Hidden Bankruptcy: The Reality Behind Uncle Sam’s Inflated Bar Tab

By Matthew Piepenburg

Below, we look at The hidden bankruptcy of the US in the wake of even more inflationary forces confirmed by cost-of-living-adjustments, Uncle Sam’s interest expenses, objectively unloved Treasuries and a roaring as well as convenient COVID narrative.

Math vs. Double-Speak

Given the fact that just about everything coming out of the mouths of debt-cornered policy makers requires a lie-detector and “double-speak” translator, we’ve been arguing since the moment the Fed began peddling the “transitory inflation” meme/myth to think differently.

In short: It’s our view that inflation is a snowball growing, not melting.

Toward this end, we’ve written and spoken at length as often as we can as to the many converging forces pointing toward rising inflation—from increased governmental guarantees (controls) over commercial bank loans, commodity super cycles to just plain economic realism, as inflation (and hence currency debasement) is the only tool left (beyond bankruptcy, taxation and “growth”) to service otherwise unsustainable debt levels: A hidden bankruptcy.

But let us not stop there, as other inflationary storm clouds are on the horizon yet ignored (not surprisingly) by an increasingly clueless financial media.

Another Glaringly-Ignored Inflation Indicator—COLA 2.2022

In particular, we are thinking about the U.S. Cost of Living Adjustment (“COLA”) for 2022 which could easily reach 6%, the highest of its kind since 1982.

It would seem that the U.S. Social Security Administration, unlike Powell, is aware of inflation, and therefore preparing (i.e., “adjusting”) for the same.

As the price for entitlement obligations rises, so too will the level of money printing to pay for the same, a veritable vicious circle for rising inflation.

Then there’s simple math.

We’ve talked about the Realpolitik of negative real rates as the final and desperate way for debt-soaked sovereigns to service their debt.

The signs of this are literally everywhere.

If we take, for example, a 1.4% Treasury Yield and subtract a potential 6% COLA increase for Social Security, we get -4.6% real rates, which will be a boon for alternative stores of value like gold and silver or “currencies” like BTC (as well as farmland and high-end real estate, which is continuing to enjoy a debt-jubilee of negative 3% real (i.e., “free” mortgages).

The necessary evil of negative real rates also speaks to the ongoing taper debate…

Giving Clarity to the Taper Debate

As tweets by twits pour across the electronic universe, it’s often important to notice what is not being “tweeted,” such as the interest expense on Uncle Sam’s national bar tab.

As the financial world hangs on the edge of its seat to see if the Fed will taper its QE (i.e., money printing) program and send bonds (and stocks) to the floor and rates toward the sky, they’ve ignored some basic math and a key chart.

Specifically, we are referring to the chart below representing the true interest expense on the debt bar-tab of a now fully debt-intoxicated Uncle Sam:

The true interest expense is a reason for hidden bankruptcy. 

With central-bank “accommodated” asset bubbles (from stocks to real estate to art) now at historically unprecedented levels, tax receipts flowing into the U.S. coffers from the ever-growing millionaire-to-billionaire class have been rising.

This may seem good for that punch-drunk Uncle Sam, but what no one is talking about is that despite even those “capital gain” receipts, the interest expense (i.e., “bar tab”) in D.C. is now an astronomical 111% of those same tax receipts.

In other words, U.S. tax income doesn’t come close to even paying interest (let alone that archaic concept known as “principal”) on growing U.S. debt obligations.

Can anyone say, “Uh-oh?”

Given the stark but ignored reality of unpayable U.S. debt, the implications going forward are fairly clear.

First, the Fed will not be able to “taper,” as less QE will mean an even higher interest rate, and thus higher interest expense on debt it still can’t pay at today’s artificially low rates.

Stated otherwise, a “taper” would only add helicopters of gasoline to a debt fire that is already burning the Divided States of America.

Given the dangers of such a taper, it likely won’t happen because it can’t happen, and this means more money printing and hence more negative real rates creating a hidden bankruptcy ahead, a weaker USD and rising precious metal prices, among others.

But What If the Fed Tapers?

Alternatively, should the Fed somehow turn hawkish and taper its QE support in the face of a debt forest fire, Treasuries will sell off dramatically, rates will rise, markets will tank, and the USD will surge—not good for Gold, BTC or just about anything else.

Does it Matter?

But as we’ve also tried to make crystal clear, there is no way the Fed will taper QE liquidity before it sets up a back-channel for even more liquidity from the Standing Repo Facility, Reverse Repo Facility and FIMA swap lines, which are all just “QE” by other names.

In simple speak, therefore, the “taper debate” is no debate, as the Fed has many liquidity tricks up its greasy sleeves.

In addition to liquidity tricks, the Fed has some ugly bonds to buy.

Embarrassing Treasuries

As we’ve said so many times, the biggest issue today is unsustainable and embarrassing debt levels requiring inflation (hidden bankruptcy), compliments of policy makers rather than a viral pandemic narrative out of all proportion to its confused scientific truths.

COVID has been an all-too timely and convenient pretext for blaming global debt ($300T) or U.S. public debt ($28.5T) on a flu rather than a sordid history of grotesque mismanagement from politico’s and bankers that was in play long before the first headlines out of Wuhan.

Furthermore, COVID monetary and fiscal policy measures effectively became a (hidden) pretext for a second market bailout greater in scope (yet better in optics) than the post-Lehman bailout of those otherwise Too Big to Fail banks.

In short, the façade (and branding) of a humanitarian crisis allowed a market-saving liquidity rescue (Bailout 2.0) to an otherwise Dead-on-Arrival bond market in late 2019.

In case this sounds too controversial to consider, please follow the Treasury market rather than our bemused nouns and adjectives, not to mention our total lack of scientific/medical credentials.

Bad IOUs

Just like friends don’t accept IOUs from drug addicts, global investors heading into 2020 stopped buying Uncle Sam’s Treasuries.

In simple-speak, Uncle Sam just seemed too debt-drunk to trust.

As a result, his Treasury bonds, once seen as “safe havens,” were finally seen as “bad jokes”—akin to the paper coming out of equally discredited zip codes like Greece, Italy or Spain.

For this reason, foreigners in a nervous 2020 (unlike a broken 2009) had not only stopped buying U.S. Treasuries, they were selling them.


Months ago, smart voices from the Street, including Stan Druckenmiller, were warning about the implications of such a shift in financial consciousness/trust.

Druckenmiller’s Astonishment

Specifically, Druckenmiller spoke of something he’d never seen in over 40 years as a market veteran.

That is, as stocks were tanking in the spring of 2020, he also saw the bond market lose 18 points in one day.

This correlated fall in stocks and bonds was not, as everyone “tweeted,” a reaction to the fiscal profligacy of the CARES Act, but more sadly a very new trend by foreigners to get rid of increasingly discredited U.S. IOUs.

Folks, this is a critical shift.

For over two decades (including during the Great Financial Crisis of 2009), U.S. Treasuries (and the USD) were once seen as “safe” landing places for foreign money rather than a risky bet.

Now, instead of seeing an annual average $500B inflow into U.S. bonds, we are seeing annual outflows of $500B…

When you tack on a $700B current account deficit in D.C. to a net loss of $1 trillion in Treasury support, whose left to “fill the gap” and buy those unwanted IOU’s?

You guessed it: The Fed.

And how will they come up the money to cover these purchases?

You guessed it again: They’ll mouse-click that “money” out of thin air to create a stealthy, hidden bankruptcy.

Needless to say, such realism (i.e., objective math) puts a lot of pressure on the U.S. Dollar as the Fed is forced to create even more money at a record pace to buy otherwise unwanted Treasuries.

But what kept the USD from falling in favor by end of 2020, if no one was buying our bonds but the Fed?

Well, the short answer is that all that foreign money (from sovereign wealth funds and foreign central banks) once ear-marked for our once-credible U.S. Treasury bonds went instead into those massive U.S. digital transformation companies who benefited most from a locked-down new mad world, namely GOOG, ZOOM and MSFT etc.

And how did Druckenmiller describe this shift?


He called it a “raging new mania.”

From Mania to Desperate

Foreign money once reserved for “safe haven” bonds was (and is) pouring into an already over-sized equity bubble.

By July, the USD had peaked, but after a peak comes, well…a fall for the Greenback—all very good for commodities, real estate, growth tech stocks and, of course, precious metals.

Back to the “What If” of a Naked Taper

But (and this is a very big “but”), what if the Fed were insane enough to taper QE without any back-door liquidity from foreign swap lines and the repo programs?

Again, ugly Treasuries would get even uglier, tank in price, sending rates and the USD higher and gold lower, along with a sharp sell-off in risk assets—i.e., corporate stocks and bonds.

But again, we don’t think this will happen, because as desperate as central bankers are, they are equally predictable.

Predictable Behavior?

That is, they know that such a naked taper (i.e., a taper without a back door repo or swap-induced liquidity) would cause rates to spike, and hence Uncle Sam’s bar-tab to default.

As the Fed’s Vice Chair intimated last year, US Treasuries (Uncle Sam’s bar tab) are simply too big to fail.

This means we can expect more liquidity (QE or repo/swap) and hence more, not less inflation.

The Fed is stuck in a self-inflicted dilemma–between letting inflation rip (to partially service America’s bar tab and “declaring” a hidden bankruptcy) or watching markets sink to the bottom of time.

For now, which choice do you think these banking, pro-market cabal thinkers will make?

The Realpolitik of COVID

Meanwhile, and regardless of one’s views on the vaccine mandates, case fatality rates vs. infection rates, or mask wearing vs. mask annoyance, no one needs our amateur medical advice.

But looking at COVID as a policy tool rather than as controversial health issue, it’s also fairly clear that the powers that be will be milking this fear-porn-to-policy trick for all its worth for as long as its worth.


Again, COVID is a wonderful narrative to justify more debt and more instant liquidity (i.e., fiat monetary expansion) and hence more inflation to inflate away the debt of debt-drunk nations already fatally in debt pre-COVID.

Rightly or wrongly, there are already scientists out of the UK (namely Oxford vaccine creator Sarah Gilbert) with more IQ-power and credibility than Fauci or Fergusson (admittedly not a high bar), who are already signaling that COVID will resemble little more than a common cold by next year.

This, if true (and no one really knows anyway), would be good for the world—but would the policy makers like this?

A post-COVID normal would be a boon to commerce and economic activity, and hence a boon to the velocity of money, which would kick inflation into ultra-high-gear.

High inflation will mean higher rates, which scare debt-soaked politicians and central bankers, unless inflation rises higher than those rates and negative real yields become the norm, which, again, we think is the realistic (i.e., only option) for these financial magicians running our governments, lives and central banks.

In such a scenario, gold will smile upon the inflation to come.

In short, and however we look at it, inflation is the new norm, and negative real rates are no less so, regardless of how the taper or COVID debate plays out.

As the future unfolds, gold, whose price is waiting for confirmation of such inflation, will only grow stronger as the “transitory” meme gets weaker by the day. 

 Xi's Changing Plan

By John Mauldin 

Six months ago, few Americans had heard of Evergrande. 

Now many worry this Chinese property developer’s downfall will start an economically devastating chain reaction.

They’re right about the chain reaction part, but I don’t think it will “devastate” anyone outside China (unless they have business there). 

Nonetheless, this episode exposes some other China issues worth discussing.

A few months ago in Xi’s Big Mistake , I said Beijing risked killing the entrepreneurial activity that had spurred the country’s rapid growth

As we learn more, this is looking less like a mistake and more like a mistakenly-conceived plan .

It’s hard to be sure because Chinese plans unfold so slowly. 

Leaders like Xi also don’t panic when their plans encounter difficulty. 

They patiently wait to get back on track, maybe nudging events along here and there. 

As long as society is stable and the regime not threatened, they just let it unfold. 

This opacity makes understanding China from the outside difficult.

Not Just Wrong but Incredibly Wrong

My views on China and Russia are rooted in the teaching and mentorship of Andrew Marshall. 

He was spectacularly right about both while the rest of the political/economic establishment, the CIA, and the State Department were not just wrong, but incredibly wrong.

Andrew Marshall (his biography is called The Last Warrior ) was a legend in military circles. 

He served at the premier Defense Department think tank from 1976 up until a few years ago. 

He was reappointed by eight presidents of both parties. 

His impact on US defense planning and thinking cannot be overstated. 

For whatever reason, in the mid 2000s, he began to have longer discussions with me and eventually took me under his wing. 

I had a great deal of access to his thinking, especially after he resigned.

Let’s rewind to the 1970s. 

Paul Samuelson, Nobel laureate and textbook writer (if you took Econ 101 in that era you likely used his text), had this chart from 1961 and similar ones in each succeeding edition.

Source: marginalrevolution.com

Samuelson predicted that the GNP of the USSR would surpass that of the US by 1984 or in the worst case 1997. 

He would move the dates back in each edition and sometime in the late ‘80s the chart simply disappeared, as it had become embarrassing. 

It wasn’t just Samuelson; this was accepted thinking in many academic and government circles.

Source: Vintage News

Samuelson’s thinking influenced multiple generations of economists and bureaucrats. 

This from the same source as the graph above, emphasis mine:

“In Samuelson’s case, some of his pro-Soviet bias may be, in part, a result of his personal beliefs. 

He was a fan of socialism, and as he said in the 1989 edition of his hallmark text, ‘The Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive.’”

Andy Marshall (and James Schlesinger as well) argued Russia was a literal Potemkin village, not growing nearly as much as Samuelson and others said. 

Andy, along with Jim Williams, helped develop what is called “inferential analysis.” 

You have to look past the headlines and do the analysis on the ground, not unlike what value investors do when analyzing a company. 

Counting the number of cars in the parking lots, etc. 

As the old saying goes, it’s what’s on page 16 that will end up making a difference in the future.

Much of today’s China analysis is based on headlines and not what’s really happening on the ground. 

There is a great deal of bias and sensationalism used to attract eyeballs and readers. 

Similarly, in the 1980s when US government agencies and especially the Defense Department were focused on Russia, Andy Marshall was saying China would be a bigger problem.

Down on the Farm

Like much of our discourse these days, the China discussion suffers from either/or thinking. 

Some call China an implacable foe bent on world domination, whatever the cost. 

Others see an aging autocracy clinging to a failed Communist ideology that will inevitably collapse.

I don’t rule out either of those possibilities, but there’s a lot of room for China to “muddle through” between them. 

That’s the far more likely outcome in China, in my opinion, just as it is in the US. 

Muddling through doesn’t mean “no problem.” 

It can bring big problems, but they fall short of the doomsday thinking of the either/or scenarios.

To understand how/if China will muddle through, we need to view current events in context. 

Change happens slowly even in small countries. 

China certainly isn’t small, so it can take years to even notice a change is happening. 

But consider the last few decades.

Modern China’s founding father, Mao Zedong, led the government from 1949 until his death in 1976. 

He was ideologically Communist and acted accordingly. 

There was nothing resembling capitalism in China during those years. 

And like the Soviet Union, it didn’t work very well. 

China under Mao was an unmitigated disaster. 

Tens of millions of people literally starved as government officials lied about farm production in order to please Mao. 

Massive misallocation of capital kept the country poor. 

Reeducation camps for anyone thought of as an intellectual scarred a generation.

A once-thriving economy became an impoverished mess. 

Mao’s successors recognized this and started “restructuring” long before Moscow did under Gorbachev. 

This may be why China avoided a similar disorderly breakup. 

And understand, many of the subsequent and current leaders of China grew up and were influenced by those events under Mao.

So throughout the 1980s and 1990s, Chinese authorities, under the encouragement of Deng Xiaoping, allowed some capitalist-like innovation and entrepreneurship, but always within limits. 

It led ultimately to China’s 2001 admission to the World Trade Organization, now widely seen as the launch of globalization.

Louis Gave argues (and I think rightly) that in global historical perspective, China entering the WTO may have been more important than 9/11. 

The country’s growth in the early 2000s was unlike anything in economic history. 

As many as 250 million people moved from subsistence farming to working in cities with far better lifestyles in a few decades. 

That’s a bigger migration by a factor of 10 than anything else of which I’m aware.

But as the old song went, “How ya gonna keep ‘em down on the farm after they’ve seen Paree?” 

Show people even a little prosperity and they don’t want to go back.

Source:  Wikimedia Commons

This became a problem for China when the Great Recession struck in 2008. 

Those millions of newly-happy peasants became a threat to social order, something Beijing couldn’t abide.

The solution was simple, though. 

With exports dried up, the government turned inward by launching massive infrastructure and housing projects around the country. 

These produced some valuable facilities but their real point was to produce jobs. 

And it was mostly debt-financed.

All this happened before Xi Jinping became president in 2013. 

He was on the Politburo at the time, though, and so involved in the decisions. 

Did he agree? 

We can’t know. 

He had grown up under Mao and spent his career advancing through the Party’s ranks. 

Everything we know says he is a dedicated communist. 

But he reached the top by being a pragmatic, get-things-done administrator.

In any case, it fell to Xi to deal with the aftermath of these choices. 

The infrastructure campaign and related policies produced a giant economic boom in themselves, further enhanced by the rest of the world’s simultaneous recovery. 

China and Xi took advantage of the economic boom and their trade balance simply soared. It is hard to see a trade war in this data:

Source: Gavekal

China developed something new: a class of wealthy business founders, corporate executives, and professionals seemingly independent of the Communist Party. 

Their rise is now looking less like the goal and more like a temporary side effect.

“The phrase—“To get rich is glorious”—is the simplified version of what Deng Xiaoping told his country a generation ago: “Rang yi bu fen ren xian fu qi lai,” he declared. “Let some people get rich first.” It unshackled China’s economy, and created the tycoons and super-growth we see today.” (Evan Osnos in The New Yorker )

Which brings us to Evergrande.

Imploding Superblocks

Evergrande, the troubled property developer now emblematic of China’s problems, didn’t appear out of nowhere. 

It grew by providing a) something people needed which was b) consistent with the government’s goals.

Sometimes the best economic insight comes from outside economics. 

This is from an interesting 2019 article on Chinese “superblock” architecture —those giant, tombstone-like apartment towers that dominate city skylines there.

Chinese officials in the 1990s were under pressure to expand the housing supply, and fast. 

The most expedient way of accomplishing this was to parcel out enormous plots of land to private developers, who quickly filled them with 30-story residential towers. 

The city planning authorities, meanwhile, obligingly built eight-lane highways between the blocks to service inevitable car traffic.

One reason for this… is the symbolic importance of cars and highways. 

Chinese officials obsessed with projecting a “modern, world-class” facade would of course seek to emulate the American city model, no matter how badly that model has been discredited. 

For ordinary Chinese people, too, car ownership was a crucial indicator of socioeconomic status.

But an even more important reason behind the continued insistence on superblock planning is the reliance of Chinese city governments on land lease revenue. 

Since the tax-sharing reform of 1994, cities have been obliged to fork over an enormous percentage of their tax revenue to the central government. 

In order to generate enough revenue to cover social services and other costs, cities have come to rely heavily on China’s land-lease mechanism that allows the city to rent parcels of land to private developers for a period of 70 years.

Superblock planning therefore was irresistible to Chinese officials, who could quickly expand the housing supply and generate a massive amount of tax revenue in the process. 

Although it’s changing, it’s still the case that Chinese cities generate an astonishing percentage of their revenue from land leases—more than half by most estimates.

The key point here: Evergrande-like development in China wasn’t just capitalism doing its thing. 

It was capitalism facilitated by government officials for their own purposes. 

Beijing wanted social order and local officials wanted revenue. The housing projects helped deliver both. Capitalism with Chinese characteristics?

Not surprisingly, this led to excess. 

You may have seen the viral video of 15 empty towers being imploded in Kunming this summer. 

They had sat empty since the developer ran out of money in 2013. 

Many more such “ghost cities” exist, often financed by pre-sales before construction even started.

Here in the US we think of homeownership as a sign of financial maturity and stability. 

In China it is even more so. 

Some estimates show 80–90% of household wealth is in real estate. 

That wealth is now in serious danger. 

The Kunming implosions suggest portions of it will literally go up in smoke.

Evergrande’s problems, like those of other developers, began when the government cracked down on the same leverage and speculation it encouraged for years. 

That’s how central planning works. 

The plan can change.

The China experts I follow don’t expect this will spark a financial crisis. 

As Louis Gave said in a recent report I shared with Over My Shoulder members, Evergrande is collapsing not in spite of the government’s wishes but because the government decided to let it fail. 

Protecting big companies is inconsistent with Xi’s new “Common Prosperity” initiative, so it will stop. 

Here’s Louis.

Common prosperity is a way for the Chinese government to highlight the differences between policymaking in China and in the West, not just to China’s citizens but also to citizens of the developing world in general. The not-so-subtle message is that while policymakers in the West allow big tech monopolies to fleece small and medium-sized companies, China protects its mom and pop corner stores, restaurants and other small businesses from the predatory behavior of tech platforms.

While private education companies in the West are free to gorge themselves on the insecurities of parents, in China that behavior will no longer be accepted. While in the West, gains are privatized but losses are socialized, China aims to privatize the losses (as with Evergrande) and socialize more of the gains (as with the pressure on tech platforms to raise wages, hire more young graduates, and make big donations from their profits to charitable causes).

This isn’t entirely bad. 

Making businesses bear the cost of their mistakes is refreshingly capitalist. 

We should do more of that here. In the Chinese case, these mistakes were also the government’s. 

But because the government rules, it will decide who to protect. 

Chinese homebuyers who never got their homes will probably get bailouts. 

Property developer executives, shareholders, lenders, and suppliers probably won’t.

In fact, what is happening on the ground is that all of the cash from Evergrande and other equally distressed companies is being used to finish the projects for the homebuyers at the expense of the bondholders and of course the equity holders. 

The rule of law is the rule of Xi, and he is pragmatic. 

He deems the well-being and happiness of homebuyers more important than a few upset bondholders.

Traumatic Ends

The visible impact of all this will be mostly within China, but its macro effects will be global. 

Such wealth destruction should be intensely deflationary. 

That may be part of the goal, in fact. 

Chinese consumers are feeling significant inflation in food, housing, and other living costs. 

Demographic factors, particularly population aging, will increase this pressure. 

Decades of the one-child policy reduced working-age labor supply, which raises wages and other prices.

But it won’t stop there. 

For years, China’s voracious appetite for energy and materials underpinned prices worldwide. 

At the same time, its low manufacturing prices basically exported deflation. 

Hence we saw little or no inflation in most finished goods but a lot of inflation in commodity-intensive services like food, energy, and housing.

In short, China is losing its role as the world’s lead manufacturing exporter. 

Government policies aren’t helping, but George Friedman notes this is actually a cyclical process. 

He wrote a thoughtful piece about the apparent 40–50 year pattern in which a nation takes on this role then loses it. 

The US did so in the 1890s, then it was Japan, and China since the 1980s.

This process seems to be built into modern capitalism. 

There is a hunger for low-price manufactured products by wealthy countries that can no longer afford to produce them. 

Why does the cycle take 40 years? 

I have no explanation. It could be coincidence if there were only three cases. 

Or there could be some structural cause. 

But it is there, and it seems to be reaching its terminal stage in China.

The end of this period is traumatic. 

The US marked it with the Great Depression, and Japan with its 1990s downturn, but both countries adapted and recovered. (You might even say they “muddled through.”) 

George expects the same for China.

China, of course, isn’t going anywhere, and it will be a permanent economic power after it stabilizes. 

But the breathless blather of its taking over the world will have been proved wrong. 

Another country we never expected will take its place, and then we will claim to have always known it was there.

China has its own wrinkles, which to me are quite frustrating. 

A country so large, with so many brilliant, hard-working people, really could take a leading economic role in the right circumstances, and the world would be better for it. 

But it would require a government that allows personal freedom and entrepreneurship, and China under Xi will have neither.

We will delve even deeper into the mysterious Chinese economic dragon next week.

Travel Plans, Over My Shoulder, and Birthdays

As mentioned before, I really do plan to get to New York in later October and of course Dallas for Thanksgiving and family. 

This next Monday I will have a quiet dinner with some friends in acknowledgment of my 72 nd birthday.

Today I mentioned some articles we sent to Over My Shoulder subscribers recently. 

I think it is our least expensive service but perhaps one of the most valuable. 

Each week Patrick Watson and I collect our favorite articles on economics and related matters, then send them to subscribers with a short summary. 

This is material we find intriguing from our rather large network. 

It’s like you’re reading, well, over my shoulder. 

We don’t overwhelm you, just a few pieces a week, and the summaries let you get the main points quickly. 

Click here to learn more.

And with that I will hit the send button.

Writing about Andy Marshall and Jim Williams got me to thinking of all the influences I’ve had over the last 50 years. 

So, tonight I will raise a silent toast to the numerous mentors of my life. 

Some I never met but just read for decades, some like Peter Bernstein were shining stars for decades. 

I owe them so much.

And with that, have a great week! 

Oh yes, don’t forget to follow me on Twitter

John Mauldin unplugged and too often unfiltered, but we do have fun.

Your thinking how wonderfully marvelous this long strange trip has been analyst,

John Mauldin
Co-Founder, Mauldin Economics

This Gold Bull Market Has Years To Run


The recent back-and-forth precious metals action has left a lot of people frustrated with both the metal and the “permabulls” in this space. 

Fair enough. Gold has almost doubled from its 2015 low, but it’s done so in a really boring way, which is the ultimate crime in the blow-off stage of a financial bubble when so many other things are going parabolic.

But history says that the real action is still to come. 

The following chart shows the past century’s gold bull markets, most of which* make the current bull market look like a virtual newborn.

*One gold bull market ended after matching today’s in both duration and appreciation. 

It ran from 1930 – the start of the Great Depression – to 1934 – the year in which FDR confiscated gold, made ownership of the metal illegal for individual Americans and then devalued the dollar versus gold. 

Unless all that happens again (possible but highly unlikely), that bull market isn’t a useful indicator.

Note that the 1970s appear as two bull markets separated by a correction in 1975. 

View that decade as a single bull market and you get something as long as – and much more lucrative than — the 2000-2012 bull market, with most of the gains coming towards the end of the run.

Is the 1970s gold market a good template for the the balance of the 2020s? 

Let’s consider the similarities:

A bungled exit from a pointless and costly war? Check: Vietnam then, Afghanistan now.

Rising inflation due to excessive debt and artificially easy money? Emphatic check. 

The current US CPI is showing a consistent 5%, while debt levels pretty much everywhere are off the charts.

Leadership that seems less competent and trustworthy every time they speak? 

Check: Jimmy Carter then, Biden/Harris now.

A rising power that threatens US military and financial hegemony – and by implication the dollar’s role as the world’s reserve currency? 

Double check: China and (again) Russia.

Energy crisis? 

Check: Natural gas and coal prices are soaring, stockpiles are at historically low levels, and winter is coming. 

Gas hoarding in the UK is likely to spread to Continental Europe and beyond. 

Toss in the pandemic that just won’t die, a labor shortage, supply chain disruptions, immigration chaos, and a weirdly-general societal shift away from discipline and rationality,  and you get an economy that’s locked into an easy-money, soaring leverage trajectory until no one in their right mind will want anything to do with traditional financial assets.

In this environment, the boring market action in gold – a form of money that has protected against financial and societal chaos for all of recorded history – looks like the calm before the storm. 

China sends record number of warplanes towards Taiwan

Beijing steps up intimidation ahead of a visit by French politicians to Taipei

Kathrin Hille in Taipei 

Dozens of Chinese J-16 fighters entered Taiwan’s air defence identification zone this weekend © AP

China sent a record number of warplanes into Taiwan’s air defence identification zone on Friday and Saturday ahead of a visit to Taipei by French lawmakers.

The escalation of Beijing’s intimidation against Taipei comes as China endures growing economic pressures while stepping up domestic regulatory and political crackdowns.

According to Taiwan’s defence ministry, 38 military aircraft entered Taiwan’s air defence identification zone on Friday, including 28 J-16 fighters, four SU-30 fighters, four H-6 bombers, an anti-submarine plane and an early warning aircraft.

On Saturday, the Chinese Air Force sent 39 aircraft, including 26 J-16 fighters, 10 SU-30 fighters, two anti-aircraft planes and one early-warning aircraft, Taiwan’s defence ministry said. 

On both days, the numbers markedly exceeded the daily record of 28 planes, which was set in June.

Some 16 Chinese military aircraft entered the zone on Sunday, including 12 fighters.

Military experts define the incursions as grey zone tactics, operations aimed at eroding Taiwan’s security but stopping short of war. 

China claims Taiwan as its territory and threatens to invade it if Taipei refuses to submit to its control indefinitely.

The Taiwanese government on Saturday denounced the latest incursions. 

“China has been wantonly engaged in military aggression, damaging regional peace,” said Su Tseng-chang, the premier.

The US said it was “very concerned by the People’s Republic of China’s provocative military activity near Taiwan”, adding that it undermined regional stability.

“We urge Beijing to cease its military, diplomatic, and economic pressure and coercion against Taiwan,” said Ned Price, state department spokesperson. 

“The US commitment to Taiwan is rock solid.”

Last week, Beijing described Joseph Wu, the Taiwanese foreign minister as a “shrilling fly” in an unusual verbal attack that Taipei described as “slander and abuse”.

October is traditionally a politically charged season because both China and Taiwan celebrate their national days this month. 

On Friday, Beijing marked the establishment of the People’s Republic of China in 1949. 

On October 10, Taiwan celebrates the Republic of China, the state that was overthrown in mainland China by the PRC but continues to exist in Taiwan, where the ROC government fled in 1949.

Last year, however, there was no marked increase in air incursions by China’s People’s Liberation Army.

Some observers in Taiwan said the PLA’s increased harassment could be an attempt to intimidate Taiwan ahead of planned exchanges with Europe. 

Next week, a delegation of French lawmakers is due to visit Taipei. 

Later this month, Taiwan’s chief economic planner is scheduled to lead a 65-strong delegation to several central and eastern European countries.

However, military experts noted that the level of PLA air activity near Taiwan had been at a heightened level for weeks. 

Since Taiwan conducted its regular annual military exercise in early September, PLA air incursions frequently included fighter jets, a pattern rarely seen until now.

The PLA has been sending aircraft into Taiwan’s ADIZ on an average of 20 days per month since September 2020, when Taipei made the incursions public for the first time.

Often only one or two anti-submarine warfare or early-warning aircraft a day enter the zone for extended periods. 

Large numbers of fighters and bombers, like this weekend, have in the past appeared when Taiwan has enjoyed international attention or engaged in foreign exchanges.

The warplanes do not enter Taiwan’s sovereign airspace, which begins 12 miles off the coast of its territory. 

But by frequently entering the ADIZ, they force Taiwan’s military to continuously scramble fighter jets, exhausting its resources and gathering intelligence in the process.

Additional reporting by Demetri Sevastopulo in Washington

COVID-19 and Human Freedom

In a pandemic, one person’s actions affect the well-being of others. And whenever there are such externalities, the well-being of society requires collective action: regulations to restrict socially harmful behavior and to promote socially beneficial behavior.

Joseph E. Stiglitz

NEW YORK – The upsurge of COVID-19 cases, hospitalizations, and deaths in the United States serves as a bitter reminder that the pandemic is not over. 

The global economy will not return to normal until the disease is under control everywhere.

But the US case is a true tragedy, because what’s currently happening here is so unnecessary. 

While those in emerging markets and developing countries are longing to get the vaccine (with many dying because they cannot get it), the US supply is ample enough to provide a double dose – and now a booster shot – to everyone in the country. 

And if almost everyone got vaccinated, COVID-19 would almost surely just “fade away,” as former President Donald Trump memorably put it.

And yet not nearly enough people in the US have been vaccinated to prevent the highly contagious Delta variant from driving case numbers in many areas to new highs. 

How do so many in a country with seemingly well-educated people act so irrationally, against their own interest, against science, and against the lessons of history?

Part of the answer is that the country, for all of its wealth, is not as well-educated as one might expect – which is reflected in the country’s comparative international performance on standardized assessments. 

In many parts of the country – including some with the highest rates of resistance to vaccination – science education is particularly poor, owing to politicization of fundamental issues like evolution and climate change, which in many cases have been excluded from school curricula.

In this environment, misinformation can gain traction with many people. 

And social-media platforms, insulated from liability for what they transmit, have made a business model of maximizing “user engagement” by spreading misinformation, including about COVID-19 and the vaccines.

But a key part of the answer is a deep misinterpretation, especially among the right, of individual liberty. 

Those who refuse to wear masks or socially distance often argue that requirements to do so infringe on their freedom. But one person’s freedom is another person’s “unfreedom.” 

If their refusal to wear a mask or get vaccinated results in others getting COVID-19, their behavior is denying others the more fundamental right to life itself.

The essence of the matter is that there are large externalities: In a pandemic, one person’s actions affect the well-being of others. 

And whenever there are such externalities, the well-being of society requires collective action: regulations to restrict socially harmful behavior and to promote socially beneficial behavior.

Any ordered society entails restrictions. But while prohibitions against killing, stealing, and so on restrict an individual’s freedom, we all understand that society could not function without them. 

In our post-COVID world, we might interpret the Ten Commandments to include: “Thou shall not kill, including by spreading infectious diseases when thou can avoid doing so.”

Similarly, “Thou shall get vaccinated.” 

Any infringement of an individual’s liberty by requiring safe and highly effective COVID-19 vaccination pales in comparison to the social benefits – and consequent economic benefits – of public health. 

It is a no-brainer to require all individuals, with only limited medical exemptions, to be vaccinated. 

While many governments appear to be too timid to impose this requirement, employers, schools, and social organizations – any organized activity that brings individuals into contact with others – should do so.

As we have been learning for the last 18 months, global health is a global public good. 

As long as the disease rages in some parts of the world, the risk of a deadlier, more contagious, more vaccine-resistant mutation grows.

In most of the world, however, the problem is not resistance to vaccination but a severe shortage of vaccines. 

Evidently, the private sector is unable to scale up production to ensure an adequate supply. 

Is that because vaccine producers lack capital? 

Is there a shortage of glass vials or syringes? 

Or is it because they hope that fewer doses will lead to higher prices and even bigger profits? 

Among the key barriers to greater supply is access to the requisite intellectual property, which is why the IP waiver being discussed at the World Trade Organization is so important.

Given the urgency and scale of the challenge, more is needed: Among the steps US President Joe Biden’s administration could take is to invoke the Defense Production Act and leverage the federal government’s ownership of key patents. 

The US has been allowing the pharmaceutical companies to use this public IP freely, while they reap billions of dollars in profits. 

The US must use every instrument at its disposal to increase production at home and abroad.

This, too, is a no brainer. 

Even if the costs of global vaccination totaled tens of billions of dollars, the amount would pale in comparison to the costs of persistent COVID-19 outbreaks to lives, livelihoods, and the world economy.

Joseph E. Stiglitz, a Nobel laureate in economics and University Professor at Columbia University, is a former chief economist of the World Bank (1997-2000), chair of the US President’s Council of Economic Advisers, and co-chair of the High-Level Commission on Carbon Prices. He is a member of the Independent Commission for the Reform of International Corporate Taxation and was lead author of the 1995 IPCC Climate Assessment 


The final phase of Empires normally ends with the same signals whether it was 2000 years ago in Rome or  today in the US.

One of the first signs is losing wars together with excessive debts, deficits, devaluations and decadence.  

The US being defeated and hurriedly fleeing from Afghanistan in a few days clearly signifies the end of the US empire.

The mighty US military has in the last few decades conducted disastrous wars against very small countries with no big armies or weaponry. 

Vietnam, Iraq, Libya and Afghanistan come to mind but there are many more as we show below.

Brown’s University has just made a study of the US cost of wars since 9/11

They arrive at a staggering $8 trillion and the loss of 900,000 lives .

So in the last 20 years, the US has spent $8 trillion or 40% of annual GDP on conducting totally unsuccessful wars. 

The report also states that even after the exodus from Afghanistan the US is still involved in wars in over 80 countries.

Current extent of the US empire


The cost of being involved in some kind of war activity in 85 countries will continue to cost the dying US empire dearly for decades to come.


Are the 2020s going to be a return to Orwell’s 1984 with Big Brother watching us everywhere?

Well, it certainly looks like many governments and the elite is leading us in that direction.

Covid has been a superb excuse for controlling the people in a number of countries. 

Free speech has been banned in the media and unacceptable censorship is now the rule on social media whether it relates to vaccines, climate or race.

Dont you see that the whole aim of Newspeak is to narrow the range of thought? In the end we shall make thoughtcrime literally impossible, because there will be no words in which to express it.

― George Orwell, 1984

But it gets worse as we are seeing severe clampdowns on free movement. 

There are  lockdowns, quarantines, restrictions or bans on travel both domestically and internationally, ban on shopping, restaurants, theatres, cinemas, stadiums with offices and schools closed. 

And then we are not allowed to see friends, parents, or even go to work. 

The list of restrictions is endless and they seem to be deliberately and regularly turned on and off in order to control confuse the people.

Doublethink means the power of holding two contradictory beliefs in one’s mind simultaneously, and accepting both of them.

― George Orwell, 1984

There have been great variations of these restrictions. 

Countries like Australia and New Zealand have locked people in. 

Then we have, for example, Sweden on the other hand which has had virtually no restrictions, and no closure of schools, shops or offices. 

No masks have ever been mandated.

I have spent part of the summer in Sweden and it has been refreshing to see people conduct their lives normally. 

You hardly ever see anyone wearing a mask anywhere. 

The Swedish government doesn’t get involved and instead it is the health officials who decide. 

The Chief Epidemiologist Tegnell in Sweden has conducted a non-intervention policy, telling the people to take their own precautions. 

He doesn’t consider that masks fulfil any purpose either but rather that they have a negative effect. 

Quite a contrast to Australia. 

When it comes to infections and deaths, Sweden has fared better than many countries.

As regards treatment of Covid, conventional medicine has had very limited success. 

But sadly, alternative treatments are totally suppressed. 

This despite major parts of India and Central Africa having used Ivermectin with almost 100% success and virtually eliminated Covid. 

Some hospital doctors in the US have also used Ivermectin with great results.

The map below shows in blue the area of Africa where Ivermectin has been successfully used. 

The blue line at the bottom shows deaths per 100,000 in that region. 

A massive difference to the deaths (yellow line) in the yellow areas.

African Ivermectin and non-ivermectin countries.

Ivermectin was invented 50 years ago against parasite infestations. 

Over 4.5 billion doses have been given and the creator received the Nobel prize. 

Still the WHO, Big Pharma and  Western governments refuse to even test Ivermectin against Covid. 

It is too cheap to produce and compete with the vaccines.


In the US and the UK history is now being rewritten especially at university campuses. 

Statues, paintings and books related to slavery are being taken down even if the historical  person was a major benefactor to the university in question.

Every record has been destroyed or falsified, every book rewritten, every picture has been repainted, every statue and street building has been renamed, every date has been altered. And the process is continuing day by day and minute by minute. History has stopped. Nothing exists except an endless present in which the Party is always right.

― George Orwell, 1984

The problem with rewriting history is where do you stop? 

Throughout history there have been wars and invasions which were all unjust. 

But we can’t reverse history. 

Just take America as an example. 

Both North and South America have been invaded and taken over by European countries in the last few hundred years, whether they were English, French, Spanish or Portuguese.

In North America a major part of the original population was killed and the rest moved to reservations. 

If we rewrite history the Europeans must obviously pull out and give the land back to the Indians.

Hardly practical!

The Ministry of Peace concerns itself with war, the Ministry of Truth with lies, the Ministry of Love with torture and the Ministry of Plenty with starvation. These contradictions are not accidental, nor do they result from from ordinary hypocrisy: they are deliberate exercises in doublethink

― George Orwell, 1984


Rich Land – Poor Land – Destitute Land is the natural cycle of most countries and empires.

As a country goes from rich to poor, it finds it hard to accept that it is in a permanent decline.

For some countries like Venezuela that can’t borrow money externally, the process from abundance to destitution was very quick and for others like the Roman Empire it took centuries.

For more powerful countries, running out of money is no problem. 

Since deficits are only  believed to be temporary, they can easily be financed by debt. 

And this is exactly what happened to the US empire in the early 1960s. 

There was gradually less money in the till than the country spent, so it started borrowing.

For 60 years the US has increased the Federal debt every year with the exception of 4 years. 

So the US is now living on not just borrowed money but also borrowed time.

Excessive debt has throughout history killed empires and the already-dying US empire will be no exception.

It took 200 years for the US to reach just under $1 trillion. 

Reagan managed to treble that debt in just 8 years. 

Obama inherited a $10t debt from Bush and doubled it to $20t in 8 years.

Debt of the US empire.

With debt on average doubling every 8 years since Reagan became president, my target,  set 5 years ago, was that in 2025 the US debt would be $40t. 

But with Biden’s profligacy I would now expect that to be at least $50t !!!!!  

Just think about it, in 2025 US debt will be 50x higher than when Reagan took over and 100x higher since the gold window was closed in Aug 1971.

federal debt of US empire

So we are now in the exponential phase of the debt explosion. 

Exponential moves are almost without exception terminal as I explained in this article from 2017:

There is a more scientific illustration how these exponential moves occur and also how they end.

Imagine a football stadium which is filled with water. 

Every minute one drop is added. 

The number of drops doubles every minute. 

Thus it goes from 1 to 2, 4, 8 16 etc. 

So how long would it take to fill the entire stadium? 

One day, one month or a year? 

No it would be a lot quicker and only take 50 minutes! 

That in itself is hard to understand but even more interestingly, how full is the stadium after 45 minutes? 

Most people would guess 75-90%. 

Totally wrong. 

After 45 minutes the stadium is only 7% full! 

In the final 5 minutes the stadium goes from 7% full to 100% full.

It is of course impossible to predict where we are in this debt explosion. If we are in the final 5 minutes then debt can still increase almost 15x. 

And if we get hyperinflation which is very likely, the increase could be substantially higher.

As debt will have grown 50x since 1981 by 2025, tax revenues will probably stay at a measly $3.5t as the economy slows down or even collapses. 

The consequences are obvious. 

When the interest rates rise, which is guaranteed as the Fed loses control, the US empire can’t even afford to pay the interest and will default.

This is how all empires end, they lose not only wars but also total control of money.

What a bloo-y mess!

The only problem is that once fortunes have turned, there is a very, very long way back to prosperity. 

This is what history and the laws of nature teach us although most political leaders are too arrogant to learn from history.


As empires reach the end game, money printing and debt accelerates as I show above. 

This leads to a total debasement of the currency. 

For example the Roman silver coin, the Denarius, lost almost 100% of its silver content between 180 and 280 AD.

The US dollar of the dying US empire has not fared much better and has lost 98% in real terms since 1971. 

As the currency collapses more and more fake money must be produced to keep the illusion going. 

By definition, money which is created without any service or goods offered in return is always fake and has zero real value.

During times of rapid credit expansion with fake money, the ones standing nearest the printing press always benefit greatly since they have access to the money before it totally loses its value. 

This happened for example during the hyperinflation in Zimbabwe or in Venezuela and it is now happening in the US.

The chart below clearly demonstrates how the wealthy Americans are getting the money first and rapidly increasing their wealth in relation to GDP. 

In 1982 the 400 wealthiest Americans had a wealth equal to 2% of GDP and today their share has risen 9-fold to 18% of GDP. 

Wealth inequality is rampant, becoming a neo-feudalism.

wealth inequality of the US empire


As debts, deficits and currency debasement accelerate, the consequences are crystal clear and inevitable.

The epic bubble in stocks is coming to an end and could implode at any time. 

Whether it expands further due to the massive expansion in money supply is irrelevant. 

Neither a company nor a country can show real growth based on fake money. 

When the bubble bursts, the world will learn that it consisted mainly of air that will just evaporate.

As the markets implode, so will all the debt and the bubble assets such as stocks, bonds and property. 

These asset values were all illusory, based on hope and fake money. 

Once the markets start breaking down, we will see the same process as the stadium above filling up with water. 

But this time it will be in reverse and values will decline by unthinkable percentages in the “first 5 minutes”. 

Remember that in the last 5 minutes, the stadium went from 7% full to 100% full.

For our investors and ourselves, we have owned physical gold and some physical silver in Switzerland (obviously outside the financial system) since 2002 when gold was $300 and silver $4.

We were convinced then that the risks we saw necessitated a high percentage of one’s financial assets in gold for wealth preservation purposes. 

What has happened since  completely confirms our position.

But the world has still not understood how undervalued gold is in relation to the massive expansion of money supply

Therefore I will continue to show the graph below which tells us that gold is as cheap to buy today as it was in 1971 when gold was $35 or in 2000 when gold  was $288. 

In the face of the dying US empire, there is no better asset to own.

Gold is as cheap to own now as in 1970 relative to money supply.