January 30, 2020
The Miles Franklin Newsletter
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From The Desk Of David Schectman
David's Commentary (In Blue):

Don’t worry about your silver. The silver to gold ratio is moving back up toward 90 to 1, but that is just temporary. When silver breaks lose, soon, it will outperform gold, and if history repeats, the ratio will revert all the way back to 40 to 1. Just be patient, we are getting close. Many of us have waited for eight years, so another six months to a year isn’t much to ask.
 
Surprise, surprise, Trump is outspending Obama and all the Democrats. Trump said Obama was going to spend the U.S. into bankruptcy. And he is right, the United States is headed toward bankruptcy. But, having said that, Donald Trump has drastically increased the amount of debt way beyond what Obama was doing. He said it would bring us to a national bankruptcy, but he is doing it faster than Obama. The latest estimates put the 2020 deficit at over one trillion dollars! It took 205 years for the national debt to reach one trillion. Now, in just one year the debt will grow by an amount that took over two centuries to reach. 
 
The Tea Party was formed to fight against Obama’s deficits and big spending. Where are they now? They are blindly supporting Trump’s policies. I am not throwing Trump under the bus. I am just pointing out that his pre-election promise was just hot air.
 
The media and the administration are constantly informing us just how wonderful the economy is. If it is so wonderful, then why is it that 40% of American households could not come up with $1,000 in the event of an emergency. And most of the other 60% would be out of luck if they had to come up with $10,000 or $20,000. A majority of Americans are burdened with all types of debt, including credit card debt, mortgage debt, college loans, etc. Ask yourself, how can this be if the economy is so great? Those lucky enough to be out of debt or have more liquid assets than debt are in the minority, and the vast majority of American’s are close to the edge. 
 
It is unfortunate that the Republicans are outspending the Democrats. If this is happening under Trump, think what will happen if Bernie gets in? This cannot end well. 
 
The debt is out of control - and growing by a trillion dollars a year. It does not benefit the average American. The benefits of the debt and low interest rates (thank you Federal Reserve) go mostly to the wealthy, the folks who have large stock portfolios. What do you think will happen when the next recession hits with a vengeance? It’s not just personal debt, it’s corporate debt, which is enormous and pension debt and state governments debt. Trump promised to fix this problem but instead he is increasing the debt at record levels. This is not a political commentary – it is simply a fact. I have news for you. For the vast majority of Americans, the stock market is NOT the economy. 
 
You really should check out the data from Shadowstats. Their numbers, which I believe are representative of what is actually happening, paint a vastly different picture than what the BLS and MSM tell us. 
 
My wife pays all the bills (except the mortgage and our insurance payments, which I make every month). She is much more aware of inflation than I am and yesterday she said, everything costs more now, all our bills are going up. How can this be when Uncle Sam says inflation is only two percent? Who should I believe? My wife or the New York Times? That’s a loaded question. But the establishment’s numbers just don’t add up.
Jobs are being created, but how many of the newly created jobs are low paying ($15/hour maximum) service jobs? Is this all that awaits large numbers of the graduating seniors after going tens of thousands of dollars into debt for a college degree that fails to land a good paying job after graduation? My two granddaughters are doing well, and yes, there are some good paying jobs out there, for the lucky ones. But not for the minority.
The GDP numbers that we get from the BLS are not accurate. The GDP is calculated after deducting inflation and since inflation is deliberately and grossly understated, the GDP comes in much higher than it really is. Don’t be surprised. In the world we live in today you should question anything that you read in the media and you should not believe anything that you hear from a politician, any of them, in either party. You may love Trump or you may despise him, but he is not the cause of our problems and he is not the solution either. These issues have been with us for a long time, regardless who sits in the White House. I’ve been writing about them for the past 35 years. My biggest mistake was not understanding that you could kick the can this far down the road. Things always take longer to happen than we expect. But they do eventually happen.
I keep asking myself, “How much longer can this go on?” I don’t know, maybe until after the election? If Bernie gets elected everything will change immediately. Peter Schiff says, “A vote for Bernie Sanders is a vote for $2,000 gold.” And the bull market in stocks will be in the rear view mirror.
People are not paying attention to the next bull run, which would be driven by excessive amounts of debt around the world, and now is a good time to be positioned, said E.B. Tucker, director of Metalla Royalty & Streaming. 

“I think people should see the $1,900 target that we’ve been talking about as the next phase and I think it’s going to attract a lot of mainstream attention,” Tucker told Kitco News on the sidelines of the Vancouver Resource Investment.
Once interest rates start to rise and the stock market starts to correct, the game will change. 
 
I graduated from college in 1964 and honestly, I can hardly recognize the world I live in today. I am ancient. I come from a time before the Internet, the cell phone, the computer, GPS and self-driving and battery operated cars. My parents used to believe every word they read in the newspaper. The only thing I pay attention to anymore is the sports page. I get most of my financial and precious metals information from the Internet. 
 
On Tuesday, gold and silver were smashed because of a “strong rise in U.S. consumer confidence. Give me a break. On Wednesday gold was just about back up to where it closed on Monday. What happened to the “strong rise in U.S. consumer confidence?” Did it vanish overnight? Hell no. All these Wall Street headlines are worthless and they are designed to justify the rigged trading that goes on to line their pockets and keep American’s disinterested in gold.
 
The markets are rigged and the big banks and hedge funds play the rest of us like chumps. I’ll gladly take my chances with gold and silver. The cycles are about to reverse and the stock market and the precious metals will switch places at the top of the economic hierarchy. Gold priced at $1,900 is the next target and it will bring the masses back into the market. A bit late, but that’s the way it always plays out. 
 
Last fall, as gold was rising rapidly, I wrote that I expected gold to hit $1,600 by the end of the year. So much for my ability to “predict” price and timing. But – we are getting awfully close now. Just another $20 to go, and we are less than one month into 2020. 
 
Predicting the price of gold and silver is a very imperfect science. It is based on charts and moving averages that are the life blood of traders. In many markets, TA seems to work very well. But gold and silver are not your “regular” markets. The price is not controlled by supply and demand (unless demand and/or shortages are severe). It is controlled by highly leveraged paper contracts on Comex. A handful of large bullion banks, led by JPMorgan, control the ebb and flow of the price, which usually means halting any move up, by shorting the metals. 
 
You might think that, as successful as they have been for the last eight years, the price suppression will continue indefinitely, but you would be wrong. In spite of the suppression, gold has move up more than $500 since late 2015.
There are short-term events that have a short-term impact on the price of gold, like the Coronavirus or Iran and their threat to build a nuclear bomb. And then there are events that have a long-term effect on the price such as interest rates and the US dollar. 
 
I focus on interest rates. Not debt, but interest rates. I have watched our national debt explode from less than one trillion to more than 22 trillion in the last 35 years. And still, the band plays on. It seems as though this massive increase in debt has no effect on the economy or the stock market but that is to a large part because the Fed has kept interest rates very low so the cost to service the debt is not (yet) overwhelming. But once interest rates start to move up, the cost to service the trillions in debt will cripple the economy and the Fed will have to print even more money into existence by monetizing – which they are already doing now, and it’s called QE and REPO.
W hen you hear the world's top guys all singing from the same song sheet about the economy, central bank money printing, negative interest rates -- and buying gold as insurance...you just know the end is nigh.
 
Just how long the world's central banks can keep this now-acknowledged Ponzi scheme going remains to be seen, but watching the boys at Davos talk openly about it, the answer is...not long.
 
Then out of nowhere has come this   Coronavirus   thingy in China, which appears to be spreading rapidly both within the their country -- and now internationally. I can see China pretty much freezing up economically in very short order if this becomes a pandemic, which some commentators that have experience in these matters, are at battle stations about already.
 
And if/when China goes...the rest of the world's stock markets will implode as well. The clock is ticking rapidly on this -- and getting louder by the day...and hour.
 
Something's going to crack somewhere in the world -- and soon. When that happens, the world's central banks will be powerless to do anything about it except watch it unfold on TV like the rest of us. – Ed Steer
According to Egon von Greyerz, all the gold is heading east, to China and India and Russia.
The false markets in gold and silver will never be revealed by legal action. Instead China will be forcing the US hand. China’s gold demand since 2008 is almost 19,000 tonnes. This figure should include all Chinese gold imports as well as gold mined in China. But since the Chinese government keeps all the gold produced in China, it is questionable if their own production is really included.
 
The chart below shows the Silk Road demand for gold since 2005 until October 2019. The countries included are China, Russia, Turkey and India. If we extrapolate the chart to the end of 2019, the total demand is almost 36,000 tonnes. This means that around 80% of annual gold production has been absorbed by these 4 countries since 2005. So most of the gold in the world continues to travel from West to East.
With the massive gold holding of the East, it will be difficult for the US to have any influence on the gold market as the dollar declines and China flexes its gold muscles. The US is unlikely to ever prove that they have anywhere near the 8,000 tonnes they officially declare. At some point, this will put enormous pressure on the paper gold market which is likely to implode with dire consequences for bullion banks and futures exchanges.

Stocks continue to make new highs, reacting to renewed money printing. Technically stocks are still likely to top now and could start its secular decline at any time.

There are of course different opinions without which there would be no market. The biggest online financial publisher in the world just sent out an invitation to subscribe to yet another service, which predicts: “The final stage of biggest financial market explosion in US history.” In markets anything is possible short term but this seems very unlikely to me.

Gold’s correction since August 2019 is now finished and the uptrend is ready to resume. Next short term target is at least $1,700 but the old high in dollars of $1,920 should not be difficult to attain. We mustn’t forget that gold has made new highs in virtually every currency except for US dollars and Swiss francs.

Please remember what I say initially in this article:

PHYSICAL GOLD IS ETERNAL AND PAPER GOLD AND PAPER ASSETS ARE EPHEMERAL . Best protection is to own an eternal asset like physical gold.
Bill Holter

I urge you to read this once slowly, then a second time to digest fully. It is ALL about credit, remember this while reading the article…it is so spot on it’s scary!
$180 Billion Asset Manager: “There Is No Way Out, Fed Policies Can No Longer Be Exited Without Provoking The Next Crisis” 
 January 23, 2020.
 
When just over three years ago, TCW’s Chief Investment Officer in Fixed Income, Tad Rivelle, who oversees roughly $180BN in assets, or more than Jeff Gundlach, stated that we are now living through the third consecutive asset bubble in a row, “the central bankers’ bubble” which followed the dot com and housing bubbles…
… he naturally caused a stir as back then he was still one of the first established professionals to confirm and admit that this particular “tinfoil conspiracy theory” website had been right all along: the market’s performance was entirely due to the Fed, and that the longer the Fed’s “emergency” measures continued, the more locked in the central bank would be as the reverse process, namely price discovery without Fed intervention, would result in a catastrophic crisis that could even lead to global war.
 
This is monetizing the debt. This is inflation. This is why owning gold instead of dollars makes all the sense in the world.

As the debate continues about whether the Fed's 'Not-QE' program is Quantitative Easing or not, the Fed has been busy buying up 70% of all net treasury debt issued since the start of October 2019, shortly after their 'Not-QE' program started.
 
According to the Securities Industry and Financial Markets Association, the net increase in outstanding U.S. treasury securities from October through December 2019 was $330 billion.

During the same period, the Federal Reserve's holdings of U.S. treasury securities increased by $221 billion. In other words, the Federal Reserve has purchased roughly 70% of all net treasury debt to hit the market since starting its $60 billion-a-month large-scale asset-buying program that it refuses to call QE. Keep in mind that these figures do not include the roughly $256 billion net increase in the Fed's repo holdings during the same period.  

The link is  here .
When you peek behind the curtain you are probably going to find Goldman Sachs and JPMorgan pulling the strings.

The head of the Federal Reserve Bank of Dallas (Robert S. Kaplan), the head of the Federal Reserve Bank of Minneapolis (Neel Kashkari), the Secretary of the U.S. Treasury (Steve Mnuchin), the President of the European Central Bank (Mario Draghi) and the head of the Bank of England (Mark Carney) all have two things in common: they sit atop vast amounts of money and they are all alums of Goldman Sachs. In addition, the immediate past President of the Federal Reserve Bank of New York, William Dudley, which secretly sluiced over $29 trillion to bail out Wall Street banks during the financial crisis and has now opened its money spigot for trillions of dollars more, worked at Goldman Sachs for more than two decades, rising to the rank of partner and U.S. Chief Economist.
 
Goldman Sachs has been variously depicted as "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money," by Matt Taibbi of Rolling Stone; or the amoral investment bank that bundled mortgages it knew would fail and sold them to their clients as good investments so that it could make millions betting against them (shorting); or the place where greed became so over-the-top that a vice president, Greg Smith, resigned on the OpEd page of   The New York Times, writing that his colleagues callously talked "about ripping their clients off." Smith's bosses were implicated as well: "Over the last 12 months I have seen five different managing directors refer to their own clients as 'muppets,'   " wrote Smith.
 
Today, Goldman Sachs is under a criminal investigation by the U.S. Department of Justice and under a criminal indictment by Malaysia for its role in bribery and embezzlement of its sovereign wealth fund known as 1MDB.
 
Goldman Sachs' notorious history has not stopped its alum from magically landing in government positions that control, create or funnel giant piles of money. Despite Donald Trump's first run for President on a populist platform of cleaning the swamp in Washington, a full month before he even took his seat in the Oval Office, he had nominated or appointed the following individuals to his administration: Steve Mnuchin, a former 17-year veteran of Goldman Sachs and a foreclosure king during the financial crisis to be his Treasury Secretary; Steve Bannon, who had previously worked in Mergers and Acquisitions at Goldman, was to become Trump's Senior Counselor and Chief White House Strategist.
 
This commentary put in an appearance on the   wallstreetonparade.com   Internet site on Thursday morning EST -- and I found it on the   gata.org   Internet site. Another link to it is   here .
Here is more on the Fed and their harmful money printing Ponzi scheme.
Greg Hunter’s  USAWatchdog.com 

Macroeconomic analyst Rob Kirby can sum up the massive Fed money printing it is doing each and every day. Kirby explains, “We are on a vertical curve where money has to be added to the system. . . . The Federal Reserve knew this would occur at some point 20 years ago. This is why they had to create a slush fund, which has grown into a very large pile of dung heap money. What’s being reported to us on a daily basis in terms of the ‘add’ from the repo activity is just the publicly acknowledged addition of money. The “missing” $21 trillion is in play, also, and it’s being added to the system to keep the system from crapping out and imploding. We are, without a doubt, on a vertical growth curve of money.”

To hide what is going, on the Fed is going to extraordinary measures to suppress the precious metals market to not allow growth in price that would reflect massive money printing globally. Kirby says, “The stench of criminality and collusion wafts over the COMEX now like a veil of evil. What they have turned our capital markets into with price suppression, so they can maintain the air of legitimacy and value to the dollar, is going off the charts.”

Bill Bonner

 
Let's begin by noting that, by the popular price-to-sales measure, U.S. stocks are at an all-time high.
 
The typical level is close to 1. But now, it's more than twice that high. And companies such as computer giant Nvidia are selling for as much as 15 times sales. We also note that the last time stocks were anywhere near this high was back in 2000.
 
What happened after 2000? In terms of old, gold-backed dollars, stocks lost big time... and now are worth only half their value of 20 years ago.
 
We mention that as a kind of financial fanfare for our question from Wednesday. As we wrote then:
 
In real money, they [investors in the '70s] lost 92% of their stock market wealth. Prices held steady in nominal, new dollars. But in old-dollar terms, they collapsed.
 
So what do you think? What would you tell the young man just starting out today? Buy stocks? Or buy gold?
 
In 1970, a young man was 13 times better off betting on gold than on stocks over the following 10 years. We wondered whether the '20s might give us a replay...
 
The link to the full article is  here .
Ed Steer

Without Ted Butler, how would the rest of us have figured out that JPMorgan had taken over Bear Stearns, or that U.S. or Canadian Mint sales were being gobbled up by them as well. 
 
Then there's the massive amounts of silver and gold that Jamie Dimon is sitting on. And neither I nor anyone else would have ever figured out the direct correlation between the Managed Money traders and the price of gold and silver...or JPMorgan's short positions in gold and silver on the COMEX.
 
Everything I learned about the precious metals I learned from him. So did every other precious metal commentator...whether they will admit it or not. Everything about silver and gold has gone through him first. People like myself have benefited from his experience -- and I'm more than happy to pass it along what I have learned.
 
We are living in economic, financial and monetary environment that I never thought possible in this or any other lifetime -- and I expect you feel the same way. All sense of free markets have been swept away -- and the central banks of the world, particularly the Federal Reserve, are now handing out hundreds of billions of dollars very week to Wall Street and foreign banks just too keep interest rates low -- and the equity markets moving ever higher.
 
I used to be quite amused years ago when I heard that "print, or die" expression, but now that we're permanently in it, I'm not smiling anymore. As you've already figured out, the moment they stop, the entire system crashes and burns.
 
This current melt-up in the stock markets can't and won't last forever -- and they can't keep interest rates suppressed forever, either. There's a limit, which we obviously haven't reached yet, where these central bank actions will show up in inflation and currency debasement, which I very much think is part of their plan.
 
Then the flight to precious metals in particular -- and commodities in general, will be on in earnest -- and that has started in some small way already.
 
At some point, the Middle East will blow up. The deep state will see to that, as they haven't gone away. The first casualties will be all the oil refineries in the Gulf.
 
The Iranian government has made it quite clear that the first bomb or cruise missile that falls on their country, their first targets will be Saudi Arabia's oil refineries, plus others I presume. We've already seen the Iranian's abilities to strike with precision -- and one should never doubt their resolve, regardless of what harm comes to them.
 
And with oil prices suddenly double what they currently are, or far more...this 'Everything Bubble' that we're living in will be a shouldering ruin in short order.
 
But [as I keep saying] until the central banks lose control through circumstance, or give it up by design, we're nothing more than observers in all this. All we can do is stand and watch -- and hope we survive it.
 
Despite the setback in the precious metals so far in 2020, I'm still quite content to be "all in"...because as I said further up in today's missive "this too shall pass".
 
The commercial net short position in gold is still sky high at 34.98 million troy ounces.

Taking The Hard Way Out - Gold & The "Big Bomb Of Debt Monetization"
 
Evergreen Gavekal blog

For an answer to this reasonable question, it might be helpful to review a summary created by Evergreen’s bright and inquisitive research team member, Michael Schaloum. Michael does this author a great favor by regularly listening to video interviews with many of the investment world’s brainiest inhabitants. He recently watched and summarized a debriefing on Real Vision TV with John Hathaway. For those of you that don’t know of John, he is considered to be the Warren Buffett of the precious metals space. He also lives near our family’s winter home and I’ve had the pleasure of meeting him on two occasions. Here is a bullet-point summary of Michael’s recap:

  • With $13 trillion of negative yielding bonds around the world, it’s evidence of systemic risk that is far bigger than the housing/mortgage crisis of last decade.

  • When interest rates do rise materially, it will trigger huge value declines for pensions and other institutions on their supposedly safe assets. He believes these losses will dwarf those seen in 2008.

  • Almost no one today expects an inflation resurgence. That’s why gold is cheap insurance should governments resort to attempting to inflate away entitlement obligations (social security, Medicare, Medicaid, etc.).

  • We’re not going to see 1970s-type inflation, but it will be higher than we have now.

  • The dollar is constantly described as the best house in a bad currency neighborhood but that’s crazy because the “hood” is going down.

  • There’s a very good chance of a US recession next year.

  • Gold is the “third rail” of money management. It’s been in the penalty box for so long that an investment advisor can get fired for even mentioning it.

  • However, gold has recently broken out from a long basing period. The wind now appears to be at its back after six years of slogging. (Our “Going for the Gold” EVA in February, 2018, gave a strong endorsement to gold; since then it has generated a respectable 6% return.)
 
  • Gold miners now have a reserve life that is the lowest in 30 years. They are very reluctant to build new mines.

  • Silver is gold on steroids.

Though apparently he didn’t mention it, John might have added that the Fed has now launched QE4 even though they refuse to call it that. Just since September, the Fed has whipped up another $500 billion of fake money. In this case, the precipitating factor was severe stresses in the repo, or repurchase agreement, market. This is where banks borrow and lend vast sums to each other on a very short-term basis, secured by treasury securities.
 
The Fed is now openly discussing letting inflation run over 2% for an extended period to compensate, or make up for, the years when it’s been below 2%. Frankly, I continue to wonder why 2% is a good inflation level when it erodes purchasing power in a big way over time. With 2% inflation over a twenty-year timeframe, a dollar depreciates by roughly one-third (compounding works in reverse when a value is shrinking). Long-term, the story is much more dismal.
 
Ironically, prior to the creation of the Fed in 1913, US consumer prices were stable for most of America’s 130-year history, outside of the War of 1812 and the Civil War. The deflation in the non-war years prior to 1913 offset the brief inflation bursts, so that for over a century the dollar roughly retained its purchasing power. Since then, outside of the Great Depression and those eras when people like Bill Martin and Paul Volcker were in charge of the Fed, it’s been all downhill. The US dollar’s purchasing power is less than 5% of what is was when the Fed opened its impressive doors, on the eve of WWI. - J. Johnson
Daan Joubert  
When something cannot continue indefinitely . . . 

. . . it will stop. Regular readers will recognize the reference to Herb Stein’s Law. Herb, who was an economist at the time of Reagan, must have observed something during his work, as I understand, as member of Reagan’s economic advisory panel that brought him to see a need for such a Law. It is near certain anyone who tried to set a new Law which states, “If a person stops breathing, he will die.”, he would be laughed at. Why have such a Law that is pure common sense? Which raises the question, what can it be that Stein observed in his elite environment that prompted him to formulate such a common sense Law? So let us make a guess! 

Stein’s Law has to do with trends and how sustainable they happen to be. In any closed system, a trend that is not balanced in one way or another sooner or later develops those uncomfortable ‘unforeseen consequences’. Typically, it is a problem of ‘growth’ that plays its part in making an established trend unsustainable. 

Nature, over many millions of years have achieved a remarkable balance. One can see it at the macro scale with wild game. On the fertile savannahs of central Africa a wildebeest cow would drop many calves during her lifetime. Unchecked, this trend to increase the population of wildebeest and the other herbivores would eventually reach numbers where even a short drought, would cause starvation – perhaps on a massive scale, as an unintended consequence of nature’s imperative for wildebeest and antelope to grow their population. 

If it were not for the predators that counter-balanced the natural population growth of the herbivores – maintaining the balance by increasing their own numbers as the number of prey increased – herbivores would have experienced consistent boom-bust cycles. Every so often, the natural trend to grow the population would reach a point where the available food and water are insufficient so that survival becomes precarious; even with only slightly adverse conditions, there can be a large die-off. 

The almost single minded pursuit of ‘growth’ of the herbivores is inherent in their nature, with no awareness of the potential consequences if nature had not supplied the balancing effect of predators. Even so, with this balance in place, over a span of centuries, there are occasions, such as during a multiyear drought, that a die-off still happens. But that is the way of life; not the result of a built in regular boom-bust cycle. 

The same risk is faced by humanity, but we have the ability of reason; to plan and to adapt and to ensure that we, who have no balancing predators, will have enough food to feed ourselves. This too is a trend which is subject to Stein’s Law. Countries in Europe are in the process of bringing that trend to a stop, as predicted. However, without going further into that topic, we know from what is happening particularly in Italy and Spain, that when population growth does slow down this brings in its wake quite a few unpleasant consequences for the people of that country. 

While the human population trend is perhaps one of the longer term, there is one that is more immediate – a matter of years, if that long, before the consequences kick in, not decades. One trend, that of the increase in debt, global and for many countries that of national debt, is a cause of growing concern. The standard way of determining a tolerable level of debt is that it should not exceed 100% of GDP. We are living in the first major ‘age of debt’ and we do not have much experience of how and how often countries in years past, B.D. - before debt – have managed to recover from a condition of total national debt equal or more than 100% of GDP. It would have required a very disciplined and painful recovery that had to begin well before consequences became too uncomfortable. I think we are in untested waters. 

Measuring debt to GDP is, perhaps, not the best or even a realistic measure. GDP measures the total economy, but the total economy is not the resource that can be tapped to reduce debt. A substantial fraction of GDP is committed to sustaining the existing economy and if these funds are diverted to repay excessive debt, there will be immediate consequences of an unpleasant nature. Within the economy there is a pool of funds that are at least in part discretionary. If suitable means to do so are found, these funds can be used to reduce the outstanding debt – but still doing so at an opportunity cost, during which the pain will balance the advantages enjoyed during the running up of the debt . 
Therefore, it is this pool that has some limited discretion how the funds are applied that ought to be used to measure the sustainability of the debt and extent of a risk posed by the national debt. With consumers the main driving force of the economy, this pool of funds that can be applied to debt reduction is their disposable income. The annual chart below shows the ratio of total public debt to disposable income.
Source of data: FRED

The chart shows dates as election years, for readers interested in looking for the changes in the trend during different presidential administrations.

Total public US debt stands at 150% of DPI. The ‘growth rate’ of debt relative to DPI, over the 53 years of the chart – from 0.1053 in 1966 to 1.510 in 2019 - is 5.15%. This is substantially higher than what the GDP has done – from a $4.459 trillion in 1966 to the $19.121 trillion of 2019 – US GDP has grown by a much less 2.8% annual rate. This difference in trend of the debt ratio and GDP underscores how unsustainable the level of debt is becoming – invoking Stein’s Law. (As an aside, China’s GDP growth rate during the same 53 years was 10.38% annually.)  

The rate of growth in the debt/DPI ratio since 2000 is 5.06%, only a touch less than the overall growth rate. The growth in GDP during these 19 years is 1.94%. (During the same period, China’s GDP grew at 6.38% p.a. Even with China’s growth slowing at a faster rate since 2000, the difference in growth remains a matter of concern.)  

The best description of a trend that ends with very uncomfortable consequence is the well-known analogy of the frog in the pan of water on the hot stove. At first the rising temperature is pleasant as the frog enjoys the increase in his metabolism and he feels great! By the time he realizes that death is imminent, it is too late and he is powerless to do anything constructive about his terminal circumstances.  

We all know that this US Markets is by far not the first warning of the risk posed for many countries by their high levels of debt. Warning voices have been raised since quite a long time ago, recently again by the   new head of the IMF , who warns of a global risk of a new ‘Great Depression’ – so not a mere correction within the trend. Yet, with clear knowledge of the risk, countries continue to take on new debt. Why?

People seem to require a massive PR campaign to even consider reducing behavior that brings immediate pleasure, despite that it poses great risk at some time in the future. Just consider how large cigarette sales still are; despite media campaigns to inform people of the deadly risk of smoking and the warnings printed on packets, people choose the immediate near term pleasure of ‘lighting up’ despite the risk of contracting lung cancer later in life.  

When a government authorizes a new issue of debt, or a household takes on more debt to replace their one-year-old motorcar, there is no flashing message that says, “WARNING! Debt is hazardous for your economic health!”, and there is no publicly funded campaign to spread the message wide and far. The political imperative to continue to issue more debt for a variety of purposes is simply too great, exactly like the pure enjoyment of smoking, to be concerned about what only has a high probability of happening at some time in the distant future – for the smoker.  

For a country, corporation, other institutions or households, addiction to ever more debt has a specific and definite outcome in due course. Herb Stein’s Law says so.  
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About Miles Franklin

Miles Franklin was founded in January, 1990 by David MILES Schectman. David's son, Andy Schectman, our CEO, joined Miles Franklin in 1991. Miles Franklin's primary focus from 1990 through 1998 was the Swiss Annuity and we were one of the two top firms in the industry. In November, 2000, we decided to de-emphasize our focus on off-shore investing and moved primarily into gold and silver, which we felt were about to enter into a long-term bull market cycle. Our timing and our new direction proved to be the right thing to do.

We are rated A+ by the BBB with zero complaints on our record. We are recommended by many prominent newsletter writers including Doug Casey, Jim Sinclair, David Morgan, Future Money Trends and the SGT Report.

For your protection, regardless of where you live, we are licensed, regulated, bonded and background checked per Minnesota State law.

Miles Franklin
801 Twelve Oaks Center Drive
Suite 834
Wayzata, MN 55391
1-800-822-8080
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