As we near the end of what has been a very difficult 2020, Jon Case just issued this warning warning about the US.
November 7 (King World News) – Jon Case, CI Global Asset Management: “The debt we are laying on now in the US, not only is it a layer of bricks in the boat as far as the debt that needs to get repaid, but it’s also lowering the ultimate GDP level, right? Because it’s stealing from the future. Back in the 1980s, $1 of debt used to create about 60 cents of GDP output. Today it’s only 24 cents (for every dollar printed). So you’re seeing a lessening of the impact that debt has (on the economy). You’re getting less and less fire in terms of a dollar of debt on GDP. So this is a structural problem. So more and more debt, it’s not really helping. We get short-term burst of activity, but the long-term prospects go lower and lower.
We know we are spending a lot of money fiscally in the US. I think that could create maybe one to two years of a burst in output, but ultimately this is a load of bricks in the boat that’s getting higher and higher. And when you grow debt faster and your economic growth lowers, Debt/GDP rises. And the economic treadmill you are on gets faster and faster until someone gets thrown off the back, which is back to that systemic risk hedge that people are layering on more and more insurance in the form of gold against that happening.”
Eric King: “Jon, talk about that debt for just a minute. When do you see that becoming a situation where, even though the world is using the US dollar as the world’s reserve currency, that debt just becomes too much of a problem and the dollar begins to unwind or have some serious ramifications from that?”
Jon Case: “Yeah, that’s really the million dollar question isn’t it? When is it a bridge too far for investors? We can look at where we are now and make some comparisons about historically what’s happened at those levels. Annually, we have taken the US Congressional Budget Office data, so this US government’s own internal projections of debt, and we’ve just presented it to clients unaltered and just put forth what the US income statement looks like. A lot of our clients aren’t really aware of the deficits. You hear about it but to actually see the numbers is quite shocking.
And we’ve been warning our clients since 2018 that even if you take the Congressional Budget Office projections, which by the way historically have been wildly overoptimistic, even then they are projecting 5% annual deficits that would take Debt/GDP from 100% to 128% by 2028. And 125% Debt/GDP is when we saw Italy tip over.
So two years ago we were looking at a 10 year forecast. We were at a flashing yellow and a flashing red is coming.
If we fast forward to today and two years has passed and we’ve gone to 126% Debt/GDP this year — in one year. It’s phenomenal the debt that the US has stacked up this year. So right on the nose of where Italy was. We know what happens next in the historical context when you have too much debt. The US isn’t Italy and I’m not trying to say it’s Italy, but it’s still a country that at some point will cause the full faith in the US dollar to get eroded.
We know from 900 years of history what happens with fiat currencies that suggests what’s going to happen next, and it’s the same whether it’s 2020 or 1920, which was the most iconic example of money printing in the Weimar Republic of Germany. And I think there are lots of parallels today to what happened 100 years ago…to continue listening to this is incredibly powerful audio interview where Jon Case issues a dire warning about the US and discusses the fragility of the global financial system as well as massive bull markets in gold and silver CLICK HERE OR ON THE IMAGE BELOW.
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