The Bold Plan to End the Debt Crisis: BRICS Style Gold Backing and Revalued Gold.
There is no way USA, Canada, Europe, Japan, and South Korea are just going to sit around and allow BRICS ++ to take it all. At one point someone like Judy Shelton (part of Trump’s transition team) is going to tell the men in the room the truth, “If you can’t beat em, join em”
Judy Shelton has written and spoke about sound money and we’ve written about her before on this channel as having a key role in future US monetary policy
As the US Petrodollar loses grip of reserve currency status it would make sense to take a page from Sergey Glazyev playbook (BRICS economist)
As of 2023, Venezuela has the largest proven oil reserves in the world, with approximately 303 billion barrels, which is about 17% of the world's total. The majority of Venezuela's reserves are oil sands and other heavy oils found in the Orinoco Belt rock deposits, which became accessible in the late 2000s and early 2010s due to technological advancements.
Gold Moves Higher as Debt moves Higher
Gold has been tracking US debt higher. Below is a chart of US debt. Let’s begin starting with the year 2000. You can see that the debt is 5.7 Trillion.
It took us over over 200 years to get to $5.7 Trillion. By 2004, our debt had already reached a significant milestone of $7 Trillion
This was a substantial increase from the $ 5.7 trillion in 2000. By year 2014, just ten years later, and our debt had more than doubled to $17 trillion.
In the last ten years, from 2014 to 2024, we've doubled again to almost 35 trillion today, a rapid and concerning pace of accumulation.
Looking ahead, the trajectory of our debt is a cause for immediate concern.
If the current trend continues, we could have a debt of $68 trillion by 2034.
The US's debt accumulation has no end, helping to drive the gold price higher.
Europe buys about twice as much gold annually as the US does and Asia including India buys about twice as much gold as Europe does annually
The gold price has an inverse correlation to the dollar and treasury yields.
Gold is also a hedge against economic and geopolitical instability.
It's also a hedge against currency debasement which is what inflation is (a loss of purchasing power)
and over time Gold holds its purchasing power against Fiat currencies that have no backing.
“According to the Congressional Budget Office (CBO), the US government’s interest payments on the national debt are now projected to reach $12.9 trillion over the next decade, which is the highest amount for interest in any historical 10-year period and more than double the total spent in the past two decades. Here's the overview of some of the key data points on this debt balloon:
Net interest costs would rise from $890 billion in 2024 to nearly $1.7 trillion in 2034. The previous inflation-adjusted high was $468 billion in 1996.
Relative to the size of the economy, interest costs would reach 3.4% of GDP in 2025 — eclipsing the previous high set in 1991. Interest costs would climb to 4.1% of GDP by 2034.
As a share of federal revenues, federal interest payments would rise to 20.3% by 2025, exceeding the previous high of 18.4% set in 1991. They would continue climbing to 22.9% by 2034.
As a percent of total spending, interest costs would reach 15.8% by 2031, eclipsing the previous high of 15.4% set in 1996 These are pretty staggering numbers and they reflect the daunting dilemma of a government caught in the vise of fiscal dominance: soaring interest payments on its debt are draining the budget, yet aggressive rate cuts to alleviate this burden are off the table due to stubbornly high inflation. From a long-term perspective, the mathematical improbability of repaying the debt opens the door to a host of extreme scenarios including a potential default or severe recession and financial crisis.” - James McKay
let's break down the key factors:
Current debt level: $35 trillion
Interest rate: We have a 5.5% Fed funds rate. However, the interest rate on government debt is typically lower than the Fed funds rate.
The 10-year Treasury yield, which is a better indicator for government borrowing costs, was around 4.2% as of June 2024.
Current budget situation: The US government has been running budget deficits, which means spending exceeds revenue.
To analyze whether the increase in gold prices corresponds linearly to the growth in U.S. national debt, we need to examine the data points provided:
2000: Debt = $5.7 trillion, Gold = $271/oz
2004: Debt = $7 trillion, Gold = $437/oz
2014: Debt = $17 trillion, Gold = $1,178/oz
2024: Debt = $35 trillion, Gold = $2,434/oz
These ratios suggest that the gold price per trillion dollars of debt increases over time, but not in a strictly linear manner. Instead, the increase appears to be more exponential or polynomial, indicating that as debt grows, the gold price increases at a faster rate.
Gold Price=a⋅eb⋅Debt
Where:
aa and bb are constants determined from historical data.
Using the provided data points, we can estimate aa and bb through regression analysis. However, for simplicity, let's assume the exponential trend observed continues similarly.
Example Calculation for Future Debt
If the U.S. debt reaches $50 trillion, we can estimate the gold price using the observed exponential trend:
From the data, the average increase in the ratio of gold price to debt suggests a significant rise. Using the exponential trend, a rough estimate can be made by observing the pattern:
Gold Price≈69.54×Debt1.2Gold Price≈69.54×Debt1.2
For $50 trillion debt:
Gold Price≈69.54×501.2≈69.54×158.49≈11,025Gold Price≈69.54×501.2≈69.54×158.49≈11,025
Thus, if the debt reaches $50 trillion, the gold price could potentially be around $11,025 per ounce, assuming the exponential trend continues.
In the context of $11,025 Gold Silver would be 2.5% of that number or $275.63 per ounce
Another way to arrive at Fundamental value of Gold (with backing US debt and revaluing gold)
Gold hits $133,844 per ounce
Silver hits $3,346 per ounce
Methodology: We’re pricing Silver being 2.5% of Gold
This is 40-1
If you go with 80-1 ratio then Silver is $1,673 per ounce
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