Reply To: Fall in Goldprice 1980s


Sons, the gold bubbles most often pop during periods of real interest rates of +2%.

However, never again will we have real interest rates. Every 1% move in interest rates adds $160B to interest expense on the national debt, which, thanks to Clinton and Rubin, now has an average maturity of under 3 years.

In a few years time, when inflation is clearly at 12-15%, it would require someone raising interest rates ahead of the inflation in order to tame the beast, but that would require interest rates of let’s say 17%.

Assume the US has a debt of $20T by then, it would mean an annual interest expense of $3T+ if we roll over the entire debt stock over the course of 3 years at the new rates.

And with our extremely overleveraged, consumer debt driven economy, you’re right to think we would be in a real mess with rising interest rates. Credit card rates would spike up, meaning people would be doing everything they could to pay down balances instead of racking them up. This would lead to poor retail sales, leading to layoffs and decreases in state and local tax revenue, less federal revenue, rising unemployment, so on and so forth.

In other words, hold on to your gold and silver and prepare for a monetary meltdown. There can be no end to quantitative easing, stimulus or the like. The U.S. balance sheet is beyond repair and Bernanke will monetize and monetize until he can monetize no more.