What does the future of war look like?

Drones will play a huge role, clearly. We’ve covered this angle extensively over the past 2 years.

But there’s another class of asymmetric weapons we need to talk about.

Missiles.

Especially when used in combination with large numbers of drones, missiles are a game-changer on today’s battlefield.

Let’s examine the evidence.

New Evidence

Before the war between Russia and Ukraine, we didn’t know what role missiles would play in a modern war.

Most of the evidence we had was from one-sided exchanges like the U.S. vs. Iraq. American cruise missiles were highly effective, but the country had poor air defenses. It was a bit like shooting fish in a barrel. With a really nice gun.

Many analysts claimed Russia’s missiles were crude and inaccurate. After all, they historically had been. The old Russian SCUD missiles launched by Saddam Hussein had a CEP of up to 1 kilometer (CEP is an accuracy rating which means 50% of missiles fired would land within a circle 1 km from the target).

Originally, ballistic missiles were primarily a vehicle for nuclear weapons. So they didn’t need to be super accurate.

But the world has entered a new phase. With satellite navigation, better electronics, and AI, precision missiles are sprouting up like weeds.

Many countries have effective missile programs today. China and Russia are now selling sophisticated models to friendly nations.

The tech is improving rapidly, and proliferating around the world.

Cruise vs. Ballistic

Let’s go over some basics quickly. The two main types of missiles are cruise and ballistic. I made the graphic below to show the difference:

Cruise missiles fly very low, powered by jet engines throughout their flight. They can fly very long distances, and are difficult to detect and shoot down due to their low altitude.

The U.S. is a leader in cruise missile technology, where we pioneered long-range precision weapons. Our stealth cruise missiles, such as the LRASM, are probably the most advanced in the world.

Meanwhile ballistic missiles follow a parabolic arc, with some models flying into space before re-entering the atmosphere. They are powered by rocket engines, fueled by either solid or liquid propellant. Ballistic missiles are fast, and can surpass hypersonic speeds (greater than Mach 5, or 3,836 MPH).

Ballistic missiles are also difficult to intercept due to their high altitude and speed.

Lessons from Ukraine and Iran

The conflicts in Ukraine and Iran have taught us much about where missiles fit into the modern battlefield.

And they have a critical role to play. Both cruise and ballistic models.

Speed is one advantage missiles have over drones. The fastest jet drones today travel around 400 MPH. Hypersonic ballistic missiles, on the other hand, can reach speeds from 4,000 MPH all the way up to 16,000 MPH. Anything moving that fast is going to be almost impossible to intercept.

The largest drone warheads weigh around 200 lbs. Less than half of that is explosive, and the rest is the weight of the steel surrounding it.

Missile warheads can weigh up to 4,000 lbs. But a more typical warhead weight is around 1,500 lb.

So when you need to take out something quickly, and make sure it’s destroyed, a missile is the obvious choice. Think ammo depots, troop gathering points, bunkers, command headquarters, air defenses, enemy missile launchers, and fuel tanks.

Russia has used its impressive array of missiles to take out military sites throughout Ukraine. And from Iran, we saw unprecedented long-distance (2,000 km+) precision strikes on targets in Israel. And a lot of shorter-range strikes.

All of the questions about missiles have been answered. They are an absolutely critical element in modern war.

Sci-Fi Territory

Next up: Hypersonic Glide Vehicles (HGVs). It’s a mouthful of a name. But the tech is downright devious.

These weapons can reach ridiculous speeds of Mach 22 (16,000+ MPH) or higher. They fly to the edge of space, then use that energy to glide to the target. HGVs can maneuver to avoid air defenses.

And they strike with such speed, that the kinetic energy alone is equivalent to a massive bomb. Add in 500kg of high-explosive, and HGVs are terrifying weapons.

Here’s what an HGV trajectory looks like:

We’re getting into science-fiction territory here, but a number of these weapons are already in production.

Russia has the Avangard HGV:

The rocket boosts the weapon into the edge of space, then the glide vehicle deploys:

Russia hasn’t used the Avangard in battle yet. How they managed to produce alloys that survive Mach 22 speeds is top secret. Not to mention the communication tech, which needed to overcome serious obstacles like the missile being surrounded by a bubble of glowing plasma during high speeds.

China and North Korea also have HGVs. This is an area where the U.S. is behind the competition.

HGVs are too expensive and top-secret for most real-world use, but there are applications where the cost and risk could be justified. In the future, though, they will likely become a standard weapons system.

Blurred Lines

Is the weapon below a cruise missile, or a drone?

Source: U.S. Army

This is Russia’s new Geran-5 jet drone. It has a jet engine and a 200 lb warhead. It can reach a cruising speed of 370 MPH, and has a range of 1,000 km (621 miles).

The U.S. Army estimates that the Geran-5 costs around $125,000. That’s far cheaper than Russia’s cruise missiles, which run about 8x more.

This is what I mean when saying the line between missiles and drones will increasingly blur. This is essentially a mini cruise missile.

We’re going to see a lot of weapons like the Geran-5 going forward. Here in the U.S., a number of companies, such as Anduril, are working on similar systems.

Eventually swarms of these types of “drones” will scour the battlefield for targets. The line between drone and missile will continue to blur.

But there will always be a place for larger cruise and ballistic missiles. As we’ve seen in Iran and Ukraine, these weapons offer unique capabilities.

Going forward, missiles and drones will become the cornerstones of war. The importance of manned jets, tanks, and artillery will fade.

We’re entering a new era of war. One where asymmetric weapons are the apex predators. The implications are far-reaching. For the American empire, defense stocks, and geopolitical game theory. We’ll explore it all soon.

In the meantime, here are some prior articles from our Modern Warfare series:

• Modern Warfare: Lessons from Ukraine
• Modern Warfare 2: Lessons from Iran
• The Evolution of Hunter-Killers
• Drones Invade Moscow
• Cheap Drones Swarm the Future

The post Modern Missile Mayhem appeared first on Daily Reckoning.

While teaching one of my graduate classes this summer, an interesting and incendiary topic came up. Students argued that Generation Z, the most recent up-and-comers, were at a massive disadvantage when it comes to earning power.

My colleague vehemently disagreed with them, and a near brawl ensued. Sure, there’s a lot of whining going on, but I thought the kids had a point. How on earth can they afford anything with the way costs have spiraled out of control in New York City?

I blanch when I look at Big Apple menu prices. They’re unambiguously ludicrous. And I immediately wonder how a family of four survives these days.

When I was a kid, it was different.

My father drove a truck for a living. He came home every night smelling like grease, but I never wanted for a thing. Back in the 80s, things were affordable.

Then, when I hit the workforce, I outearned him. I did it on 3 continents, in industries he knew nothing about. That wasn’t unusual for my generation. I went to college and worked, and then I did better than my old man. That was exactly as expected.

My son Micah is only 9. If I’m honest, I’m not sure he’ll outearn me. That’s no reflection on Micah’s intelligence or work ethic, which I’d argue are shaping up to be more formidable than mine. It’s about the system he has to deal with, which is completely different from the one I had to contend with.

A Harvard economist, Raj Chetty, put a number on my intuition, and it’s uglier than you’d think.

The Number

In 2017, Chetty and a team of economists published a paper in Science titled “The Fading American Dream.” They asked one question: What share of American kids grow up to earn more than their parents did at the same age, after inflation?

For Americans born in 1940, the answer was about 92%. If you were born that year, outearning your parents was nearly guaranteed.

For Americans born in 1984, the answer was about 50%.

The American Dream went from a near-certainty to a coin flip in two generations.

That 1984 kid is 42 now. He’s a grown man in his peak earning years, and half his cohort is doing worse than Mom and Dad.

The decline didn’t spike and recover. It fell for every birth year in between, like a stone rolling downhill. Every state in the union got hit. The worst damage happened in the industrial Midwest, in places like Michigan, Ohio, and Illinois. Those places built things and then got hollowed out.

Ross Perot’s “sucking sound of American jobs” is ringing in your ears, isn’t it?

Fair Share

Chetty didn’t stop at the headline number. He asked why it fell.

There are two possible stories. One: the economy stopped growing as fast, so there was less to go around. Two: the economy kept growing, but the growth went to fewer people.

So he ran the experiment both ways.

First, he gave the 1984 cohort the roaring growth rates of the postwar years but left today’s lopsided distribution in place. Mobility rose from 50% to around 62%. Better, but nowhere near the old deal.

Then he flipped it. He kept today’s slower growth but divided it the way America divided it in the 1940s and 50s. Mobility jumped to about 80%.

Faster growth alone bought 12 points. A fairer split bought 30.

Roughly ⅔ to ¾ of the American Dream’s collapse came not from a smaller pie, but from who got to cut it.

Who Held the Pie Knife

As you well know, new money leaves the Fed, lands at the banks, and flows into whatever asset is closest to the spigot. The people who own stocks, bonds, real estate, and private equity get richer before a single dollar reaches a paycheck. That’s the Cantillon Effect, and it’s been running hot since August 1971 (the Nixon Shock) and red hot since the 2008 Global Financial Crisis and Bernanke’s helicopter money.

The 1940 cohort grew up in a country where productivity gains showed up in wages. For about 3 decades after the war, pay and productivity rose together. Then, around the early 1970s, by most common measures, they split. Productivity kept climbing, but wages flatlined. The gap between those two lines is the money that went somewhere else.

It went to asset prices. Your house tripled in value, and the Greenspan Put saved your 401(k) countless times. And your kids, who owned nothing yet, watched the purchase price for everything they wanted run away from them.

That’s not a moral failing on their part. It’s math. A starter home that cost roughly 3 years of income in the 1970s costs 6 or 7 years of income today. A college degree that cost a summer job now costs a mortgage. The printing press sawed off the bottom rungs of life’s ladder.

The Uncomfortable Mirror

You probably outearned your parents. And you probably did it, at least in part, by owning assets that inflated. That’s ok. You played the hand you were dealt, and you played it well.

But it also means the same mechanism that made you richer than your father is the one making your kids poorer than you are. The Cantillon winners of one generation are, on average, the parents of the Cantillon losers in the next.

But not always, and not all.

Your To Do List

First, stop measuring the country’s success by stock market performance. A rising S&P tells you asset holders are winning. That’s all. It tells you nothing about whether a 30-year-old can afford to buy a house. Chetty’s number is the real scorecard, and it says half the country is losing.

Second, if you own the assets, you’re the bridge to your children’s success. Their mobility is now, more than at any time since the Gilded Age, a function of inheritance rather than effort. I don’t like that, either. But pretending otherwise won’t help them.

Get them into real assets early, and make sure you hand yours over to them when you’ve shuffled off your mortal coil. Giving your money away to some anonymous charity instead of your children doesn’t make you a hero. Your only job is to make sure your children win the game.

Third, keep your own capital near the spigot. Unless and until the monetary system is reformed (and pigs fly), the only viable strategy is to own what the printing press inflates and avoid what it erodes.

Wrap Up

I outearned my father with a couple of finance degrees earned during rampant bull markets and a bunch of airport lounges.

Micah’s generation is playing with a deck shuffled by people who never have to show their hands.

You saw wages stall while houses soared. You didn’t need a Harvard paper to tell you something broke around the time the dollar left gold.

Chetty just gave you the number.

It’s a coin flip. And the coin is weighted.

Your job is to increase the probability of your children’s success.

Have a great day ahead.

The post The Coin Flip appeared first on Daily Reckoning.

We all feel the pinch of high food prices right now, but don’t blame the farmers.

They are getting hit hard. From a recent American Farm Bureau Federation analysis:

Farmers growing the nation’s major row crops will collectively lose $32 billion in 2027, up from an estimated $31 billion in 2026…

That’s a crazy statistic. The industry will lose $31 billion this year and $32 billion next year. And it’s due to record high input prices. Here’s some detail from the Purdue University Agriculture Department’s August update:

Whether an energy shock is propagating into agriculture is not settled by asking whether farm-gate prices rose alongside it. Raw commodity prices are set by supply and demand for the commodity itself, not by what it cost to produce. With the crop already in the ground and the herd already on feed, short-run supply is close to fixed, and a rise in fuel or fertilizer costs cannot be passed forward the way a processor passes along a packaging cost. It shows up instead in net returns. Falling farm prices alongside rising energy costs are therefore not evidence that the shock missed agriculture. It is evidence that agriculture must absorb it in the short run.

This is a critical piece of information. It means that farmers (like miners and oil companies) are price takers. The market doesn’t care what it cost you to get the product, it sets the price globally.

That’s why corn and wheat prices stayed low even though the cost for inputs like fuel and fertilizer soared. And we’ve seen this story before. In 2022, the industry costs hit $431 per acre of wheat. Today they stand at $428 per acre. But prices are far below the 2022 highs:

That’s a problem for farmers. They carry the price risk through the season. Some farmers will sell part of their production ahead of time (hedging).  That way they have some guaranteed return on their investment.

However, no amount of hedging can offset the massive increase in costs for farmers. And, as the authors above said, we are in a place where the crops are about to be harvested. Farmers that take a beating this year will have less capital for planting in the spring.

These high costs will also change the math on what gets planted. When fertilizer costs soar (like today) farmers often plant soybeans instead of corn. Soy doesn’t need nitrogen fertilizer, so it’s a cheaper and more profitable alternative. For example, the December 2027 corn futures are $5.30 per bushel while November 2027 soybean futures are $12.00 per bushel. That means soybeans bring in $6.70 per bushel more than corn.

That’s going to lure a lot of farmers to switch acres from corn to soybeans.

Wheat farmers face the same problem. The forecast cost for an acre of wheat just hit $428, a record high price. In the States, wheat farmers substitute different crops depending on where they farm.

There is a saying among commodity investors: “The cure for low prices is low prices.”

That is just shorthand for saying that low prices will curtail supply. When you reduce supply, and keep demand steady, prices must go up. And grains like corn and wheat underpin much of the U.S. food supply. That’s why corn and wheat prices will prove that idiom over the next 18 months. I don’t know if they will test 2022 highs, but the prices are going higher.

We don’t want to buy farmers, because they aren’t going to make any money. Instead, the best way to play the rising prices is through two simple exchange traded funds: Teucrium Wheat Fund (NYSE: WEAT) or the Teucrium Corn Fund (NYSE: CORN).

As you can see from the chart, the price of both wheat and corn rose since July. But they have a long way to go to retest the high prices from 2022. I still think that’s a possibility. The price is too low for the cost inputs. Farmers are losing a lot of money. That’s a recipe for a big win in grain prices.

The post Big Gains Ahead in Soft Commodities appeared first on Daily Reckoning.

The earliest forms of money included salt and grain. Both were universally desirable.

But there were serious flaws with these “currencies”. Salt would dissolve in water. Grain spoiled.

And they weren’t valuable enough. So these items worked for crude barter, but that’s about it.

Around 5,000 years ago, when men began to mine and process metals, copper became money. Rings, bars, and even crude early coins.

Early on, copper was highly valuable because it could be made into knives, axes, and other tools.

In ancient China, governments even issued copper alloy knives as a form of currency. Talk about hard money…

Ancient Chinese knife money. Source: Wikipedia

Bronze, an alloy of mostly copper and tin, was a major tech breakthrough. It was sturdier than plain copper, making better tools, weapons, and armor.

For hundreds of years, copper and bronze ingots, coins, and bars were a common form of money.

But as mining activity increased, these metals became too common. The value was too low to carry much wealth around. You’d need a chest full of it to buy a cow.

Silver, a more rare metal, became the favored currency. It was the Goldilocks form of money. Not too rare, not too common. Just right.

And for most of the past 3,000 years, silver has been the world’s preferred form of money. With several interruptions, all of which proved to be temporary.

The Modern Gold Era

Gold has also been a form of money for thousands of years. But before industrial-scale mining, it was rare.

Only the wealthiest citizens would own a decent chunk of gold. This is even true today. Many regular people can’t afford to buy ounces of gold at $4,400 a pop.

Silver was (and is) the people’s money. It’s about 9x more common than gold. Still rare enough to be valuable, but common enough that most people can own some.

Throughout ancient history, the gold-to-silver ratio averaged around 10. Meaning gold was 10 times more valuable than silver.

Source: Make Gold Great

Today, 1 ounce of gold is worth 67 ounces of silver. So silver is valued far lower than it was throughout history (compared with gold).

Silver has been de-monetized. Since 1965, it is no longer in our coins.

It is now a primarily industrial metal. Silver is the best electricity conductor on the planet. It also resists corrosion, making it critical for modern electronics.

The metal is particularly useful in solar panels, where it drives efficiency and long life. Solar power alone accounts for about 22% of total silver demand today. And industrial utility gives silver a lot of value by itself.

Today, gold is much more of a monetary asset than silver is. That’s primarily because central banks, like the Federal Reserve, still hold vast sums of gold as reserves.

But gold’s reign as the king of hard currency may not last forever…

Silver’s Inevitable Return

Since silver was de-monetized in 1965, it has been a rollercoaster of price action.

Throughout the 1960s, the U.S. government dumped their stockpile of silver at bargain basement prices.

The 1970s is when things got interesting. That was a period of inflation, slow growth, and financial chaos. It’s when the fiat (paper money) era began.

And periods like this are when silver shines.

Silver began 1970 trading around $1.80. By November 1971, it had fallen to $1.27. From there it went on one of the craziest bull runs in history, reaching nearly $50 in early 1980.

With high inflation throughout the 1970s, everyone looked for ways to preserve their wealth. For many people, silver fit the bill.

Yes, there was a sophisticated effort to “corner the silver market” by the Hunt Brothers, which helped drive up prices. Without them, silver wouldn’t have gotten close to $50. But the move would have been more durable. I wrote a letter on the Hunt Brothers and silver last year here.

The point is that when inflation gets nasty, ordinary people turn to silver for monetary salvation. It’s practically in our DNA.

A Silver Phoenix

Silver was the world’s favorite form of money for thousands of years. Today it’s still largely viewed as a monetary relic.

A metal that used to be money, but is now used for electronics. This will change once inflation rears its ugly head again, as we move further into the debt crisis.

People will seek out silver as an inflation hedge, store-of-value, and speculative asset. We’ve already seen hints of this, like during the silver price runup earlier this year. But that was just a hint of what’s ahead.

Because silver is primarily an industrial metal today, it is mostly priced according to that demand. Demand which is relatively predictable. Analysts model out industrial demand based on trends and surveys, and can get a pretty good idea about where the price should be headed.

But investment demand for silver is much harder to model. A full-on mania is impossible to accurately predict.

Only about 18% of silver purchased today is for investment purposes. Coins and bars. That’s why the metal is priced like an industrial input rather than a monetary asset.

But if investment demand creeps up to just 25%, that’d create fireworks. Like we saw briefly earlier this year, when silver ran from $35 to $115 in about 9 months.

And I suspect that silver will eventually make an even bigger return as the debt crisis progresses, and inflation worsens. As the world becomes more digital (and hackable), people will want a hard asset to store their wealth. And for many, gold’s out of the question. Too expensive.

Once again, silver will emerge as the metal of the people. A tool to help us preserve and grow our wealth.

Silver is currently trading at around $65 an ounce. I think that’s a fine price to buy at for long-term investors. It’s difficult to say what silver will do over the next 6 months, or even a year.

But over the next 5 years, I’m confident we’re headed much higher. And when silver inevitably goes through its next mania phase, I want plenty of exposure.

So I’m patiently holding. Waiting for the next mania phase.

The Hoover Dam Through a Garden Hose

And let’s not forget about silver miners. When the next mania phase hits, they are going to go ballistic. Check out the chart below, which shows the market cap of every silver miner ($66 billion) vs the value of big tech stocks.

Souce: X

As you can see, every silver miner in the world combined is worth just 1/80th of Nvidia (NVDA). So during a silver mania, a flood of money pours into a very small sector.

This reminds me of a quote from Doug Casey:

“The market capitalization of silver [miner] equities is insufficient to accommodate the inflows of capital from generalist investors when the precious metals narrative takes over.

When the generalist investors come in, the result is like trying to siphon the flow of the Hoover Dam through a garden hose.”

It’s a great reminder that silver, and the companies who mine it, are tiny. So when money rushes in, the results can be absolutely explosive.

The post Silver Will Rise Again appeared first on Daily Reckoning.

We begin this week’s perambulations with a stroll into the future.

So far…the Bubble in the US is broader than any in history. It has been inflating everything it touched for the last 30 years.

All bubbles pop, of course. How they pop is the confusing whirlwind we enter today.

But don’t worry. Even in the worst crash, real wealth doesn’t disappear, it just changes hands. When the stock market goes down, those with stocks have less paper wealth…and less of a claim on real wealth. They are ‘poorer.’ That leaves those without stocks relatively richer. They have a bigger claim on the real goods and services the economy produces.

The feds and their elite cronies have a good racket going…diddling markets so as to shift more and more wealth away from the public and towards themselves. They own most of the capital assets…and they control the US budget. Pressuring interest rates lower, and backing up the stock market with bailouts and ‘put’ options…they’ve gotten richer and richer. As we saw last week, at today’s prices the stockholding class can theoretically buy twice the GDP…and have $10 trillion left over.

It wasn’t capitalism that made them so rich; it was a corrupt money system. And if the dogs of capitalism were unleashed, they’d have their fake money fortunes for dinner. Interest rates would be set by honest savers and borrowers — not by Fed policy decisions. Prices would be determined by buyers and sellers; the budget would be balanced; the debt would be cleaned up; the troops would come home; inflation would disappear; and the Baltimore O’s would win the World Series.

But of course, we’re dreaming.

Sticking to the real world…

Our high confidence guess is that the bubble will deflate. Everything will fall in price. Then, the feds will panic. They will do ‘whatever it takes’ to stop markets from doing their work — with more fake money, lower interest rates, yield curve control, quantitative easing. And probably some tricks we haven’t heard of yet.

After an initial sell-off, gold will go up. It will sniff out what is coming — more inflation. Other real asset prices too — from hot dogs to hotels — will get a whiff of the coming price hikes. Consumer prices will rise as ‘inflation expectations’ increase.

The feds really only have one tool — fake money. In a crisis, they will produce more of it…a lot more. And, in addition to the quantity of money coming into the economy, there’s another key inflation variable: the velocity of money. A dollar spent two times in a year is counted twice.

When people think the feds are going to print money, the dollar becomes a hot potato. They aim to get rid of it as soon as possible. Sales go up in the short run. In the longer run, the economy is destroyed.

And here’s an important addendum. We say ‘inflate or die.’ But those are just policy choices. In the long run, you can inflate all you want. The bubble will still die — a later, more gruesome death.

In the fight between markets on one side…and politicians, grifters, fixers and central planners on the other…markets always win, eventually. They win by deflation.

Even in an inflationary blow off — with prices soaring — real prices fall. Consumer prices rise, in nominal currency. But gold — real money — typically rises even more…so that in gold terms, real things actually become cheaper. Prices deflate in real terms.

Observers in Germany’s record-setting hyperinflation remarked that foreigners were able to use dollars — then, backed by gold — to buy things at absurdly low prices. By November, 1923, a dollar was equal to 4.2 trillion marks. This made American visitors trillionaires (in marks) allowing them to buy whole houses for the price of a magazine subscription. In real terms, prices had deflated down to almost nothing.

We witnessed it, ourselves, in Argentina. In pesos, consumer prices more than doubled every twelve months…but dollars (even with a dodgy dollar) made them cheaper than ever. We would go to a restaurant, for example, and feel guilty about paying so little for such a good meal.

The same phenomenon is already taking place in America, too. Housing has gotten much more expensive, right? And the stock market is much higher too, right? But looked at in terms of gold, stocks are less than half of what they were worth in 1999…and the Case-Shiller Home Price Index, expressed in gold, shows house prices down about 80% over the last quarter century.

The Case Shiller Home Price Index, in gold terms, has fallen around 80% in the last 25 years.

In real terms, all bubbles deflate…but you need real money to see it.

P.S. Find more of Bill’s writing at Bonner Private Research.

The post All Bubbles End in Deflation appeared first on Daily Reckoning.

It’s September 1^st and we’re ten days out from 9/11 + 25 years. Next week, on Friday, September 11^th, we’ll say something suitable for the occasion.

But in the runup, I’ve been pondering the meaning – and power – of historical milestones, especially now that we’ve reached a quarter-century post-event, aka the “silver anniversary.” Let’s dig in…

Reflection and Recollection

The tradition of silver at 25 years began in the 1500s, in German mining towns. It’s an idea with staying power, considering that people still follow the custom after 500 years; eg., a wedding anniversary. As for silver, it’s ceremonial and polished, if not elegant. And it suggests reflection and continuity.

Then again, how “polished” is a calamitous event with national and international impact? What happens on year 25 when a date recalls a path of painful history?

At five years, a terrible event may still be playing out, complete with raw scars if not open wounds. By the tenth anniversary, remembrance likely includes rituals, and approved versions of public vocabulary. By year 20, public ceremonies angle towards a historical view, although it’s not quite yet a museum display.

Now, skip ahead to a 50^th anniversary, by which time memory has transformed into heritage. That is, most adult eyewitnesses are gone, or at best elderly and fading, and thus is ceremony often wrapped in an evolved sense of national nostalgia.

Which brings us back to the 25^th anniversary, moored in the middle of this river of time. The initial shock has passed. Early monuments are up. Public language is distant enough to speak in terms of doctrine yet also close enough to events that living witnesses can still object.

Still, it’s fair to say that by the silver moment, at 25 years, much memory has crystallized into something like an approved curriculum and ceremony, all intended to become the “official” explanation.

The Battle to Harness Legitimacy

In other words, at five and ten, recollection is controlled by recent shock and pain. At twenty, history writers and policy wonks are reorganizing evidence and framing future narratives. Then by year 50, the state and culture own the story.

But midway, at the 25^th annual mark? Memory remains contested. Witnesses, institutions and political actors all compete for positional authority. Participants demand fidelity to what they saw, heard and lost. While younger people who inherited the consequences ask what the event means to them; that is, why it still matters and where does its legacy take them as they blaze their own trail through life.

Remembering 9/11. Credit New York Times.

At year 25, the story still begins by honoring the loss; but it can end by narrowing the past. That is, grief has transformed into doctrine which then becomes a shield against questions; definitely, it’s a problem with “official” history. And inevitably, governments, political actors, media, academics, museums and other groups – think of veterans – begin to close ranks around the version of history that future citizens will be encouraged to remember.

Another angle is that, by year 25, state actors and other powerful interests have converted the catastrophe into what passes for moral permission to do… well, to do whatever they want. Old pain and scars become the basis for current policy, while politicians and policymakers willingly mask their own failures with patriotic language, if not treat inquiry as disloyalty.

In this sense, a 25^th anniversary is a center of gravity within the long-term contest over who gets to define the past for the benefit of the present and future. So, as noted above, we’ll look at 9/11 on 9/11. But for today, let’s revisit two other 25-year markers from long-ago in 1966, both of which are revealing.

First, on December 7, 1966, America recalled Japan’s surprise attack on Pearl Harbor in 1941. Also in 1966, the Soviet Union recalled the German invasion of June 21, 1941, aka “Operation Barbarossa” which led to what Russians call the “Great Patriotic War.”

Both Barbarossa and Pearl Harbor began with surprise attacks. Both led to immediate and vast warfare, immense death and destruction, and creation of a very different, postwar European and Pacific worlds. Yet by their respective 25^thanniversaries, the two events played different roles in different cultures.

In the U.S., Pearl Harbor+25 began with memorial and grief for the direct loss, but then followed an upbeat arc: from defeat to mobilization, then victory, occupation, global reach, superpower status, and even alliance with the former foe.

In the USSR, the quarter-century remembrance also mourned the dead and celebrated victory. Plus, it harnessed past suffering to reinforce the ongoing legitimacy of Communist state power, along with permanent anti-capitalist/imperialist vigilance.

Again, as we approach 9/11+25, the question is not just how a nation remembers its past, but who controls the framing and narrative; of what questions remain permissible, and whether the dead are honored by truth in full, or by a polished story that leaves too much out.

Pearl Harbor+25: Grief Recast as Victory

On December 7, 1966, America marked Pearl Harbor+25 while already moving towards another Asian war, this one in Vietnam. Many veterans of the fight against Japan were in the prime of life. Certainly, many were political actors if not movers and shakers in public life, business, media and academe; and of course, the U.S. was full of old vets who swapped tales down at the VFW halls.

In this sense, the 25^th Pearl Harbor anniversary was not just history, but a state-level reminder of the need for America to be vigilant: watch for enemies, watch the sky, watch the Pacific, expect surprise, and never assume that vast oceans protect America. The lessons of December 7^th carried great force.

USS Arizona Memorial, Pearl Harbor. Credit U.S. Navy.

In this sense, Pearl Harbor+25 differed from our own, upcoming 9/11+25 because, by 1966, the U.S. could look back on wartime victory of great scale and scope. Between 1941 – 45, American energy, industry and arms defeated and occupied Japan and converted that nation into a Cold War ally. Thus did memory and memorial begin in fire and death, but the arcs ended in triumph and overwhelming American power and influence.

Along these lines, the sunken battleship ex-USS Arizona (BB-39) and the USS Arizona Memorial mattered much to the 25^th anniversary in 1966. By then, an elegant white structure spanned the ruined ship without touching it, while the names of entombed Sailors and Marines were carved into white marble within the structure. The harbor’s flat water and soft breezes remain part of the evidence; the memorial admits the disaster without turning loss into abstraction.

List of names, lost on December 7, 1941. Credit U.S. Navy.

Artistically, the memorial carries the Pacific war’s whole message: surprise attack, mobilization, energy, industry, logistics, overcoming the tyranny of geography, fighting, bombing, blood, surrender and the postwar American order. Yet at root, the overall physical Arizona memorial displays the human cost as exact and visible, with names fixed in stone where no future politician can erase them.

In the Soviet Union, Memory Became State Armor

In the Soviet Union of 1966, the 25-year reckoning worked differently. Emphasis fell less on the final victory of 1945 than on the treacherous surprise of Germany’s June 1941 invasion, the opening of the Great Patriotic War.

Germany’s Operation Barbarossa. Credit Imperial War Museum.

By 1966, that memory had become an emotional and political foundation for Soviet legitimacy. Moscow had already made the May 9^th “Victory Day” remembrance into a public holiday, and the story of total, continental-scale war became more than solemn remembrance; it was hard proof that the Communist Party had saved both the post-1917 Soviet state as well as the ancient and venerable Russian civilization.

The Soviet sacrifice was immense: about 27 million dead, of whom 10 million were military and 17 million civilians. Plus, innumerable cities and regions were occupied, burned, wrecked and starved. Indeed, Soviet losses surpass anything like easy comprehension to an outsider, and even today in 2026 families across the former-USSR still live with painful memories.

Soviet monuments at Stalingrad. Credit Kremlin.ru.

At the same time, the Soviet silver anniversary also showed how total state power can dominate memory. Official history emphasized unyielding resistance, heroic suffering and inevitable triumph, while masking Stalin’s pre-war purges, misjudgments and terror. The state-level story elevated military endurance but suppressed political culpability. It honored veterans yet subordinated them to the power of the Communist Party. The famous phrase “No one and nothing is forgotten” sounded absolute, but many questions remained dangerous to ask.

In the Cold War context, the 1966 message was contemporary as much as historical. For example, West Germany’s place in NATO was cast as revanchism in postwar dress, while the U.S. war in Vietnam became ipso facto proof of imperial aggression.

All in all, in 1966, Soviet postwar power – its comprehensive, national-scale militarism and Communist international agitprop – was presented not only as the force that defeated H!tler and the N@z!s, but also as the shield of global peace; and hence, went the argument, none of Moscow’s policies of the era deserved scrutiny.

The Lesson of 25 Years

There’s more to say; whole libraries exist on these subjects. But as we approach America’s 9/11+25, the lesson is clear: a silver anniversary can sharpen national understanding, but also harden a narrative into official doctrine, if not national myth.

Handled honestly, a 25^th year, silver remembrance can widen inquiry while witnesses remain to correct the record. But handled politically, remembrance risks morphing into liturgy that narrows inquiry because the entireties of an event – its overall moments in time – are now masked by well-choreographed ceremony and approved vocabulary. As in… yes, we honor the dead; but at the same time bury the inconvenient questions.

Even today, certain Big Questions from 1941 have never quite disappeared: Did President Franklin Roosevelt know enough to warn his Pearl Harbor commanders that Japan would strike, yet fail to raise the alarm? Did Joseph Stalin know enough to see Barbarossa coming, yet fail to prevent the catastrophe? In both cases, the issue is not cheap accusation; it’s accountability.

A serious anniversary of a serious event – and certainly, its silver moment – must be a “house with many mansions,” to borrow an old term (John 14:2-6). Recollection must make room for heroism, courage, fear, grief, sacrifice, policy success; but also, for policy failure, mistakes and unintended consequences.

A day of remembrance is a teachable moment, or otherwise it becomes mere theater. Worse, it becomes whitewash for people and institutions that deserve true scrutiny. And whether the subject is Pearl Harbor, Barbarossa or our own upcoming 9/11, the warning stands: memory monopolized by the state uses just enough truth to build a grand façade. It salutes the dead, waves the flag, and asks the rest of us to stop asking questions.

But don’t stop asking questions. And that’s all for today.

Thank you for subscribing and reading.

The post 9/11 + 25: When History Turns Silver appeared first on Daily Reckoning.

On Friday, Fed Chair Kevin Warsh spooked precious metals with his “hawkish” commentary.

Both gold and silver fell around 3% following the Fed’s press conference.

Warsh talked tough about inflation, leading to fears of interest rate hikes.

According to many financial commentators, interest rate hikes are bad for precious metals. After all, there’s no yield on bullion. So the modern view says that when yields go up, it makes bonds and CDs more attractive, and gold and silver less so.

But in reality, the relationship isn’t nearly so clean. See the chart below, which covers the period from 1970-1980. It shows U.S. 10-year bond yields on top, and the price of silver below.

Source: Northstar Charts on X

As you can see, U.S. bond yields and the price of silver moved up together throughout the 1970s. Silver moved from a low around $1.30 per ounce to nearly $50, at the same time yields moved from 5% to 13%.

During the same period, gold moved from $35 to a peak of around $850.

So it’s clear that precious metals can move higher during periods of rising interest rates.

In 1980, interest rates and yields peaked. According to how people think about it today, you might assume that’d be great for precious metals. But gold and silver peaked in 1980 along with rates.

The chart below shows how since 1980, interest rates (fed funds rate) have been on a downward trend.

Source: Macrotrends

The gold and silver bear market lasted all the way from 1980 to 2000, when gold bottomed at $262/oz and silver hit $4.58/oz.

Now it is true that in 2000, following the dotcom crash, low interest rates coincided with a precious metals bull market, which lasted until 2011.

But the relationship is not as solid as some would like you to believe.

Each Era is Unique

Studying the 1970s is worthwhile, especially for gold and silver bugs. There is much we can learn from the price action, causes, and investor psychology.

The 1970s are remarkable because during that decade, gold was de-linked from the U.S. dollar. It was the last decade when we saw sustained stagflation (slow growth, high inflation).

But the ‘70s was a very different time. U.S. debt wasn’t even at problematic levels. Throughout the decade debt-to-GDP remained around 35% (our total federal debt was just about a third of annual economic activity).

Today America’s debt-to-GDP is over 120%. We simply cannot do what Fed Chairman Paul Volcker did in the late 1970s and early 1980s, and jack interest rates up to 20%. If we ever tried to, the cost of paying interest on our debt would soar to around $5 trillion per year within 5 years. And total tax revenue in the country is just $5 trillion per year.

I believe interest rates in the U.S. are currently near the maximum realistic level. Any higher and the debt will compound rapidly. Could it happen? Sure, but it wouldn’t last long.

This is why I continually return to the 1940s, as I believe it’s more similar to our current situation than the 1970s.

In the 1940s, we had unpayable debts from World War II. The way we got out of them was by holding interest rates and yields at artificially low levels. Inflation got as high as 19% annually, and yields on U.S. government bonds was around 2.25%. That path is far more likely than the Fed raising rates to squash inflation.

Tough Talk from the Fed

The other thing we need to realize about the Fed is that central bankers always pretend they are diligent stewards of the currency.

They’ll talk about how inflation above 2% is completely unacceptable, like Warsh did on Friday.

They will do this despite the fact that “Core PCE”, the Fed’s preferred measure of inflation, has been above their 2% target for 65 straight months.

Source: Charlie Bilello

The fact that inflation has been well above target for more than 5 years tells us a lot. If the Fed truly thought they could get back to 2% inflation by raising rates further, wouldn’t they do it?

That brings us back to the debt compounding problem. If they raise rates, or even keep them at current levels, the cost to pay interest on our debt soars.

The truth is there’s no good solution to these problems. And there’s no hard and fast rule about what effect interest rates will have on precious metals.

So precious metals sold off on Warsh’s remarks. But it’s not as simple as “The Fed might raise rates, sell gold!”.

I think the explanation is much simpler. Between July 20th and August 25th, gold rose from $4,025 to $4,678. That’s a very nice move. It needed to take a breather. That’s all.

The U.S. government has a huge pile of unpayable debt. Anyone who assumes we’re going to let interest rates rise much further is mistaken, in my view.

Eventually the only realistic option is to follow the 1940s playbook. Keep interest rates and yields at rock-bottom levels, even if inflation is problematic. Textbook financial repression. Vast sums of money will be printed.

And for me, that means precious metals and hard assets are must-own assets. For at least the next 5-10 years, and possibly longer.

The post The Fed’s Pickle, Gold, and Silver appeared first on Daily Reckoning.

The Iran war taught the world about chemicals that otherwise never get public attention.

Take sulfur for example. This yellow element goes in nearly everything. The market for sulfur is relatively small, about $6.5 billion per year (in 2025). But we use it in a broad swath of critical stuff:

Sulfuric acid is the most important use for sulfur. The largest consumer is phosphate fertilizer. You simply can’t make enough phosphate fertilizer (DAP) without a large supply of sulfur.

It’s also a critical processing agent for many metal refiners including copper, nickel, cobalt, and neodymium. Sulfur is even used in some electric vehicle batteries.

It’s one of those commodities we don’t think about until the price goes up. And boy has it gone up.

Most of the sulfur we use comes from oil refining. A large part of global sulfur comes from refineries in the Persian Gulf…behind the Strait of Hormuz. Fully 50% of the world’s seaborne sulfur got shut down with the Strait closed. And about 40% of the Middle East’s supplies are offline due to military strikes on oil refineries there.

As the shortage hit, Russia, China, and Turkey all restricted or cut off exports to makes sure they had enough for their own use.

As you can imagine, a shortage of something this critical drove prices through the roof. According to a study by the Colorado School of Mines:

Middle East seaborne sulfur prices surged past $800 per ton on arrival in Asia. Some Western benchmarks peaked around $1,500 per ton. Even with a shaky U.S.-Iran peace deal, destroyed regional processing infrastructure and lingering export controls will keep supply bottlenecks tight and maintain a price premium for years. A return to normal global shipping will likely take months, and maybe longer.

Remember, this stuff is critical for phosphate fertilizer manufacturers. A ton of diammonium phosphate fertilizer (DAP) takes almost half a ton of sulfuric acid to make. And it takes about 10 tons of sulfuric acid to make a ton of nickel from ore. When you jack up the price of sulfur, it changes the economics of these, dramatically.

As you can see from the chart below, the price of sulfur soared from 2025 to today. It’s up 10X since January 2025.

That drove fertilizer makers like Mosaic to cut production due to the high input price. That means farmers will pay more and/or produce less.

This is bad news for food prices and inflation in general. But there is a silver lining. Refiners that source oil from outside the middle east are generating excellent cash flows from sulfur today.

Refiners with sulfur recovery units (SRU) specialize in sour crude oil. Initially, that was done so they could use low-cost crude oil. SRU’s remove sulfur before the refiner makes gasoline or diesel. Companies like Valero (NYSE: VLO), Marathon (NYSE: MRO), and ExxonMobil (NYSE: XOM) all produce sulfur as a byproduct. And the revenues are soaring.

The simple way to play high sulfur prices today is through these refiners. And the easiest way to do that is through the VanEck Oil Refiners ETF (NYSE: CRAK):

We will look back on 2026 and 2027 as a boom period for refining companies. If you don’t have a position in them yet, do so. Because this trend has legs and will continue for months if not years.

The post Oil Refiners’ Big Yellow Cash Cow appeared first on Daily Reckoning.

I’m sure most of you have seen footage from the tragedy on the China-Nepal border.

A glacier partially collapsed upstream, releasing huge volumes of ice, water, and mud. The raging torrent of water rushed down the valley.

Sadly, more than 500 people died. Another 1,500 are missing.

Shocking video was captured, such as this gigantic boulder rolling down the river.

Source: X

It’s a reminder of the awe-inspiring power of nature. And how disasters can slowly build for decades before they hit the tipping point.

Compared to the floods at the end of the last ice age, though, this was only a trickle.

At the end of the last ice age, about 13,000 years ago, a giant glacial lake formed in what is now Western Montana. The Glacial Lake Missoula.

The lake, formed by melting glaciers, held roughly as much water as the Great Lakes Erie and Ontario combined. About 500 cubic miles of water.

Source: National Geographic

Eventually, the ice holding back this massive lake gave way. And a biblical flood of water was unleashed.

Geologists estimate the flow was equivalent to all the rivers in the world, times 10. It created massive ripples in the ground, like those you see at the beach. But these are up to 50 feet high:

Photo credit: Dave Bennet

The violent cascade of water carved wild shapes into the land downstream. Like Dry Falls in the Washington scablands:

Source: Wikipedia

Imagine the power it took to carve this rock. Floods of unimaginable power.

The water accumulated gradually. But the failure of the glacial ice dams was sudden. The dam would break, release its torrent, re-freeze, and do it all again after a few decades.

And that is disturbingly similar to our global debt situation.

When the Debt Dam Bursts

Governments around the world have steadily accumulated debt over the last 45 years. This is the lake building up behind the ice dam.

Eventually, we will have a financial equivalent of the Missoula floods. I don’t claim to know exactly when it will happen.

But we’re getting to the point where interest costs are becoming problematic. Paying the vig on federal debt now consumes 21.65% of American tax revenue. As reported by the Financial Times:

The most relevant measure of US federal government debt, that held by the public, has risen from $3.4tn in 2000 to $32.3tn now, or a rise from 33.7 per cent to more than 100 per cent of GDP in just over 25 years. More importantly, the burden of servicing that debt has doubled, from 11 per cent of tax revenues in 2000 to 21.5 per cent in the first 10 months of the current fiscal year.

And it’s not just us. Countries around the world are struggling with unsustainable debt loads.

Nations without nasty debt loads are the exception. There’s only a handful of financially disciplined countries left: Russia, Switzerland, Ireland, Sweden, Norway, and a few in South America. Almost everybody else is in a similar boat (leaky).

Now, the United States does have an advantage here. Our government’s debt is still the world’s preferred fiat asset. This helps keep yields on debt, lower than they otherwise would be.

But it’s also a crutch. Knowing that the world will buy our debt has made us spend recklessly. We are currently running 7% deficit-to-GDP. And that’s during an epic stock market bull run. Wait until the next recession.

The world periodically experiences these financial disasters. The result is almost always the same. Savers and bond holders get wrecked. Gold bugs and hard asset owners clean up.

Jim Rickards described it well in his newsletter yesterday. Regarding the 1970s stagflation period, he wrote:

I lived through that period. It was a fun time if you owned gold or real estate, if you used leverage and if you had a job that gave you a raise every few months.

It was not a fun time if you depended on fixed-income streams like annuities, insurance policies, pension plans or Social Security.

When the debt flood hits, we will all want to have plenty of exposure to hard assets. Especially precious metals, mining stocks, and oil and gas companies.

Long-life assets which will maintain (and grow) in value no matter what happens with inflation.

I plan to hold at least 20% of my portfolio in hard assets for the next decade (or two). Over that time period I’m convinced we will face serious inflation, financial panics, and quite possibly a few sovereign debt crises.

The lake of debt is building, and will unleash a torrent of inflation and chaos when the dam breaks.

This is an environment where you want plenty of exposure to durable and defensive hard assets.

The post A Glacial Flood of Debt appeared first on Daily Reckoning.

Last week’s financial media was full of apocalyptic headlines: “$40 trillion in national debt!” “U.S. debt in a doom loop!” “The end of the dollar is near!”

Gold and bitcoin soared in lockstep with the dollar doom and gloom. If you took the headlines at face value, one would assume the dollar was already toast and U.S. Treasuries were worth no more than digital confetti.

The truth is that the dollar’s position as the leading reserve currency is not in jeopardy. Of course, foreign exchange reserves are not simply piles of currency. They are largely held in liquid financial assets, including U.S. Treasury securities denominated in dollars.

Dollar-denominated assets will dominate global reserves for decades to come.

The reason is simple. There are few sovereign bond markets with the size, liquidity and depth of the U.S. Treasury market. Other large government bond markets, including Japan and major European markets, do not offer the same combination of scale and liquidity. King dollar will remain king.

This does not mean interest rates won’t rise or inflation won’t increase. Both are likely. But neither means the end of the dollar. It just means the Treasury pays more to borrow and you pay more at the gas pump and grocery store.

So, there are problems in the dollar bond markets, but debasement-trade hysteria is not a useful way to understand them.

BESSENT GOES AFTER THE BOND MARKET

U.S. Treasury Secretary Scott Bessent has just announced a plan to address higher interest rates in U.S. Treasury securities markets and, by extension, mortgage and credit card markets. It has both long-term and short-term components.

One short-term component involves U.S. support for Japan’s efforts to prop up the yen, including joint currency intervention and potential greater use of the Federal Reserve’s FIMA Repo Facility. That facility allows Japan to borrow dollars against its U.S. Treasury holdings rather than selling those securities outright.

In turn, that could take pressure off U.S. interest rates. Japan is the world’s largest foreign holder of U.S. Treasuries, with about $1.12 trillion as of June.

Another short-term component is for the Treasury to purchase longer-dated Treasury securities, specifically those in the 10- to 30-year sectors. The Treasury recently announced that it will at least double the size of certain scheduled buyback operations from $2 billion to $4 billion, with the possibility of going higher.

Treasury has also relied heavily on short-term maturities such as one-month, three-month and six-month Treasury bills in its overall financing mix. These Treasury bills generally carry lower interest rates than longer-dated notes and bonds. Greater reliance on shorter maturities can lower U.S. interest expense, at least in the short run.

Treasury bills are also prized by dealers and hedge funds because they are highly liquid and are widely used as collateral in financial transactions. Supporting liquidity at the long end while maintaining a large supply of short-term Treasury securities makes sense. Why it is causing such hysteria in the media is a bit of a mystery.

BESSENT’S 3-3-3 GAMBIT

The longer-term component of the Bessent Plan is sometimes referred to as the Three Arrows.

The first arrow is to keep annual deficits at 3.0% or less of GDP. The second arrow is to achieve GDP growth of 3.0% or more. The third arrow is to increase U.S. energy production by the equivalent of 3 million barrels of oil per day.

That’s where the shorthand 3-3-3 comes from: a 3% deficit, 3% real GDP growth and 3 million additional barrels of oil equivalent per day.

Since oil output does not directly impact fiscal policy, we can leave that to one side in our analysis. The deficit and GDP growth targets, however, are critical.

The metric that really matters in terms of whether investors have confidence in U.S. Treasury securities is the U.S. debt-to-GDP ratio. It’s silly to hyperventilate about $40 trillion as the U.S. national debt unless you put that number in the context of the GDP available to finance and roll over the debt.

Right now, gross U.S. federal debt is roughly 123% of GDP. That’s the result of approximately $40 trillion of debt divided by roughly $32.5 trillion of annualized nominal GDP. That ratio is near the highest levels in U.S. history.

High debt-to-GDP ratios can be a drag on growth and leave governments with less room to respond to crises. A ratio of 60% is much more comfortable. A ratio of 30% is more comfortable still. The previous postwar high was reached around the end of World War II.

The annual deficit will not go down to zero. That’s a fantasy. The level of U.S. national debt will also not go down anytime soon. That’s another fantasy.

But that doesn’t matter.

What does matter is whether the debt-to-GDP ratio goes down.

The way to do that is to grow the economy faster than the debt. If you can do that, the ratio goes down even if the debt goes up. That’s Bessent’s plan. That’s what he meant when he said the U.S. could “grow its way out” of the debt problem. In theory, he was right.

For example, let’s say annual deficits are $2 trillion so that a year from now the national debt will be $42 trillion. That’s a 5.0% increase in the national debt.

But if GDP grows from $32.5 trillion to $34.5 trillion, that’s a 6.2% increase. The debt-to-GDP ratio drops from roughly 123% to 121.7%. That’s still high, but it’s lower than the year before.

That’s all the so-called bond market vigilantes need to see. As long as the debt-to-GDP ratio is coming down, bond investors have reason to retain confidence in U.S. Treasuries and the U.S. dollar.

The U.S. has done this before. The gross federal debt-to-GDP ratio reached roughly 119% in 1946 and was down to about 31% by 1980. That process took more than three decades and occurred under both parties using a combination of fiscal and monetary policy, strong nominal growth and inflation.

During that period, the national debt increased substantially. But GDP increased by more than 1,000%. And that was the key. If GDP grows faster than debt, the ratio comes down and America’s fiscal position improves.

HERE’S THE DIRTY LITTLE SECRET

So, that’s the plan. But there’s a dirty little secret that Bessent has not emphasized.

When the government computes debt-to-GDP ratios, it’s using nominal numbers, not numbers adjusted for inflation.

In the example above, GDP grew by about 6.2% while the national debt grew by 5.0%. That lowers the ratio, but it does not reveal how much of the GDP growth was real and how much was inflation.

The 6.2% nominal growth could have been 4.2% real growth plus 2.0% inflation. That’s fairly healthy. But it could have been 2.2% real growth plus 4.0% inflation.

At 4.0% annual inflation, the purchasing power of the dollar is cut roughly in half in about 18 years and cut in half again over the next 18 years. That kind of inflation can destroy your net worth and income if you’re not prepared.

So, how much inflation is included in the Bessent Plan? Secretary Bessent didn’t say.

Investors should assume the worst.

The U.S. has had difficulty sustaining real growth of more than about 2.0% per year on average since the global financial crisis. If we need roughly 6.0% nominal growth to outrun the growth in debt and if we can only produce 2.0% real growth per year, then the difference has to come from inflation.

That could mean 4.0% inflation.

That’s not a policy preference. It’s just fifth-grade math.

In describing how the U.S. lowered its debt-to-GDP ratio dramatically between the end of World War II and 1980, I conveniently omitted the fact that consumer prices rose about 50% between 1977 and 1981.

That’s one way the U.S. government took care of the debt problem.

I lived through that period. It was a fun time if you owned gold or real estate, if you used leverage and if you had a job that gave you a raise every few months.

It was not a fun time if you depended on fixed-income streams like annuities, insurance policies, pension plans or Social Security.

Which side of that trade are you on?

The post Rickards: The Dollar’s Not Dying appeared first on Daily Reckoning.