The Black Swan.
The unexpected, unforeseeable event that financial markets and society fear… something so rare that nobody thinks it’s possible—but it lands nevertheless and radically upends the status quo…
COVID-19—that’s a pretty good example. Though there were several people who’d been warning of a global pandemic for years.
Or America’s great housing crash in 2007. Lots of people called that a black swan event, though notable people were warning that a housing crisis was coming…
Still, much of the world doesn’t pay attention to this stuff. Too busy working and paying bills and getting Becky to ballet to burden our minds with yet another thing to deal with…
So let’s forget about black swans.
Let’s instead talk about white swans.
These are far more troublesome.
Black swans, though they exist, are relatively rare, so we don’t have to worry about them… too much.
But white swans?
Buggers are everywhere. We all see them. We all know about them.
And, so, we do with them exactly what we do with black swans: We ignore them.
That’s a problem.
Black swans are not guaranteed to cause a problem because they might never arrive…
White swans are already here. And they’re definitely going to fuck up the joint.
It’s just a matter of when. Not if.
The white swan I’m most worried about?
America’s $34 trillion in debt.
This is a crisis waiting to happen. Guaranteed.
There is only one way this plays out: a debt spiral.
Congress absolutely will not act until the crisis begins. You know as well as I do that that’s just the way politicians operate. They need the cover of a crisis to impose their version of a fix. They can’t just step up right now and say, “You know what? This $34 trillion in debt we have—we have to fix that now, and here’s what we’re gonna do…”
The reason they can’t do that is because the “here’s what we’re gonna do…” means very painful budget cuts and tax hikes that hit all the wrong constituents.
Congress would have to sharply reduce defense spending, but defense spending means cashola that flows into the pockets of politicians who enter Congress as middle and upper-middle-class Americans… and somehow manage to leave Congress with tens and hundreds of millions of dollars in their bank accounts…
The fix would also mean overhauling Social Security, either by reducing benefits or, god forbid, allowing the Social Security tax (FICA) to hit America’s uber-wealthy. Right now, the Social Security tax is no longer applied to any incomes over $168,600. Which means all of America’s millionaire and billionaire earners pay nothing more into the system after their salaries reach that level…
Congress won’t change it because any tax increase would hit their donors. And politicians don’t want to anger donors because then donors stop donating and politicians risk losing the only job they’re qualified to hold.
No one wants to throw away an easy, cushy job because you made a bad decision that alienated the very people who keep you employed…
And, so, a crisis awaits.
That is certain.
There are no solutions for dealing with debt this large, and the interest payments on the debt that will likely approach $1 trillion this year (last year they hit a record north of $700 billion; this year will be higher).
What is $1 trillion?
Well, it’s about 15% of America’s proposed budget. An unhealthy number.
And it will keep growing ever larger until we find ourselves in a debt spiral. We will issue more and more debt to simply pay the interest payments on the interest payments that stem from the debt we’ve already issued to pay the interest payments on the previous debt we issued, which was issued to pay the interest payments on the debt we sold before that…
The only way out of a debt spiral is to devalue the currency and either renege on the debt you already owe, or sharply haircut the amount you’re going to repay. Or a combo of both.
Or you decide to back the dollar with hard assets, immediately making it the strongest currency in the world, leading to a vast inflow of capital into the financial markets. Bond prices would soar. The Federal Reserve, which owns a ton of US debt, could sell off its bonds at huge premiums and gift the proceeds to Uncle Sam’s Treasury Department to pay down outstanding debt…
Either way, Middle America is hurt.
Because the fix only arrives after the white swan has made a hash of things.
The only thing you can do now is prepare for the inevitable.
My personal financial protection strategy involves precious metals, crypto, and strong nondollar currency…
These are the best defenses against the white swan of America’s massive debts that every one of us can easily see.