- Unbearable political theater (Obama, Trump and Biden)
- Only seven legislative days until debt default
- Jim Rickards: It’s all avoidable with one “weird gold trick”
- Knocking on Fort Knox’s door?
- Taiwan’s bridge too far (“blowing up facilities”)… Amazon’s abuzz (a stupid moment in publishing)… Charging military EVs in Somalia… And more!
We’re now only seven days away from a potential default by the U.S. government on its Treasury debt.
Wait, you say, I thought Treasury Secretary Yellen said if Congress doesn’t raise the debt ceiling the deadline is June 1. That’s still three weeks away, right?
The reality is there are only seven legislative days between now and then. We won’t get into the weeds about what constitutes a “legislative” day, other than to point out the House and Senate aren’t always in session, and often they’re not in session at the same time.
Suffice to say it narrows the window in which Congress and the White House can come to some sort of understanding — even if it’s to kick the can down the road for a few more weeks.
Already, the political theater is unbearable.
Joe Biden says House Republicans are “holding the economy hostage.” Senate Majority Leader Mitch McConnell is posturing about how Biden would be “unconstitutionally acting without Congress” if he resorts to a bizarre 14th Amendment maneuver.
And Donald Trump, always mindful of how he can draw attention to himself, told CNN last night he welcomes the prospect of a default if Republicans can’t achieve “massive cuts” in the bargain.
As I’ve said in the past, Republicans always find their budget religion once they’re out of office. While he was in office, however, Trump made zero effort to offset his tax cuts with spending cuts — and House Speaker Paul Ryan, the phony budget hawk, refused to hold Trump’s feet to the fire.
The result in 2019 was the first trillion-dollar annual budget deficit in seven years. This was before the pandemic and without Barack Obama’s excuse of “we need to spend like drunken sailors to climb out of the 2008 financial crisis.”
And to think: “It can all be avoided with just one simple phone call,” says Paradigm Press macro maven Jim Rickards.
See, the gold held by the U.S. Treasury is still officially valued at a mere $42.22 an ounce — a relic of the early 1970s. Janet Yellen could ring up Federal Reserve chair Jerome Powell today and revalue it at the spot price of — checking our screens — $2,012.
“That would pull over $550 billion of new spending power out of thin air — without issuing any debt,” Jim explains.
“That’s right. Most people don’t realize that there’s a way gold can be used to work around the debt ceiling crisis. I call it the weird gold trick, and it’s never seen discussed anywhere outside of some very technical academic circles.”
And there’s historical precedent.
“When the Treasury took control of all the nation’s gold during the Depression under the Gold Reserve Act of 1934,” Jim explains, “it also took control of the Federal Reserve’s gold.”
As compensation, the Treasury issued the Fed a gold certificate.
Two decades later, in 1953, the Eisenhower administration bumped up against the debt ceiling — and Congress didn’t act in time.
“They turned to the weird gold trick to get the money,” says Jim. “It turned out that the gold certificate the Treasury gave the Fed in 1934 did not account for all the gold in the Treasury’s possession.
“The Treasury calculated the difference, sent the Fed a new certificate for the difference and said, ‘Fed, give me the money.’ It did. So the government got the money it needed from the Treasury gold until Congress increased the debt ceiling.”
So there’s nothing to stop Janet Yellen from doing something similar now.
“The Treasury,” says Jim, “could issue the Fed a gold certificate for the 8,000 tons in Fort Knox at $2,012 an ounce and tell the Fed, ‘Give us the difference over $42 an ounce.’
“The Treasury would have over $500 billion out of thin air with no debt. It would not add to the debt because the Treasury already has the gold. It’s just taking an asset and marking it to market.”
Well, there’s one thing that stops Janet Yellen dead in her tracks from resorting to this “weird gold trick.”
The reality is that “no one in power wants to recognize the role of gold as a monetary asset,” Jim says. “They don’t want anyone to even talk about gold, except as a ‘barbarous relic’ that belongs in the dustbin of history.
“Instead, expect this game of chicken to continue. Investors can brace by buying gold and building up cash reserves. The stock market may be in for a rocky road.”
No doubt: The 2011 debt ceiling drama tanked the stock market 17% in 17 days — and sent gold soaring $250 an ounce to record highs.
But even if the game of chicken ends in the next few days, Jim will have plenty to talk about next week during his exclusive Secrets of Jekyll Island event.
Jim is venturing to Jekyll Island, Georgia — where America’s power elite convened in 1910 to hatch the creation of the Federal Reserve. He’ll be joined by former Fed insider Danielle DiMartino Booth. Together they’ll unpack all the market-moving macro events that will shape the rest of 2023 — including the surprising endgame for the U.S. dollar. And you can look in on this event via live webcast.
It’s set for next Wednesday the 17th at 1:00 p.m. EDT. The signup link is right here. We promise you won’t get a big sales pitch for one of our premium trading advisories; this will be an information-packed two hours of discussion, our way of saying thank you for your continued patronage.
Oh, we’ll be giving away five ounces of gold and 50 ounces of silver while the event is underway. So make sure you secure your spot at this link.
Another day, another round of choppy market action.
After we went to virtual press yesterday, the Dow recovered most of its losses by day’s end. But at last check, the Big Board is down three quarters of a percent to 33,273. The S&P 500 is down a third of a percent, still comfortably above 4,100. The Nasdaq is pancake-flat at 12,306 — its high-water mark for the year, as it happens.
Weighing down the Dow is one of its 30 component companies, Disney — down more than 8% after disclosing it lost 4 million Disney+ subscribers worldwide during the first quarter, about 300,000 of them in the U.S. and Canada.
As noted earlier, gold is still holding the line on $2,000 at $2,012. But silver’s getting absolutely stomped — down more than a buck to $24.30.
Copper continues to flash recession, down nearly a dime to four-month lows at $3.72 a pound. And crude is down nearly a buck to $71.61.
The one economic number of note is April wholesale inflation, which is cooler than expected: The producer price index rose 0.2% month-over-month and 2.3% year-over-year, the lowest level since January 2021.
Department of “Headlines You Don’t See Every Day”…
So we should back up a bit: In March we took note when Trump’s national security adviser Robert O’Brien said if China invades Taiwan, Washington should act first and destroy the Taiwanese chip factories — on which U.S. industry is heavily dependent.
It appears this sentiment is bipartisan: More recently, Rep. Seth Moulton (D-Massachusetts) said Washington should “make it very clear to the Chinese that if you invade Taiwan, we’re going to blow up TSMC,” that is, the Taiwan Semiconductor Manufacturing Co.
This week, Taiwan’s defense minister Chiu Kuo-cheng was asked about Moulton’s proposition and he said no way: “It is the military’s obligation to defend Taiwan and we will not tolerate any others blowing up our facilities,” is how he was quoted by the South China Morning Post.
Presumably, Chiu speaks for most of the ruling Democratic Progressive Party. If they don’t like the idea, we can only imagine how the opposition Kuomintang must feel. (Taiwan holds a presidential election next January.)
We’ll leave it there for today, because we’re sure the topic will come up again — even if it doesn’t get much play in U.S. media now. And we’ll reiterate what we said in March: You’d think preventing a Chinese attack on Taiwan should be a major goal of American leaders. Instead, they seem determined to provoke one.
From the sublime to the ridiculous: The book publishing industry is abuzz with a wacky phenomenon.
Presale of a book whose title and author are still unknown has shot up as high as No. 2 on Amazon.
Checking this morning, it’s down to No. 22, but still…
The Flatiron imprint says only that the book is a memoir, the author is a celebrity and the volume will be a blockbuster.
Widespread rumor has it that it’s Taylor Swift… but Variety reports that’s not the case. Citing no one in particular, the media industry trade rag insists, “Swift does not have a book in the offing, it can be authoritatively said.”
Given the hints that Flatiron has dropped so far — “a fun celebratory title and will skew slightly younger, but is for people of all ages” — speculation is now centering on the South Korean boy band BTS. So there…
To the mailbag — where some additional informed opinions have rolled in on the topic of the Biden administration’s goal of an all-electric U.S. military fleet by 2030.
“As a retired USMC colonel and former defense contractor (after military retirement) I agree that the military-industrial complex will profitably spend the federal funds to develop these EV combat vehicles.
“And yes, the military did switch from gas to diesel fuel for safety reasons. Gas is not even allowed on a Navy ship. But EVs do have some safety benefits for vehicles with batteries being installed in the floor structure. The heavy batteries would help protect against mines and IEDs and provide stability (low center of gravity). The vehicle would probably be lost anyway in a blast, but the troops would be protected.
“The big problem is recharging all the EVs in austere combat situations. This is the real problem other than the huge cost and materials to build them.”
Which segues perfectly to our next correspondent…
“So where exactly do you charge these electric vehicles after they are deployed?
“I assume Iraq, Iran, Somalia, Ethiopia, Ukraine and other hot spots all have copious, conveniently located charging stations that would accommodate three–five times the electric load of a standard EV readily available for our military use. Probably wouldn’t even charge us for the juice.”
The 5: For real. Brings a whole new meaning to the old military saying about how “amateurs talk strategy but professionals talk logistics,” doesn’t it?
Dave Gonigam
The 5 Min. Forecast
