A Ghost of Debt Crises Present

“The root cause of every financial crisis, the root cause, is flawed government policies.” ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ March 25, 2024 A Ghost of Debt Crises Present “The root cause of every financial crisis, the root cause, is flawed government policies.” – Henry Paulson, as Secretary of the Treasury [Special Reminder: In case you missed [our recent announcement]( The Essential Investor has merged with legacy contributors to Agora Financial. The new, larger, more inclusive project is called The Grey Swan Investment Fraternity. If you’re interested in the scope and benefits of our new endeavor, please see what prompted us to merge [here](. If you’ve been a member of The Essential Investor, please keep an eye out for your new benefits.] Dear [Reader], March 25, 2024 – The weekend didn’t turn out the way we planned. We spent a fair amount of time thinking about what a debt crisis would look like in the United States. Fun, right? Yes, we did catch Purdue, where our son Augie goes to school, rack up 106 points against Utah State to reach the Sweet Sixteen in the NCAA men’s basketball tournament. But that wasn’t much of a distraction. One of our friendly critics, reader Bill, whom you may have read comments from before, has accused us of only looking at the debt side of the ledger… and intentionally scaring readers over an impending debt crisis since our first edition of [Empire of Debt]( nearly 20 years ago. Fair enough. But truthfully, we actually lost some sleep last night ourselves from what we could only diagnose as political anxiety caused by reading posts on X and TikTok. Since we were wrangling with the bed sheets, we thought we’d get up and do something constructive. At our desk in the wee hours, we did a Google search: “What does a debt crisis look like?” We began with the typically benign Investopedia.com, which describes a “debt crisis” as having the following characteristics (we checked off those that apply to our country’s current situation): - Rising costs of food and other goods and services due to inflation as a government prints money to support its expenditures. [Check] - Higher interest rates on mortgages, credit card debt, car loans, and more. [Check] - The loss of jobs and growing unemployment as companies and the government slash their spending. [Check] - A descent into poverty for millions of people. [Check] - A plunge in economic activity and the potential for a recession. [Check] - Cuts to a nation's all-important services, such as healthcare, public safety, social services, and education. [Check] Well, that didn’t help much. Then we had a thought: “Maybe the site offers some solutions.” So we perused things a little further. Here’s what the average mainstream reader curious about a global debt crisis in the middle of the night would find: One may be looming. And even if not yet officially declared, the dire effects on populations are already being felt. The United Nations issued a warning in July 2023 that a massive global debt burden is threatening countries worldwide. Global public debt reached $92 trillion in 2022. In some debtor nations, more is being spent by governments just to pay interest on their borrowings than is spent on health or education. Yeah. Okay. Continuing on a technical note, we found the site handles the likely outcome of a debt crisis with rather kid gloves. Here’s what it suggests we ought to be on the lookout for (again we place a check next to all those that apply for the U.S. currently): - Persistent Economic Stagnation: [check] This undermines a country's ability to service its debt and leaves its economy more vulnerable to shocks such as a recession or a pandemic. It also erodes the confidence of foreign and domestic creditors, making it more difficult and costly to refinance debt. Chronic stagnation was the primary cause of sovereign debt defaults by Russia and Ukraine in 1998, Argentina in 2001, and Venezuela in 2017. - Debt Levels:[check] High debt accumulated amid trade and budget deficits can also make the repayment burden unsustainable. Examples include Greece in 2012 and Lebanon in 2020. - Political Climate: [check] Political instability and financial mismanagement have become increasingly frequent catalysts of sovereign default. They were the primary factor in defaults by Argentina in 2014 and 2019, Ukraine in 2015, and Ecuador in 2008 and 2020. - Financial Instability: [Check] Recessions, banking or currency crises, and country breakups are all shocks that can increase default risk. Many defaults stem from a combination of misfortune and mismanagement. Why aren’t more people freaking out about this?!? “Countries defaulting on their debts is rare,” Daniel Kurt writes for the summary. “But it does happen. The most common causes of sovereign defaults include economic stagnation, political instability, and financial mismanagement. The U.S. came close to defaulting in June 2023. “However, President Biden raised the debt ceiling with new legislation. Given the political climate and rising national debt, Fitch Ratings downgraded the U.S. from a AAA rating to AA+ in August 2023.” Ah, phew. Biden fixed the problem in 2023, suffering only a minor downgrade in credit quality. And besides, the U.S. still has what Investopedia describes as ”The Home Currency Advantage”: Japan and the United States issue all of their debt in a currency they control, making a sovereign debt default especially unlikely. Aside from the economic might and institutional strength of the world's largest and third-largest economies, the Federal Reserve and Japan's central bank. Have an unlimited supply of U.S. dollars and Japanese yen respectively, which they can spend to buy the bonds issued by their governments. In fact, the U.S. can one-up Japan on the “home currency,” because it also boasts the world’s “reserve” currency. We were about to inquire further by rereading our own short analysis of BRICS efforts to [unseat the U.S. dollar as the world reserve currency…]( But then… we recalled a mental note we made during a college psychology course eons ago: as a defense mechanism, most humans are afflicted, as we tend to be personally, with the normalcy bias — simply believing that because the sun rises every morning in the East, tomorrow it will do so again. The Investopedia site is also pocked with advertising for bank CDs, iShares and other ETFs… and credit card offers… so they must believe the sun will rise again tomorrow, too. C’mon, what’s there to worry about? Turns out, characterizing a global debt crisis using Investopedia is a good way to cure insomnia. Still, it was closing in on 3 A.M., so as a precaution, we used an additional sleep aid. We cracked open the proof pages for our latest edition of [Empire of Debt,]( which is making its way to the printing presses. In it, we reread some of Bill’s own experience in Argentina, mentioned briefly above as an example of a modern country which has recently undergone a debt crisis.  Below you’ll find a sneak peek. Make sure you’re comfortable while reading ~ Addison CONTINUED BELOW... >>ADVERTISEMENT<< Buy THIS stock before Taiwan is attacked... If the United States goes to war with another nuclear armed superpower, this could have a devastating impact on your retirement portfolio. Now, even Taiwan's own foreign minister is saying that China is on the cusp of a full scale invasion. But the good news is, if China invades Taiwan, there is a way to protect yourself. Here to Learn How ]( CONTINUED... Weep For the Nation [Bill Bonner and Addison Wiggin, Empire of Debt, 3rd Edition]( No pocket left unpicked. No cliché left behind! The charm of Argentina is that people are used to crises. They know they can’t trust their government or its money. They expect corruption, inflation, devaluations, protests, and defaults. In April of 2023, a key witness against the vice president in a bribery case was murdered the day before he was supposed to testify. By contrast, most Americans enjoy a sudsy inebriation of naivety, delusion, and printing press money. Protected by two vast oceans, they have never been seriously invaded, bombed, or occupied (we put aside the flukey War of 1812). Nor have they ever had to live under communism or fascism or a dictatorship, nor ever experienced hyperinflation. They live in a bubble: “It can’t happen here.” At the time of the founding of the US Republic, however, people had seen what paper money had done to England and France, and what their own “continentals” had done during the Revolution. The continental was paper money created to fund the Revolution. By 1780, it “expired without a groan,” having lost 99.9% of its value. So when the founders wrote the Constitution, they included a clause designed to protect us from the printing presses, requiring that nothing “but gold or silver” be used as money. Now the feds issue a dollar without a speck of gold or silver in it. As such, this “money” from the government is untethered and counterfeit. Because real money is part of the real world. It is limited, like time. You can’t create more time just because it would be nice to have an extra hour’s sleep. That’s why gold is so useful as money. Each ounce of gold has to be discovered, dug out of the ground, processed, and stored. It takes time, investment, skill, and resources to produce gold, just like any other kind of wealth. Gold connects “money” to the real world of time, sweat, toil, and risk. And, in that real world, any decision must be considered in light of trade-offs. How much time will it take? How much resources will it use? What does it take away from the other things we need? Usually, these questions are reduced to a single one: how much does it cost? But did anyone bother to ask that critical question as the COVID programs were rolled out? Even when the programs are quoted in dollars—a $3 trillion bailout, say—these are just numbers. They no longer represent real costs, real sacrifices, or real trade-offs. It was assumed that no one will ever pay them. A $3 trillion bailout should come with a $30,000 tax surcharge for every federal taxpayer. The year’s federal budget deficit was $4 trillion. But what taxpayers saw an extra $40,000 charge on their tax bill? Today, there is no price too high, no program too lunatic. Because everyone knows the money is phony, the economy is counterfeit, the programs are fake, the stock market is fraudulent, and a bad moon is rising. So what happened to Argentina? One of our friends in Buenos Aires, an American who has lived in the country almost all his life, wondered: “I’ve thought about this for years. Same sort of people. (Europeans). Similar physical country, with same resources. Even the same basic institutions and constitutions. “Argentina just seemed to go sour in the 1950s. . . . I’m talking about the way people thought . . . and the way they acted. America was different, people were more independent . . . and more willing to support basic ideas of justice and fairness. “But I have to say  . . .  what I see happening in the U.S. now reminds me of what happened in Argentina a few decades ago.” As recently as the 1960s, Argentina had about the same GDP per capita as Japan. And the country has no social or cultural reasons that might explain its collapse. Why did it fall so far behind the rest of the Europeanized world? The first problem was democracy itself. In 1905, a new law gave all men the vote. This meant the proletariat, concentrated in Buenos Aires, was able to outvote the richer, land-owning elite and more traditionally minded farmers. Pernicious ideas began pouring into the capital along with the new immigrants, including ideas from the “reform” movements popular in Europe, such as those championed by Britain’s Beveridge Report. But Juan Perón was not of the Beveridge mold. He took Mussolini and Hitler as his models. The Germans and Italians were lucky: their “reformers” were defeated in World War II. The Perónists were not. As mentioned, Juan Perón was elected president in 1946. He set about the typical European reforms: pensions, medical care, minimum wages, a “13th month” salary bonus, and so on. For this, he needed money. Argentina’s most lucrative sector was agriculture, so Perón took control of exports, using farm revenue to fund his schemes. Thanks to its exports, Argentina had always run a trade surplus. But by the third year of Perón’s presidency, the surplus had turned into a deficit. Inflation increased to 33% by 1949. Strikes were common. In a remarkably short time, the economy was a wreck. This brought a wave of dissent. So Perón called the protestors traitors and had them arrested and tortured. Such corruption soaked through the entire society and still saturates it today. From the largest corporation to the humblest taxi driver, nothing in Argentina is completely straight. Dishonesty, double-dealing, inflation, defaults: they are all part of public life. And despite Javier Milei’s best efforts thus far, there’s still no sign of that changing any time soon. “If you tried to follow all the laws,” explains our friend, an attorney, “you’d go out of business.” In 2020, politics muscled into our private lives, like Antifa crashing a kumbaya singalong. At the Democratic Convention, Joe Biden said, “[I won’t] put up with foreign interference in our most sacred democratic exercise: voting.” It took a remarkable suspension of disbelief to think foreigners would want to diddle with US elections. We had a worn-out husk, ready to go along with everything, on one side. On the other was a delusional grifter, who might do anything. Why would any foreign nation bother to meddle? As Napoleon put it, “Never interrupt your enemy when he’s making a mistake.” But the mistake lay deeper than the candidates. Americans from both political parties now favor more government spending, more bailouts, more giveaways, and more meddling with trade, industry, and commerce. Surely, the dollar would suffer. The feds would print money to cover their excess spending. Then, eventually, prices would rise. It happened to Diocletian. It would surely happen to Joe Biden. So it goes, Addison Wiggin, The Wiggin Sessions P.S. We’re told by our publisher at Wiley you can now buy [Empire of Debt: We Came, We Saw, We Borrowed,]( the post-pandemic third edition, [right here.]( But they also tell me the book doesn’t arrive in warehouses until April 17, so that’s just a link to pre-order. Please send your comments, reactions, opprobrium, vitriol and praise to: addison@greyswanfraternity.com. The Daily Missive from The Wiggin Sessions is committed to protecting and respecting your privacy. We do not rent or share your email address. 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