“When a man spends someone else’s money on someone else, he doesn’t care how much he spends or what he spends it on. And that’s government for you.”

– Milton Friedman

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December 3, 2024— “Well,” we said to no one in particular, “this can’t be good.”

And that’s what started it.

We apologize for today’s missive in advance. We begin with a short anecdote before introducing a rather quaint Thanksgiving essay from Bill today.

The “this” in the above statement is a chart showing a new record set in global debt.

What ensued was educational.

We made the mistake of opening Claude.ai to ask a few simple questions. Several hours later we realized while AI tools may actually be efficient they can also be as big a time suck as any other medium, so beware.

It was tedious. But we persevered… on your behalf… mostly so you don’t have to.

Here’s the gist of what we learned. I’ve rearranged a few of the questions here for some logical coherence.

Addison to Claude: Why is there so much public debt in the global economy?

Claude: Several key factors drive high public debt levels globally:

1. Response to crises – Massive government spending during the 2008 financial crisis, COVID-19 pandemic, and other emergencies required extensive borrowing
2. Low interest rates – Historically low rates since 2008 made borrowing cheap and appealing for governments
3. Aging populations – Rising healthcare and pension costs strain government budgets in developed nations
4. Political incentives – Politicians often favor spending over tax increases, leading to persistent deficits
5. Military spending – Defense costs constitute major expenditures for many nations
6. Infrastructure needs – Countries borrow heavily to fund roads, energy systems, and public works
7. Economic growth strategy – Some nations use debt to fund investments aimed at boosting long-term growth

This debt accumulation has created vulnerabilities in the global financial system, particularly as interest rates rise.

Addison to Claude: What are the consequences of a debt crisis?

Claude: A debt crisis triggers credit rating downgrades, spiking borrowing costs, and currency devaluation. This forces harsh austerity measures – spending cuts and tax hikes – leading to unemployment and reduced public services. The crisis can spread internationally through financial contagion, potentially causing bank failures, investment losses, and broader economic instability.

Addison to Claude: What happens in a global debt crisis?

Claude:  A global debt crisis involves multiple major economies experiencing simultaneous debt problems, with these key effects:

Economic: Sharp global economic slowdown, trade disruption, widespread credit freezes

Financial Markets: Stock market crashes, bond market stress, currency volatility

Banking: Bank failures, credit contraction, potential systemic financial crisis

Government Response: Coordinated central bank action, emergency lending facilities, possible debt restructuring

Social Impact: Rising unemployment, reduced public services, political instability

The interconnected nature of modern financial systems means problems quickly spread between countries through banking relationships, trade links, and market sentiment.

Addison to Clade: Can a debt crisis be triggered by a fiat currency?

Claude: Yes, a debt crisis can be triggered by fiat currency issues, particularly through:

1. Currency devaluation making foreign debt repayment more expensive
2. Loss of confidence leading to rapid inflation
3. Central bank policies affecting interest rates and money supply
4. Foreign exchange reserve shortages limiting ability to defend currency value

However, fiat systems also provide tools to manage crises through monetary policy, unlike gold-standard systems which can be more rigid during debt crises.

Addison to Claude: What would happen if the US dollar lost its reserve currency status?

Claude: If the USD lost reserve currency status, major changes would occur:

Economic: U.S. borrowing costs would rise sharply, potentially triggering recession. Import costs would increase significantly.

Trade: Global trade would need restructuring as most commodities are priced in USD. Alternative currencies or baskets could emerge.

Monetary: U.S. would lose “exorbitant privilege” of printing global reserve currency. Fed influence would decrease.

Global: International banking system would face disruption. Multi-currency reserve system might emerge, possibly including digital currencies.

Financial Markets: Bond markets would face volatility. U.S. asset values could decline as foreign holders divest.

Military: Reduced ability to fund global military presence and impose financial sanctions.

Addison to Claude: How should an individual investor prepare for a debt or currency crisis?

Claude: For a debt or currency crisis preparation:

1. Hold physical assets: real estate, precious metals, commodities
2. Geographic diversification: investments across multiple currency zones
3. Cash management: maintain reserves in multiple stable currencies
4. Hard currency exposure: Swiss franc, Singapore dollar positions
5. Inflation-protected securities and floating-rate bonds
6. Quality stocks with global revenue streams and pricing power
7. Minimal debt, especially in potentially unstable currencies
8. Crypto allocation (small) as potential hedge

Avoid: excessive cash in single currency, high leverage, purely local investments

The rabbit hole got a lot deeper. Claude will go on any adventure you invite it to go on.

We end it here… because the preparations Claude suggests sound eerily like the advice we’d give on a regular basis in The Grey Swan Investment Fraternity monthly bulletin.

Perhaps we should make Claude an honorary member. He’d make a good companion in the event Trump isn’t successful in badgering the rest of the world’s nations into continuing to support the U.S. dollar as the global financial system’s reserve currency.

Nah, he’d probably waste a lot of our time. And, it turns out, his answers depend very much on the questions you ask.

Bill Bonner brings us back to earth with a short conversation he had with his grandson over the Thanksgiving weekend. ~ Enjoy, Addison

Time to Chop Wood

Bill Bonner, Bonner Private Research

Bill Bonner, writing today from Baltimore, Maryland

People choose whom they work with. They choose whom they marry and live with. They choose their dentists, doctors and decorators. They choose their president and Congressional representatives. They choose their food, their clothes, their autos, their videos and house plants.

But they don’t choose their families. And when the genetic cards are shuffled and dealt, you never know what you’ll get.

And if you have a large family, you’re likely to get a full house… full of kings, queens, jacks and jokers. And adorable grandchildren. One is a reader. He plants himself down with a book, in front of the fire…and stays there until interrupted. Another is an outdoor boy, ready to hop on the tractor with Granddad. One little girl is smiles and kisses. Another is up to mischief. And one teenager is a philosopher.

We had spent the day before Thanksgiving splitting firewood. All day, we loaded the logs — oak, locust, cherry, and poplar — onto the splitter. Once split, the fire logs were stacked in the barn, where they will rest until next year.

In the evening, we joined the ‘lesenteufel’ in front of the fire.

“Grandad, do you believe in God?” asked a 16-year-old grandson.

“It would be vain and foolish not to believe in God,” we replied.
That answer didn’t satisfy him.

“Does that mean you do believe in God?”

“God doesn’t need me to believe. Or not believe. I’m just a tiny minnow caught in God’s great net, waiting for Him to haul me up.

“Ask me something easier.”

“Okay… can you show me how to make a fire.”

Our grandson lives in Florida. Floridians, apparently, have yet to discover fire.

“You start by getting some firewood. We’ll go out tomorrow and cut down those two beeches in the front yard.”

“But Granddad, don’t we need more trees to absorb carbon dioxide, so the planet doesn’t overheat?”

“Nah… here in Maryland, the trees grow fast. And they grow everywhere. You leave a field for a few years and it will be covered in trees. They now have a scammy program, where developers will pay you to plant trees to make up for the trees they cut down. But trees grow on their own. They don’t need us to plant them. You cut down a tree; it just makes it easier for other trees to grow.”

“Granddad, but if you cut down all the trees, that couldn’t be good for the climate, could it?”

“Probably not. But I’m not cutting them all down. Just two of them.”

That subject temporarily on pause, we moved on to others. Experts tell us that the recent presidential election triggered thousands of divorces. Couples became embittered with one another when they couldn’t resolve their political differences. Come the election and one was triumphant, the other downcast. Neither could ever forgive the other.

We were advised not to discuss politics at our Thanksgiving gathering. But the 16-year-old didn’t get the message.

“Grandad, what do you think will happen, I mean now that Trump is back in the White House?”

We hesitated.

“The only way to Make America Great Again is to shrink the thing that has made it not-so-great. The American people are no worse than they used to be. They still work hard. They still want to make money. They are still just as dumb…or just as smart…as ever.

“What is different is that the government is much bigger, and more intrusive. Non-defense outlays were barely 5% of GDP until after WWII. Now they are around 20%. But that’s just the annual charge. Regulation and debt are cumulative. And they’ve been building up for decades. They now cause so much delay and useless expense that much of Americans’ output is squandered… or never produced at all.

“The interest payments on federal debt are now more than $1 trillion per year. That’s approaching 4% of output now consumed just to pay for long-dead programs, forgotten wars, and ‘investments’ that didn’t pay off.

“And the National Association of Manufacturers tells us that federal regulations cost the economy an additional $3 trillion per year. Between the two, that’s about 15% of America’s entire GDP. No wonder most people have made very little real economic progress in the last half a century.

“There’s the real challenge, getting the feds under control; stopping the elites from ripping everyone off. Everything else is detail… or noise.”

Our grandson had gone silent. Politics — or at least our version of it — may have bored him. It was time to chop wood. More to come.~ Bill Bonner, Bonner Private Research

Regards,

Addison Wiggin,
Grey Swan

P.S. Fun grandpa.

P.P.S. Elon Musk has seen his net worth soar by over $40 billion since last month’s election, fueled by a rally in Tesla shares.

However, a Delaware judge has ruled that Musk won’t get the $56 billion pay package that the board approved in 2018. Some shareholders sued after the deal was first announced, and a vote was held to approve the deal.

Tesla shareholders overwhelmingly approved it. The judge said “nada” anyway.

The judge’s justification: “Were the court to condone the practice of allowing defeated parties to create new facts for the purpose of revising judgments, lawsuits would become interminable.”

We’re not attorneys, but wouldn’t or shouldn’t the judge honor the votes of the majority of shareholders?

Following the initial ruling in January, Musk had Tesla’s incorporation moved from Delaware to Texas. Given that Delaware has more corporations than residents, a corporate version of “voting with your feet” could have huge ramifications for the state’s business going forward.

Share your thoughts. How much do you think Elon Musk should be paid for kicking off the EV revolution? Send your response, here: addison@greyswanfraternity.com.