Debt Death Spiral

  • Fake news, decades in the making
  • Jim Rickards: Congress ratchets up the debt ceiling
  • Corporate media anticipate Dem in White House
  • Ray Blanco on a “highly unstable virus” (not that one)
  • Airline food’s pilot program
  • Readers on “YUGE” firearm sales… Time’s up for stimulus checks… The Hunter Biden affair… An internet license (really?)… And more!

It’s not exactly “fake news”… but it’s profoundly misleading. Also, it’s happened every year for decades.

After we went to virtual press on Friday afternoon, the U.S. Treasury issued its final numbers for fiscal year 2020, which ended Sept. 30.

Thanks in large part to all the pandemic “stimulus,” the official budget deficit totaled $3.1 trillion — “more than triple last year's shortfall of $984 billion and double the previous record of $1.4 trillion in 2009,” as CNBC says.

The annual deficit figure is always an accounting fiction. It’s how during the late 1990s, Bill Clinton and Newt Gingrich both claimed credit for a “balanced budget.” They both lied. It wasn’t balanced at all. It was smoke and mirrors… because in reality, the national debt kept growing every single year.

Here in the present instance, Uncle Sam ended fiscal 2020 with a national debt of $26.9 trillion. The increase over the previous 12 months was not the advertised “deficit” of $3.1 trillion, but rather $4.2 trillion.

With that, America’s debt-to-GDP ratio “will soon reach 135%,” says our Jim Rickards.

“That’s the highest in U.S. history (higher even than the end of World War II) and puts the U.S. in the same league of super-debtors such as Japan, Lebanon, Greece and Italy,” he adds.

Can it go higher still? Of course. “After all,” says Jim, “there’s no legal impediment to even higher debt levels if Congress wishes.

“The problem is that there is no stimulus effect, just more spending. Research shows that a 30% debt-to-GDP level is sustainable and even a 60% debt-to-GDP level can still have a so-called Keynesian multiplier greater than 1 (that is, $1.00 of borrowing and spending will create more than $1.00 of GDP, at least temporarily).”

But then comes a point of no return. “Once debt-to-GDP ratios exceed 90% the multiplier falls below 1,” Jim goes on.

“In that condition, when you borrow and spend $1.00, you create less than $1.00 of GDP. This is the point at which more spending does not produce more growth and you are simply going broke.

“The only ways out of this debt death spiral are default, inflation or confiscatory tax rates that hurt growth even more. In anticipation of these outcomes, citizens spend less and save more. That kills consumption and growth.

“In short, Congress will not be able to borrow and spend their way out of the new depression.”

The investment implications? There are two…

  1. This much is a certainty: The Federal Reserve will keep interest rates at rock-bottom for years to come — far beyond even its current projections of 2023. That will destroy traditional fixed-income investments. The institutional investors who rely on those assets the most — pension funds, insurance companies, university endowments — will inevitably turn to gold as an alternative.
  1. The following is a possibility: If the “bond vigilantes” return to the market after a decades-long absence and rebel against those rock-bottom rates by dumping U.S. Treasuries… the resulting rise in rates will touch off a crisis of confidence in both Treasuries and the dollar. That’s a profoundly inflationary outcome… and once again gold is the beneficiary.

Either way, gold wins.

With that in mind, Jim Rickards is about to take the wraps off a new strategy to maximize the potential gains from gold. Check back with us through the week — you won’t want to miss out.

The major U.S. stock indexes are gyrating as a new week begins — seemingly up and down with every new headline about the prospects for even more “stimulus.”

At last check, all the major indexes are in the red, if only slightly. The S&P 500 rests at 3,479. Gold has poked its nose back above $1,900. Silver is up smartly at $24.56. Crude has jumped past $41.

Earnings season tends to be quiet on Monday and the only economic number — domestically anyway — is homebuilder sentiment. At 85, the number is the highest in 35 years. Even the normally restrained Econoday is starting to muse that “record-low interest rates may be feeding an unsustainable bubble.”

The bigger economic number comes from overseas. Chinese GDP for the third quarter jumped 4.9% year over year, less than expected but nonetheless impressive. Although The New York Times’ take made us raise an eyebrow…

NY Times

Elsewhere we see corporate media further amplifying the drumbeat about a “blue wave” election outcome: “Fund managers are switching out of technology and into small-cap stocks,” says the Financial Times, citing portfolio moves by the likes of Janus Henderson and Invesco in anticipation of Democrats controlling the White House and both houses of Congress.

We don’t recall this sort of chatter four years ago, when Hillary Clinton was the presumed shoo-in. Granted, Trump wasn’t the incumbent then. Too, the expectation was that even if Clinton won, the GOP would retain its control of the House. (It did.)

Meanwhile, garden-variety flu looms as the weather gets colder in the Northern Hemisphere.

For whatever it’s worth, the CDC says over the past decade, seasonal flu has killed anywhere between 12,000–61,000 people each year.

“The flu is a tough case,” says our Ray Blanco on the science-and-wealth beat. “We develop durable immunity to many types of virus. If you caught the chicken pox as a kid, your immune system adapted and you should be immune for life. With vaccines, we can create that adaptation without infection.

“But the flu doesn’t work that way. It is a highly unstable virus. When it replicates inside a human or other organism, it can change and recombine with other strains. While your immune system might be able to protect you from past strains you’ve been infected with, it won’t recognize and quickly react to new ones you’re exposed to.

“That’s also a big problem for flu vaccines,” Ray elaborates. “Unlike other vaccines, which are often one and done for life, you have to get a flu shot yearly to have some hope of being protected — and it’s an iffy proposition even then.

“Every year, six–nine months before the advent of flu season in the Northern Hemisphere, circulating flu strains are analyzed. Then a new vaccine is made that induces immunity to three or four of them. They don’t always work.

“And that’s due to the mutable nature of this virus. By the time flu season starts in November, there might be a new strain that wasn’t in the wild six months prior.

“What’s needed is a universal flu vaccine, something that works regardless of strain or whether the flu is type A or B: a vaccine that is so broadly protective that your immune system can fight off infection no matter what these bugs do and that keeps working year after year.”

Yes, Ray is keeping his eye on a company making progress on that front in his FDA Trader portfolio.

If grounded airlines are serving up their first-class food at company headquarters (Thai Airways) and even on board its jumbo jets (Singapore Airlines)… why not sell it in stores, too?

“Finnish carrier Finnair will start selling business-class airplane food in supermarkets,” reports The Associated Press, “in a move to keep its catering staff employed and to offer a taste of the airline experience to those missing flying in the COVID-19 times…

“The ready-made dishes include options like reindeer meatballs, Arctic char and Japanese-style teriyaki beef and are suited for Nordic and Asian palates and would cost about 10 euros ($12) to 13 euros, Finnair Kitchen said.”

For the moment, it’s just a pilot program (so to speak) — with the meals sold only at one store in the city of Vantaa.


“Taste of Finnair,” in packaging that’s as reserved as Finland’s national character (We approve)…

The chefs have had to make a few changes, though — less salt and fewer spices than the fare served in the air. Turns out high altitude dulls your taste buds. Now you know…

“Why ‘clothing and sporting goods’ are surprise performers,” reads the subject line of an email reacting to Friday’s retail sales figures.

“Anyone in the gun business, as I am, is not surprised in the least. Firearms are classified as sporting goods. Sales took off in early spring, as people who had never owned guns thought they might need to protect their newly acquired stockpiles of toilet paper. In the summer, random violence, looting and talk of defunding the police goosed sales, and there has been no pullback.

“When I called one of our dealers recently, I got a recording that went roughly like this: ‘Hello! You’ve reached Johnny’s gun shop. We’re closed, but it’s not because of Covid. We don’t have anything left to sell!’

“Other outdoor goods, say, fishing and camping gear, are also having a great year, but the firearms component is YUGE. Our backlog today is 3x 2019 total sales.

“Thanks for The 5, which has become an essential part of my day.”

More takes on the National Federation of Independent Business survey: “I also wondered what planet the NFIB responders lived on, as those results were nothing like my experience over the last couple of months with my antique and collectibles ‘retail’ business.

“What with the lockdown we did a very good business in August, a little less than average in September and so far October has been awful.

“However, I can't say everything is bad, as we've been offered a ton of furniture at really good prices recently. By the way we also have a website and do some eBay, so we don't just depend on foot traffic. Looks like the $1,200 gift has been exhausted.”

“Although you have correctly identified a future dilemma when trying to balance social media censorship versus First Amendment rights,” a reader writes, “this particular example of the Hunter Biden affair should probably not be your best example.

“The FBI had determined that the sources of this errant disclosure were Russian fabricated propaganda, designed purposefully to damage the Biden election efforts. Rudy Giuliani was duped into these false accusations and President Trump was instructed by the FBI last December to disregard this information as baseless. So much for that October surprise! 

“This doesn't mean that the question of balance in the future will not present a problem, but clearly, spreading these false rumors as true facts does not build your brand.”

The 5: On the contrary, we think it’s an outstanding example.

Since Friday, there’s been a smattering of stories by other newspapers attempting to poke holes in the New York Post story — which is as it should be anytime a media outlet gets a controversial scoop.

But by and large, “the near-universal reaction among mainstream press outlets,” writes Matt Taibbi at his Substack site, “was to denounce the Post story as dangerous, and probably foreign, misinformation.”

Yep. It doesn’t even matter that the emails appear authentic — and if they weren’t, you’d think the Bidens would have been the first to say so. If it reflects poorly on the Bidens, it must be suppressed in the interest of expelling Cheeto Man from the White House. LA LA LA CAN’T HEAR YOU!!

Our favorite political reporter Michael Tracey points out correctly that corporate media are trying to “make up” for reporting on the Democratic National Committee emails in 2016 — which were unquestionably authentic and undeniably newsworthy. If they served to undermine the Hillary Clinton campaign, so be it.

But that was then and this is now, huh?

“The only thing that should matter, when it comes to stories like this,” writes Taibbi, “is whether or not the material is true and in the public interest. This disturbing new confederation of media outlets and tech firms is rewriting that standard.”

“I disagree that social media censorship is a product of the federal government's power,” writes our final correspondent.

“Politicians react to perceived injustices brought up by the mainstream media. The fact is that states can't deal with much of the internet because it often involves communication and commerce between states, so the federal government needs to step up to the plate.

“As far as the content is concerned, lewdness, content intent on spreading irreligion, false religions, falsehoods or supporting criminal behavior shouldn't be permitted. Discussion of policy differences or truthful criticism of politicians or candidates except insofar as they directly affect morality (e.g., abortion) should be allowed.

“It would be a good idea to grant a license to publicize on the internet (or even off).”

The 5: You’re pulling our leg, right? Please tell us you are. Before we have to go apply for a license that would surely be denied us…

Best regards,

David Gonigam

Dave Gonigam
The 5 Min. Forecast

P.S. It’s Monday, which means this message from me will be pulled offline at midnight tonight.

Yes, it will return in a few more days. Maybe you’ve gotten used to that. But next time will be the last time. We’re shutting off access to new subscribers in less than 10 days — probably for the rest of the year, and maybe a few weeks into 2021 as well.

So if you want access to our most popular premium trading advisory this summer and fall, the window of opportunity is closing fast.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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