America’s Next Big Gamble

What does America look like in five years? What does it look like in the 2030s?

Those are two, related questions that landed in the “Ask El Jefe” inbox recently. And because they’re both tied to the same answer, I figured I’d turn the answer into today’s dispatch. First, the questions:

• From Rex: Please state your expectation for the economy for the next 2-5 years, and your top investments, outside of international real estate.

• From Patricia: You recently have mentioned that you thought the US was headed for hard times till the end of the decade but you thought the 2030s looked bright. I know you don’t have a crystal ball, but could you expand on that? 

Long-time Field Notes readers will know that I suspect America faces a crisis in the 2027/28 timeframe. Could be fiscal, could be economic. Could be socio-political.

Might be some combo of all of those.

Fiscal: Uncle Sam’s debt situation is terminal. Some will say countries can’t go bankrupt because they have the power of the printing press, which is true. But that’s like saying the terminally ill can keep on living because of all the machines and modern medicine doctors are using.

The interventions are just staving off the inevitable.

America has no way back from what will be more than $40 trillion in debt by 2027. At that level, America will be spending well over $1 trillion annually just on debt-repayment costs, which is more than 15% of the budget.

That’s a gargantuan number, the largest since World War II. Problem is: Congress has zero will to fix this. Some congressional members give lip-service to the idea of cutting the budget, but there’s no way to do that without huge controversy.

Cut Social Security and Medicare? That is the only place America can find any meaningful savings.

Sure—do that. But then watch the nation devolve into a riotous beast hellbent on throwing out every single politician who robbed the middle class of financial and health security.

So, America races like Thelma and Louisa toward a financial cliff…

My bet: Trump resorts to one of two options, or a combo of both

Option1: Restructuring America’s debt.

I’ve mentioned Stephen Miran before—he’s the architect of what is loosely called the Mar-a-Lago Accord, a so-far-unofficial idea that includes the concept of forcing foreign US bondholders to convert existing debt into so-called “zero-coupon century bonds.”

These bonds would have no interest or principal payments for 100 years, after which all of the principal and accumulated interest would come due at once. Think of it as a massive—massive!—balloon payment. But it kicks the can so far down the road the politicians can leave that disaster for the grandchildren of their grandchildren.

There is, however, a cost: Forcing this upon bondholders would be a default on US debt, and the dollar would crash and certainly lose reserve currency status, which would fuel a crisis in America and the world worse than the Great Depression.

Option 2: Repricing the gold America holds in reserve.

The US prices the gold it owns—like that in Fort Knox—at a cost of $42.22, set by law in 1973.

Trump, or some other president, could unilaterally reprice the gold by executive order. At $1,000 per ounce, Uncle Sam’s golden treasure chest is worth about $286 billion. I suspect Trump, who thinks in big round numbers, would aim for at least a $1 trillion valuation on American gold… so that would be about $4,000 per ounce, which is actually pretty close to where we are today.

Trump would/could then borrow against that paper wealth to build a bitcoin reserve fund… and then unilaterally reprice America’s bitcoin holdings just as he did for gold. I can see the US (via a Trump plan supported by Congress) buying up to 10% of the entire bitcoin supply, or 2.1 million bitcoin.

Repricing bitcoins to $2 million would mean Sammy’s bitcoin wallet would be worth $4.2 trillion.

So with those two actions—repricing gold and bitcoin—the US would have two assets worth more than $5 trillion. Trump would then officially back US dollars with gold and bitcoin, which would give the dollar strength and restore confidence.

There’s precedent for this. When FDR confiscated gold in 1933, he repriced the metal 69% higher, instantly stabilizing a troubled dollar and effectively repricing gold globally.

Economic: Exacerbating the debt issue is the fact that Trump’s tariffs and deportations are just starting to really bite the economy, as I said they would earlier this year.

The jobs market is weakening because of tariff-induced layoffs. Retailers and manufacturers across the economy are warning of much higher prices to come because of the impact of tariffs on their cost structure. That includes consumer giants such as Walmart, Target, and Best Buy… but also small manufactures, like a Montana knifemaker who had to pay an extra $77,000 to import a special machine from Germany—a machine made nowhere else in the world and without even an inferior competitor in the US. As such, the cost of his handmade knives is going up.

Inflation, particularly core inflation (the price of food, energy, etc.), is already rising and is just a hair below 3% now, well above the Federal Reserve’s 2% target. It’s going to worsen. It’s likely to keep rising since tariffs take time to filter through the economy.

Deportations, meanwhile, are shrinking the base of employees while driving up food costs (again, as I said would happen).

This is a multi-year challenge and it, too, will worsen before it improves. This isn’t a case of “Oh well, we’ll just have more jobs for Americans!”

Not true in the slightest. America doesn’t grow working-age adults overnight. So a shrinking base of workers slows economic growth because there’s not a labor pool large enough to meet normal expansionary demands in the economy.

So America’s economic output is going to slow over the remainder of the decade.

The Fed would normally cut rates into that environment, to stimulate growth, but how will that help when the labor pool doesn’t have the workers necessary for business to invest in growth?

Moreover, how does the Fed cut rates into an inflationary period? That would exacerbate inflation.

Thus, we’re heading into a stagflationary era (something Wall Street is already warning about)—and that will harm the stock market, particularly discretionary consumer companies. Housing will be increasingly unaffordable, so I would suspect we see house prices retreating in the US.

I wasn’t expecting this dispatch to go on so long… but there’s a lot to say for folks to understand what I see coming.

So… more to come tomorrow. Stay tuned.