On Talking Markets yesterday, I was joined by Rule Investment Media CEO Rick Rule for a catch-up on his metals outlook, digitized gold, and the “reckoning” he thinks we’re all in for…
Thank you , , , and many others for joining us live on Substack!
Fed Losing Control?
“For a long time, the Fed appeared to have control of the yield. You have to go back to the Clinton era for the last mention of bond vigilantes, which is to say the market regaining control of the rate,” Rick said. “This is a truly interesting circumstance, and I don’t think that the fact it’s occurring at the same time the US dollar is facing a challenge from other fiat currencies in terms of hegemony is any coincidence.”
While the political class wants Americans to keep enjoying cheap credit, the reality is that long-term bond yields are rising, and the government faces the prospect of rolling over trillions in debt at far higher interest rates than before.
“If we’re concerned about debt service at today’s rates, how are we going to feel about debt service at twice the current rate? It’s an ugly circumstance.”
This matters, Rick says, because it signals a deeper shift: the end of a multi-decade period of US economic dominance.
But it’s important to note that the US Fed isn’t the odd one out. Rick says he isn’t sure that any central bank has control of their bond market anymore, with the possible exception of China.
The End of US Hegemony?
Rick says the US dollar and the US economy “was “really a hegemon in the period 1982-2022, and I think the hegemony that we’ve enjoyed for the last 40 years is gone.”
Rick cited 3 reasons:
Hubris: believing the dollar’s status was untouchable
Exploding debt: $36 trillion in federal liabilities, plus $100 trillion in unfunded promises
Global distrust: particularly after the US government froze $300 billion in Russian assets, signaling to the rest of the world that U.S. financial holdings could be weaponized
“The world wanted US. dollar hegemony… but it didn’t want the US government to extraterritorially impose its power,” Rick said.
That said, he doesn’t think that signals the end of the US dollar as the global currency. “I believe the US dollar will remain the reserve currency for the balance of my life — and I’m a very healthy guy,” he said.
“There’s Going to Be a Reckoning”
Rick doesn’t believe we’re heading for a 1920s-style collapse. But that doesn’t mean the coming decade will be easy.
“There’s going to be a reckoning… I think stagflation is very likely. I think collapse is unlikely, although I would be surprised if in the next 10 years we didn’t have a liquidity event that reminded us of 2008.”
What’s the most likely path forward? A “dishonest default.”
“We’re going to honor the nominal value of our obligations — we’ll send Social Security checks, but we’ll devalue the dollar. Your $4,000 check will buy $800 or $900 worth of goods.”
Rick compared it to the 1970s, when the US dollar lost 75% of its purchasing power over a decade.
Here’s what the numbers show:
US private net worth: $141 trillion
Combined public debt + entitlement promises: $136 trillion
And both grow by $2 trillion per year, on and off the books
“This is decidedly bad arithmetic.” Rick said. “The only way out is by reducing the value of the denominator, by reducing the purchasing power of the US dollar.”
Gold: A Measure of Value
Rick is a gold saver rather than a gold speculator. “During periods when savers are concerned about the maintenance of their purchasing power in fiat-denominated instruments, those are the times when gold has done best,” he said. “And investors have a lot to be concerned about right now.”
“The nominal appreciation of the gold price will in effect likely mirror the depreciation in the US dollar,” Rick said. “I measure my purchasing power in gold. And I’m astonished at how cheap things are when I price them that way.”
Rick keeps a private ledger, tracking his balance sheet in gold terms since 2000. Over that time, gold has risen twelvefold, and even though consumer prices have gone up, few have kept pace.
“When I think about buying a restaurant meal in dollars, it seems expensive. When I think about it in gold, it seems cheap.”
What Would Make Rick Rule Sell Gold?
“A balanced federal budget, and prospect for more of the same, a mechanism for paying down the federal debt, a mechanism for dealing with the unfunded liabilities of the US government, and a positive real interest rate,” Rick said. “That combination, the idea that those four things will occur anytime soon seems unlikely to me.”
Digitized Gold Incoming
“I've done a lot of work on the distributed ledger and blockchain,” Rick said. “And I believe within two years that we will have fully digitized gold, that you'll have deposit receipts that are on the distributed ledger that represent real not fractional gold that are redeemable.”
This would combine the stability and tangibility of gold with the flexibility of digital money, allowing consumers to, say, buy a coffee with a fraction of a gram of gold, while merchants could easily convert it into physical reserves.
💡“Gold, in addition to being a savings mechanism, again becomes a retail transactional mechanism,” Rick said. “Not merely a transactional mechanism between the Central Bank of Russia and the Central Bank of China, but rather a transactional mechanism between Maggie Lake and Rick Rule in very, very low denominations. And that's a real game changer.”
Plus, Rick said: “The intersection of the distributed ledger and gold fulfills a need for somebody like me who likes the good part of the distributed ledger technology but feels more comfortable with a tangible as opposed to a network asset behind it.”
And Finally…
We’re not in Kansas anymore, Toto.
“If you think you’re going to enjoy the same entitlement benefits I’ve enjoyed, you’re delusional. The money isn’t there.”
Rick’s message:
Plan for your own future
Understand you may also have to fund the benefits your parents’ generation voted for but didn’t pay for
Don’t assume the US government will rescue you from the fallout
“My generation voted ourselves all kinds of cool benefits, and forgot to pay for them. So you get to do it.”
That said… He’s far from doom and gloom. “We’re going to get through it,” he said. “We have a lot of advantages, particularly technological advantages… We have an extremely innovative society. But there’s going to be a reckoning getting through from here to there.”
Enjoy,
Maggie
P.S. You can get a ticket to July’s Rule Symposium here.
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Important Disclaimer: It is crucial to remember that this article is for informational purposes only and should not be considered investment advice. Consult with a qualified financial advisor to assess your risk tolerance, investment goals, and overall financial plan
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