“The light on Wall Street can at any time go from green to red without pausing at yellow.” — Warren Buffett
I hope you all had a wonderful Christmas with family and friends.
Now, I have an important message as we approach the new year.
In 1989, Libertarian investment writer Harry Browne wrote a book called “The Economic Time Bomb,” in which he talked about the impact a growing national debt would have on the United States.
However, the book turned out to be a false alarm as the crisis he predicted didn’t materialize in the 1990s. Instead, that decade was a booming time for the economy and the stock market.
But now, a monetary crisis is looming. As subscribers know, I’m a long-time bull who has taken full advantage of the bull market on Wall Street.
My investors are still fully invested and are taking advantage of this Santa Claus rally. However, it won’t last. Here’s why.
Back in late July, President Trump agreed to what has been called “the worst budget deal in history.” He avoided another federal shutdown by agreeing with House Democrats and Republicans to a budget-busting $5 trillion in spending for the 2020 and 2021 fiscal years, with annual deficits exceeding $1 trillion.
Never mind President Trump’s campaign promise to reduce government spending and the national debt. Full spending ahead!
You can read about it here.
As a result of the deal, the Treasury was forced to borrow massive amounts of money, raising the national debt to nearly $23 trillion in short order.
The chart below shows the increase in the publicly held portion of the U.S. national debt from the end of July 2019 to mid-December.
Source: The Independent Institute
An Unexpected Credit Crunch
As a result, the Federal Reserve was forced to intervene in the nation’s money markets to fill a critical shortage of money. The Fed was able to issue emergency overnight cash loans, which are called repurchase agreements or “repos,” to deal with the growing liquidity crisis that is being caused by the fact that the national debt growing too quickly.
The repo market is important and the financial panic of 2007-09 stemmed from a run on it. Repurchase agreements are short-term bank loans to institutions that are backed by government debt, mortgages and other securities.
Short-term interest rates suddenly jumped to nearly 10% in mid-September, forcing the Fed to buy $75 billion in Treasury securities.
Since then, the repo market calmed down, but the danger is far from over. Since the crisis, the Fed has sharply increased the amount of money it is lending directly to the U.S. government and has pushed interest rates down to normal levels in order to avoid a panic.
From the start of the “repo” crisis in mid-September, the Fed has loaned 47% of the net $418 billion it has borrowed.
Since Oct. 16, the Fed has financed two-thirds of the net increase in the public portion of the U.S. government’s total public debt outstanding.
In other words, the U.S. Treasury and the Federal Reserve could be headed for another monetary crisis, perhaps in 2020. To keep the ballooning interest costs down, the Fed is cutting rates, even when there is close to full employment. This is a Faustian bargain that can only result in a monetary crisis soon.
I would not be selling your gold any time soon.
Be Prepared for the Next Crisis: Who Has 20/20 Vision?
Next year will not be a repeat of 2019. Instead, it is going to be a more volatile economic, financial and political year. How should we cope with his news?
At our next FreedomFest, July 13-16, 2020, we are bringing together the world’s best forecasters and visionaries who have accurately predicted the future in the global economy, the markets, politics and science & technology.
The great French economist Bertrand de Jouvenal said, “A forecast is never so useful as when it warns man of a crisis.” (p. 103, “The Maxims of Wall Street”)
Finding reliable oracles is difficult in today’s uncertain world, but that’s my goal for 2020. In politics, American University Professor Allan Lichtman, author of “Keys to the White House,” has accurately predicted the outcome of every presidential election from Reagan to Trump.
Professor Lichtman has confirmed our invitation to speak at this year’s FreedomFest in Vegas on the subject, “Who Will Win in 2020: Another Surprising Prediction.” Your portfolio will rise or fall on what happens in November. Be prepared!
We will also be covering the Democratic National Convention (DNC) and discussing its policy recommendations, since this year’s conference will be held at the same time as the DNC. However, our meeting in Vegas will be far more useful than meeting in Milwaukee. Make a point to be in Vegas and have your voice heard.
Will the Next Decade Be Another Roaring Twenties or a Great Depression/War?
What can we expect in 2020 and beyond? Right now, the outlook is optimistic, but what could go wrong? It wouldn’t take much to send stocks spiraling down from their lofty heights. One or two singular events could do it.
If President Trump and the Republicans lose in November, expect a return to higher taxes and more regulations.
Political instability in Hong Kong could spread to other provinces under Chinese control. The Middle East could see more turmoil if oil declines. In Latin America, could Mexico or other Latin American countries go the way of Venezuela?
The military-industrial complex, both here and abroad, could be a source of new conflicts. According to my intelligence reports, the Pentagon is spending billions of dollars to develop long-range nuclear warheads and hypersonic gliders that could hit any spot on the planet Earth with great accuracy within an hour! China has responded by creating its own weapons. And Russia may pose a threat again with its nuclear arsenal.
Islamic terrorism could strike anywhere around the world. There’s no telling what they are planning for 2020 and beyond. Terrorists often select unique dates to wreak havoc, such as 9/11 in 2001 or April 19 in 1993. Perhaps they will focus on 2020 to make a statement. We must always have our guard up.
These are the potential dangers we are going to discuss in detail at FreedomFest.
In the financial world, bond investor Jeffrey Gundlach, the CEO of $150 billion DoubleLine Capital, also sees trouble brewing in the debt market, despite interest rates hovering near historic lows.
Gundlach is one of the few investors who had sounded the alarm in the period of time leading up to 2008’s subprime credit crisis.
Unlike the Roaring Twenties a hundred years ago, the 2020s will face “real turmoil,” he warns. “We’re going to have to face Social Security, health care, all of these things, deficit-based spending.”
The surprise spike in repo rates in 2019 may be an omen.
The fact that interest rates in the United States and around the world are at historic lows is fueling another boom in stocks, real estate and the economy. However, there’s a danger. As the Austrian economists have warned, an unsustainable boom can lead to a treacherous credit crunch and a collapse. We must be ready.
Crisis Investing: Now is the Time to Act
The holidays are a good time to plan for the summer. Join us for three glorious days at our global financial summit and investment conference, July 13-16, 2020, as part of FreedomFest, “the world’s largest gathering of free minds,” at the Paris Resort, Las Vegas.
Our keynote speaker is Dr. Jordan Peterson, the world-renowned clinical psychologist. The New York Times has called him “the most influential public intellectual in the world today.” You won’t want to miss him.
Watch our three-minute video by clicking here.
It also will be the 40th anniversary of my newsletter, Forecasts & Strategies. As a result, Eagle Financial Publications, which publishes my newsletter, is pulling out all the stops to make it the best financial conference ever.
Other speakers who have great track records have been confirmed: Alex Green, Louis Navellier, George Gilder, Rob Arnott (the “Godfather of Smart Beta”) and Mark J. Perry, chief economist at the American Enterprise Institute (AEI).
We Expect a Record Crowd in 2020
Nearly 500 attendees have already signed up, a record at this early date. We expect over 2,500 wealthy investors and concerned citizens to come to Vegas in July.
Take advantage now of the “early bird” discount, which will end soon. The price is only $399 per person, or $299 for a guest or a spouse. These are our lowest prices ever, and they won’t last. To register, go to www.freedomfest.com, or call 1-855-850-3733, ext. 202, and talk to Autumn or Nathan. You will be glad you did.
Good investing, AEIOU,
You Blew It!
How to Kill the Golden Goose
By Mark Skousen
“Foreign Affairs will tolerate wide differences of opinion. Its articles will not represent any consensus of beliefs.” — Founding Editor Archibald Cary Coolidge
I picked up the January 2020 special issue of Foreign Affairs magazine — one of the new intellectual magazines that is easy to read via its large print and provocative articles. The magazine is published by the prestigious Council on Foreign Relations (CFR).
Foreign Affairs once reviewed my book, “The Making of Modern Economics: The Lives and Ideas of the Great Thinkers,” and recognized the revolutionary nature of my history of economic ideas, with Adam Smith and his “system of natural liberty” as the hero.
The reviewer called my book, “Both fascinating and infuriating… engaging, readable, colorful…”
That was 10 years ago. Despite the original editor’s vision of Foreign Affairs (see the quote above), the first issue of the new decade is decidedly anti-capitalist. It describes “the future of capitalism,” in largely negative terms, about to fall off a cliff.
The issue has story after story about the failures of free enterprise. Even its successes — eliminating most poverty in the world and creating a standard of living that is unparalleled in world history — are labeled as a “Faustian bargain.”
This is because, according to them, capitalists create other problems, such as instability, inequality, excessive market power and environmental abuse.
“Markets are not the answer,” one author says.
Foreign Affairs also published an article by the two most recent Nobel Prize-winning economists, Abhijit Banerjee and Esther Duflo, who have concluded that it is impossible to explain how countries grow rich.
“There simply is no accepted recipe for how to make poor countries achieve permanently high growth.” They quote other studies on what causes economic growth: “We do not know.”
Really? Are there no lessons from Hong Kong or Singapore, both of which achieved a high level of prosperity in one generation? (Actually, neither country was mentioned in their article.)
Have they ever studied the Economic Freedom Indexes that are put out by the Fraser Institute (www.freetheworld.com), or the Heritage Foundation (https://www.heritage.org/index/), which show a direct correlation between economic growth and economic freedom?
Then they have an article by Professor William Hsiao on “How to Fix American Health Care.” He says we can learn much from Canada, Taiwan and Germany, all of which have universal single-payer systems (i.e. socialized medicine).
For some reason, this Harvard University economist fails to mention Singapore’s Medisave program, considered to have the best and least expensive health care system in the world. (For an excellent book on the subject, read Sean Flynn’s “The Cure that Works: How to Have the World’s Best Healthcare at a Quarter of the Price.”
‘Tax the Rich! Make Them Pay!’
Finally, the Nobel Prize-winning economist Joseph Stiglitz is convinced that we are suffering from a “starving state” due to the presence of $1 trillion in American debt. However, he refuses to recognize that the deficit is not caused by a lack of revenue (taxes are actually increasing), but by a spendthrift government.
His solution to the growing deficits argues that the “state” needs to be “revived” by sharply increasing income taxes on the rich and by enacting a wealth tax (which has been recently repudiated by France and Sweden as unworkable). He doesn’t seem to realize that without fiscal discipline, increasing taxes only increases spending.
Foreign Affairs wasn’t completely biased. They did publish one article defending capitalism by Catholic University Professor Jerry Muller, who has concluded that the latest ideas of the neo-socialists “would lead to disaster.”
They are willing to kill the golden goose in the name of equality, social justice and fairness.
“They don’t care about the health of the geese, because their economists simply assume an endless supply of golden eggs,” Muller wrote.