The Sea of Penury

I’m covering my ears like a kid
When your words mean nothing, I go la la la
 – Naughty Boy, “La La La”

Let’s dispel a myth: Ostriches do not stick their heads in the sand when frightened.

Too many Americans, however, do. Not because they’re scared. It’s because they don’t like hearing bad news about the motherland. Feels like being picked on personally. And, well, as grandmothers all over America say, “If you don’t have something nice to say, then keep America’s name out’cha damn mouth!”

Well, we’re not gonna play by granny’s rule today. I’ve got some bad news… which now has me thinking I probably should’ve led with a song lyric by Chris Isaak instead: Baby did a bad, bad thing.

We talk a lot about debt here at Field Notes. As in, “America has too much.” Way too much. If dollars were water, Trump could rename the Gulf of Mexico the Sea of Penury.

Right now—and you already know this—Uncle Sam is on the hook for more than $36 trillion. Like I said, baby did a bad, bad thing. And by “baby” I mean politicians collectively going back decades.

But here’s the immediate rub: More than $9 trillion of that debt, fully one-quarter of the debt America owes, matures this year. And that’s not a small problem.

In fact, it’s a couple of problems rolled into a big ball of “Holy Refinancing, Batman! What are we gonna do?”

Here are the problems:

1. Supply and demand.

You can’t dump $9 trillion of new bonds (i.e. selling new bonds to cover the old debt) on the market without leaving a mark.

Too much supply swamps demand… which drives down the price buyers are willing to pay for the new supply… and in the upside-down world of bond pricing, falling bond prices mean rising bond yields… which makes it pricier to borrow.

2. Higher borrowing costs.

About one-third of America’s debt—$13 trillion—has landed on the balance sheet since 2020. And $23 trillion has come since 2008. The point being that the Treasury Department issued a great deal of America’s debt at extremely low interest rates.

But now, per point #1 above, interest rates are much higher and still going up. Not at the Federal Reserve level—at the market level, where real investors dictate the interest rates they’re willing to accept to own US debt.

I’ll just use the 30-year bond to demonstrate. Back in 2020, 30-year yields ranged between 1% and 1.7%.

Today, they’re up near 5%.

Overall, the average interest rate the US pays on its debt has surged to more than 3% from about 1.5% in the early part of this decade.

In effect, you can think of what’s coming for America as having to forcibly refinance your house… but at a rate 3x to 5x higher.

How would that flow through your family finances?

Uncle Sam’s finances, already horrendously horrendous, are going to worsen over the course of 2025. America’s debt servicing costs, now exceeding $1 trillion a year, are going to balloon higher… which means Treasury is going to have to issue even more bonds just to pay the higher debt-servicing costs on all the new bonds America has to sell this year.

Which means bond investors will grow increasingly angst-ridden, while gold prices shine increasingly brighter.

I routinely jabber on about a debt tornado, or interest payments that are going to spiral out of control one day. Well, this is the kind of situation that leads to that.

This $9+ trillion supply overhang is a very big reason gold keeps striding ever-higher.

Seems like every day we hit a new record high. As I write this, gold is now above $2,900.

In the most recent issue of Global Intelligence Letter, I wrote that I expect gold to see $3,250 this year. And now I think I’m wrong.

At this point, a $4,000 price tag on gold isn’t unrealistic in the right scenario.

We are closing in on an event horizon… beyond which there is no escape.

That’s an overly cinematic way of phrasing the crisis to come. But accurate nonetheless.

The gold market knows this.

The gold market is worried.

I am too.

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