Roll those dividends up and use compounding to your overall portfolio’s advantage.