How Straumann’s book “1931” compares to today’s situation, etc.
What this covers
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Luke Groman argues that the United States faces a structural debt crisis mirroring 1931 Germany—with unreplayable sovereign debt, hollowed industrial base, and entitlements acting as inflation-adjusted reparations—requiring dollar devaluation, wage inflation, and wealth redistribution from elderly asset holders to working-class wage earners to avoid systemic collapse.
- US sovereign debt is unreplayable in real terms without negative real rates, matching 1931 Germany's position with war reparations
- Entitlements and off-balance-sheet liabilities (Medicare, Medicaid, Social Security, Veterans Affairs) are functionally inflation-adjusting obligations that scale with inflation like war reparations
- Political instability, polarization, and inability to cut entitlements domestically while signaling austerity to foreigners mirrors pre-1933 Germany's contradictory domestic-foreign messaging
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Germany's war reparations were impossibly large as a percentage of GDP and were denominated in gold, so the more Germany printed currency, the higher the real reparation burden became—creating a debt trap where monetary expansion worsened fiscal conditions.
“they owed uh war reparations that were impossibly large as a percent of their GDP u and that were inflation adjusting. They were owed in gold in no small part and therefore the more they printed the more the reparations went up.”
You don't need to worry about storing gold in China unless you run a trade surplus against China; only oil and commodity exporters who receive yuan in payment have an incentive to convert those yuan to gold and store it.
“you don't have to worry about this unless you run a surplus against China to start with. If you don't run a surplus with China, then you're going to be paying them more than they pay you. Now, if they pay you more than you pay them, which tends to be commodity and oil producers around the world, then you could end up with some yuan and you could buy gold and store it there.”
Germany in 1931 had lost a war that much of its population did not believe it had lost, blamed politicians for the loss, had unreplayable sovereign debt on a real basis, and a hollowed industrial base from post-war reparations that were impossibly large as a percentage of GDP and inflation-adjusting in gold, creating a paradox where the more they printed currency the larger the real reparations obligation became.
“Germany had lost a war that the population a big chunk of the population did not believe it had actually lost and and blamed its politicians for having lost it. Uh Germany's sovereign debt was unreayable on a real basis. Uh their industrial base had been hollowed out uh by post-war agreement and reparations. uh they owed uh war reparations that were impossibly large as a percent of their GDP u and that were inflation adjusting.”
Reading economic history is valuable because human nature never changes—fear and greed recur across thousands of years—so historical patterns provide insight into where current events might go, even though the specific details never rhyme word for word.
“I like reading economic history because it's never different this time from the standpoint of human nature never changes. Fear greed you go back thousands of years humans fear greed and they react to the events. you can it it gives you some sense of where things could go.”
The United States lost the global war on terror and the global trade war, but the US populace does not believe it—unlike in Germany, where denial was explicit, here the denial is widespread but not universal.
“The United States lost the global war on terror. Uh, the United States lost the global trade war. Um, the populace doesn't believe it. If you don't believe me, they don't believe it. Tell somebody that in the street one day. Tell tell somebody in Wall Street, see how it goes. The the populace does not believe those things. Certainly not uniformly.”
Don't try to be perfect in navigating future uncertainty; instead, use portfolio diversification to offset multiple tail risks while maintaining exposure to 'nothing ever happens' scenarios (like the S&P 500)—stay 'low on your skis' in terms of diversification.
“I think it's really a waiting issue. It's a diversifying issue. Um I don't think you ever want to be like totally out of the system totally trying to like you know because when I say what's the six ball shot off the side into the side pot. What is that? That's like going all in bitcoin all in gold all in bonds all in all in anything. We are not in the part of the cycle where you want to be going all in anything. You you want to there are lots of different things that can happen. we are off the reservation in terms of potential opportunities or or risks um financial geopolitical domestic political they you want to stay low on your skis in terms of your diversification.”
The Weimar political dysfunction directly led to rising domestic political instability including political assassinations, shootings, and violence as groups struggled for control over who would bear the fiscal burden.
“And that led to rising domestic political instability, political tensions, political assassinations, shootings, violence.”
Multipolarity is expanding, not contracting, as it has since 1989 when the USSR broke apart, ending bipolarity and initiating a unipolar moment that has been eroding back toward multipolarity.
“Now we don't live in a vacuum. Uh is multipolarity expanding or contracting? It's expanding. Expanding notably. Uh post 1985 you saw the USSR [13:07] starting to falter. Post 1989 it broke apart. Multipolarity that was bipolarity. It gone. Now we were in a unipolar moment. What did gold do? It went from 40% collateralized to 20% in 1989 when the Berlin Wall came down and kept going down.”
The US spent $8 trillion on Middle East wars to achieve nothing and obtained a veterans liability equivalent to an asbestos liability—an obligation that must be paid no matter what and rises rapidly, with the Veterans Affairs bill now $400 billion annually and rising 10% per year.
“we went to war in the Middle East dropped $8 trillion to achieve nothing and what we did get is the equivalent of an asbestous liability right an asbestous liability is something you have to pay no matter what and it rises fast. Our Veterans Affairs bill is now $400 billion and it's rising 10% a year.”
The elderly (Boomers and Silent Generation) control 65-70% of wealth in the US and receive 70% plus of all-time record high tax receipts, creating a political constraint where equity markets must rise 10-15% annually to fund entitlement payments.
“Boomers have 70 trillion in assets. The boomers and silent generation have 70 trillion in assets. they control 65 to 70% of uh the wealth in this country...a economic system where they can never let stocks fall to stop that from happening because it blows up the US government. they can't make their entitlement payments to you unless equities go up 10 to 15% a year.”
The US industrial base has been significantly hollowed out by trade deals and the ideology of neoliberal economic globalism, which has done to the US defense industrial base what wars did to countries after WWI and WWII.
“the industrial base in America has been significantly hollowed out by trade deals. uh the religion of neoliberal uh economic globalism uh has effectively done to the US defense industrial base what war did to a lot of countries after World War I after World War II.”
When you enter a negotiation or 'card game' without strong cards and pretend to have a royal flush, you end up 'tucking' (backing down) repeatedly—analogous to Trump's position in policy negotiations.
“when you go into a card game and and you don't have cards and you try to play like you've got a royal flush, you end up tackling quite a bit. And so I think ultimately um this seeming pivot on Ukraine by him is I think it's just I think it's just noise.”
US sovereign debt is unreplayable in real terms, which is why negative real rates are the only policy mechanism that can make the math work—this is the structural reason the Fed cannot normalize rates.
“The United States has sovereign debt uh that is unreayable in real terms. That's why I keep saying the only way to make the math work, negative real rates.”
Reading economic history is valuable because human nature—fear and greed—never changes across centuries, so patterns of behavior recur even if surface circumstances differ, making historical patterns predictive of where current situations could lead.
“I like reading economic history because it's never different this time from the standpoint of human nature never changes. Fear greed you go back thousands of years humans fear greed and they react to the events. you can it it gives you some sense of where things could go.”
These valuation frameworks (China trade/gold, US gold/foreign-debt ratios) are 'in a vacuum' answers; real-world outcomes depend critically on whether multipolarity is expanding or contracting, which determines central bank gold demand.
“when I I started this answer I said in a vacuum these are in a vacuum answers Now we don't live in a vacuum. Uh is multipolarity expanding or contracting? It's expanding. Expanding notably.”
Equity markets de facto back the Treasury market through reflexivity: the lagged impact of policy decisions over 30 years has created a situation where equity market values directly affect tax receipts, consumer spending, and government revenues, making Treasury market health dependent on continued equity gains.
“equity markets de facto back the treasury market through the marginal impact on tax receipts, consumer spending, uh, and government receipts. So Powell can say whatever he wants about the valuation of the stock market, but unless he wants to stand aside and let the treasury market dysfunction, stocks have to rise 105% a year every year forever or else the Treasury market has a problem.”
There are no other reserve assets that compete with the dollar; gold directly competes with dollar-denominated treasuries as reserve assets, so rising multipolarity drives central bank gold buying and falling multipolarity drives dollar buying—this is the key driver to watch.
“ultimately there are no other reserve assets to compete with the dollar. People are right when they say that gold competes with the dollar. Gold competes with treasuries in reserve assets. And so as multi-polarity rises, central bank gold buying is going to keep going up. If something happens where multi-polarity starts to recede, then gold buying is going to go down by central banks, dollar buying will go up”
If you don't hold gold, you don't own it, making physical gold possession the true measure of ownership and justifying countries' preference for local vault storage.
“I know what do I always say? If you don't hold it, you don't own it.”
Boomer and silent generation wealth is ~70 trillion and they control 65-70% of total US wealth; they collect 70%+ of all-time record tax receipts; the system can't allow equities to fall because it would destroy government ability to fund entitlements.
“Boomers have 70 trillion in assets. The boomers and silent generation have 70 trillion in assets. they control 65 to 70% of uh the wealth in this country... you guys have 65% of the wealth and you are collecting 70% plus of all-time record high tax receipts and a economic system where they can never let stocks fall to stop that from happening because it blows up the US government. they can't make their entitlement payments to you unless equities go up 10 to 15% a year.”
US stocks are fairly highly valued as Powell noted, but stocks are not as highly valued as the Treasury market, which is the biggest bubble, because Treasury securities (a 'risk-free' asset) serve as the discount rate hurdle for all other equity valuations despite being backed by unsustainable fiscal dynamics.
“stocks are fairly highly valued, but they're not as highly valued as the treasury market. Think about that. Treasury market is a risk-free asset underpinning everything else out there. We have debt, you know, we the United States all-time high record receipts $5.5 trillion...We have debt of seven times record receipts. We haven't run a surplus, a profit. We haven't run a surplus in 24 years...The biggest bubble by far is the long-term treasury market relative to stocks”
Germany in 1931 had lost a war that a significant portion of the population did not believe it had actually lost and blamed politicians for the loss, creating a fundamental political legitimacy crisis that undermined debt repayment capacity.
“Germany had lost a war that the population a big chunk of the population did not believe it had actually lost and and blamed its politicians for having lost it.”
The overall US deficit rose from $200 billion when the Iraq War began in 2003 to much higher levels, showing that the Middle East wars directly expanded budget deficits.
“Our overall deficit when we went into Iraq in 2003 was 200 billion for the whole government for the whole deficit.”
US Treasury market is the biggest bubble relative to stocks because the US has record receipts ($5.5 trillion) but 7x that in debt, hasn't run a surplus in 24 years, and has 4-20x (20x of revenue) in off-balance sheet liabilities (Medicare, Medicaid, Social Security) plus $8 trillion spent in Middle East wars to achieve nothing.
“We have debt, you know, we the United States all-time high record receipts $5.5 trillion. Okay? We have debt of seven times record receipts. We haven't run a surplus, a profit. We haven't run a surplus in 24 years. And we've got off-balance sheet liabilities that are I don't know what four times four times GDP 20 times all-time record revenues 20 times revenues off balance sheet liabilities Medicare Medicaid social security and we went to war in the Middle East dropped $8 trillion to achieve nothing”
The trade-off in the current system is that bond holders must lose on a real basis for America to win; this is a structural requirement, not optional, and Grman favors America winning over protecting bond holders.
“Bond holders have to lose on a real basis for America to win. And I'm a big fan of America winning. So, uh, with that, I'm going to finish up for the night.”
US sovereign debt is unreplayable in real terms, and the only mathematical way to make the debt math work is through negative real interest rates, matching the structural impossibility Germany faced with war reparations.
“The United States has sovereign debt uh that is unreayable in real terms. That's why I keep saying the only way to make the math work, negative real rates.”
The US industrial base has been significantly hollowed out by trade deals and the neoliberal economic globalism ideology, functionally doing to the US defense industrial base what war did to many countries after WWI and WWII.
“Uh the industrial base in America has been significantly hollowed out by trade deals. uh the religion of neoliberal uh economic globalism uh has effectively done to the US defense industrial base what war did to a lot of countries after World War I after World War II.”
With tight labor supply, corporations have incentives to automate to avoid paying higher wages, meaning investment in automation and capital equipment rises, creating additional economic stimulus.
“investment will stand to benefit from that because of course corporations are also going to be looking to automate to get rid of a wage uh wage employees inflation because the inflation everyone has an incentive to actually um you know reduce wealth inequality”
Corporations will respond to tight labor and high wages by investing in automation, reducing labor dependency; this creates a virtuous cycle where workers are elevated through scarcity and replaced through investment, benefiting both.
“investment will stand to benefit from that because of course corporations are also going to be looking to automate to get rid of a wage uh wage employees”
US entitlements (Social Security, Medicare, Medicaid) function as inflation-adjusting war reparations owed to the elderly and are impossibly large as a percent of GDP—400%, 500%, 600% or more.
“Uh entitlements are nothing more than inflation adjusting war reparations owed [4:10] to uh American elderly. Uh we don't owe them dollars. We owe them in cost of living adjusted social security dollars. Uh and we owe them hips, knees, pharmaceuticals, doctor's time, things that uh are inflation adjusting. Uh and those inflation adjusting war reparations that we owe to boomers and silent generation are impossibly large as a percent of our GDP. Uh 400, 500, 600% or more of GDP.”
The US has record all-time high tax receipts of $5.5 trillion, debt of seven times record receipts with no surplus in 24 years, and off-balance sheet liabilities of 20 times revenues in the form of Medicare, Medicaid, and Social Security.
“We have debt, you know, we the United States all-time high record receipts $5.5 trillion. Okay? We have debt of seven times record receipts. We haven't run a surplus, a profit. We haven't run a surplus in 24 years. And we've got off-balance sheet liabilities that are I don't know what four times four times GDP 20 times all-time record revenues”
Repatriation risk (capital controls preventing foreign investors from moving funds out of the US) is a genuine near-term downside risk to US equities, as evidenced by a brief post-'liberation day' episode where the dollar fell and stocks fell simultaneously, but this risk can be mitigated by overweighting value stocks (which are cheaper and thus less exposed to repatriation pressure) and Bitcoin/gold (which bypass capital controls).
“I think repatriation uh is a real concern for sort of short-term downside for equities at any given point in time. We saw a brief glimpse of that post liberation day. Recall dollar down, stocks down, bonds down, yields up. Uh and and I agree would agree. You know, let me just say I'm a huge fan of Russell Napier. I think he's brilliant. Um and I agree value stocks would mitigate that risk um relative to the S&P because they are more cheaply valued.”
A brief glimpse of repatriation risk occurred post-'liberation day' when the dollar fell, stocks fell, bonds fell, and yields rose—demonstrating the vulnerability of US equities to currency weakness.
“I think repatriation uh is a real concern for sort of [21:27] short-term downside for equities at any given point in time. We saw a brief glimpse of that post liberation day. Recall dollar down, stocks down, bonds down, yields up.”
US entitlements (Social Security, Medicare, Medicaid) are functionally inflation-adjusting war reparations owed to elderly Americans in cost-of-living-adjusted dollars and real goods (hips, knees, pharmaceuticals, doctor time), not nominal dollars, and these inflation-adjusting reparations are impossibly large as a percentage of GDP (400-600% or more).
“entitlements are nothing more than inflation adjusting war reparations owed to uh American elderly. Uh we don't owe them dollars. We owe them in cost of living adjusted social security dollars. Uh and we owe them hips, knees, pharmaceuticals, doctor's time, things that uh are inflation adjusting. Uh and those inflation adjusting war reparations that we owe to boomers and silent generation are impossibly large as a percent of our GDP. Uh 400, 500, 600% or more of GDP.”
US politicians are attempting to convince foreigners (through policies like 'strong dollar' and 'Doge') that the US will cut entitlements while simultaneously telling the domestic audience that entitlements will never be cut—replicating Weimar's unsustainable rhetorical contradiction.
“we've got domestic politicians that are trying to convince um foreigners on some level, this has been less obvious, that they that they will cut reparations, right? Strong dollar Doge. Doge was an attempt to convince people that we were actually going to cut reparations while at the same time we've been trying to convince the domestic audience, our polit politicians, that we will never cut reparations, we'll never cut entitlements.”
At what price of gold do bonds start looking attractive relative to gold? Answer: unless there's draconian austerity (which Grman opposes) or a productivity miracle without massive unemployment (which Grman calls 'an impossibility'), bonds won't become attractive until gold has risen 5-7x from current levels (foreign-held debt is 50-70% collateralized by gold).
“Unless you get draconian austerity, in which case I think gold's still going to outperform, but it's going to go down. But I think it'll outperform everything else. But unless you get draconian austerity or some sort of productivity miracle that also doesn't lead to massive unemployment, which I think is an impossibility, but setting aside those caveats, then I would start to think about looking at selling gold to buy long-term bonds. uh when foreign held debt uh foreign held treasuries uh is 50 to 70% collateralized by US official gold um and so gold up 5 to 7x from here I would start thinking about selling some gold for long-term treasuries”
China is not trustworthy as a gold custodian, but the specific institutional mechanism (Shanghai Gold Exchange International Board established in 2014 allowing gold withdrawal) and strategic implications (any freezing would end renminbi internationalization) make China credible as a gold vault operator despite general distrust.
“In my opinion, no. Now, with an asterisk... What do I mean by that? Well, number one, they did note the Western stories did note that it is a Shanghai Gold Exchange International Board. So, it is it is the SGI which was established in 2014 to allow international gold in and out of China. Um, that is number one. So you can take this gold with you. Now uh if China ever doesn't let you take the gold with you, if you are a a creditor of China and they don't let you take the gold with you, that's the end of dalorization. That's the end of international internationalization of remn. That's a massive strategic loss for China.”
Nations running trade surpluses with China won't hold significant yuan balances, so the gold vault offer is only relevant for nations running deficits with China (mainly oil/commodity producers) who end up with excess yuan and want to convert it into gold for storage.
“You don't have to worry about this unless you run a surplus against China to start with. If you don't run a surplus with China, then you're going to be paying them more than they pay you. Now, if they pay you more than you pay them, which tends to be commodity and oil producers around the world, then you could end up with some yuan and you could buy gold and store it there.”
Draconian capital controls, if they were to be implemented to prevent repatriation, would signal the end of the dollar's post-1971 reserve status, which is why Groman does not expect them to happen, but Bitcoin is arguably the most perfectly designed asset in history to circumvent capital controls if they did occur.
“capital controls I agree are a potential risk of some description. Um but I think it's also really important if if there's if there's draconian capital controls um that's the end of the dollar's reserve status as structured post 71 certainly. So I'm not counting on that to happen. Uh, I don't think it'll happen, but if it did, uh, I I I think Bitcoin is arguably perhaps the most, uh, perfectly created asset to avoid capital controls in the history of mankind. And I also think gold will do really well in that case, too.”
US politicians are attempting to convince foreigners (weakly via 'strong dollar' messaging and DOGE) that the US will cut entitlements while simultaneously convincing the domestic audience that entitlements will never be cut, reproducing Germany's 1931 contradictory messaging bind.
“we've got domestic politicians that are trying to convince um foreigners on some level, this has been less obvious, that they that they will cut reparations, right? Strong dollar Doge. Doge was an attempt to convince people that we were actually going to cut reparations while at the same time we've been trying to convince the domestic audience, our polit politicians, that we will never cut reparations, we'll never cut entitlements.”
China claims it is setting up the Shanghai Gold Exchange (SGE) International Board as a preferred destination for nation-state gold storage, but Groman interprets this not as China trying to attract gold directly to mainland vaults but as setting up SGI vaults in other nations (via strategic ambiguity) where countries can store gold in their own territory while maintaining connection to Chinese settlement infrastructure.
“China is very good at what I would call strategic ambiguity. Uh, and I suspect in this case that what the Chinese actually said about what they're doing was misinterpreted by the uh, the Western media that wrote up the stories.”
Equity markets de facto back the Treasury market through a reflexive relationship: equity market growth drives consumer spending and government tax receipts, so unless stocks rise 10-15% annually, the Treasury market dysfunction because declining tax receipts make debt service impossible; therefore Powell cannot allow stocks to fall significantly without crashing the Treasury market.
“thanks to the lagged impact of policy decisions made over the last 30 years, equity markets de facto back the treasury market through the marginal impact on tax receipts, consumer spending, uh, and government receipts. So Powell can say whatever he wants about the valuation of the stock market, but unless he wants to stand aside and let the treasury market dysfunction, stocks have to rise 105% a year every year forever or else the Treasury market has a problem. And we've seen this repeatedly uh empirically uh in recent three, four, five, six years.”
The 1931 Germany situation is a useful roadmap for what could happen in the US, not because it will rhyme exactly but because the structural setup is remarkably similar and investors benefit from knowing what warning signs to look for.
“So I think it's a very useful road map. I'm not saying it is the road map. I'm not saying there is a Hitler coming something like that. All I'm saying is the setup is remarkably similar and at a time when we are sort of off the reservation in relative to the last 20 years, 30 years, 40 years, 50 years, 60 years, 70 years of economic history. Um, I'm not saying it's going to rhyme word for word, but boy, if it if it rhymes a little bit, it can be a huge advantage to investors uh to know what to look for.”
No nation would trust storing gold in China itself because if China ever blocked gold withdrawal, it would end dollarization and the internationalization of the renminbi, representing a massive strategic loss that China will not allow to happen.
“Now uh if China ever doesn't let you take the gold with you, if you are a a creditor of China and they don't let you take the gold with you, that's the end of dalorization. That's the end of international internationalization of remn. That's a massive strategic loss for China. That isn't going to be allowed to happen.”
The trade-off for continued equity support must be that wealthy elderly pay significantly more for services (yard work, roof repair, lawn cutting, deck building, pool installation) and skilled trades workers earn higher wages.
“the trade-off has to be, you know, you're going to need to pay a lot more for services around the yard on to get the roof fixed, to cut the lawn, all those things. And then, you know, those, you know, to to to have the deck built out back, to get the new pool, all those things, skilled trades guy, trades people, uh, skilled trades people, they have to do those things. Uh, laborers have to do those things. And you're going to have to pay for it.”
Bondholders must experience real losses (negative real returns) on a sustained basis for the United States to resolve its wealth inequality and debt dynamics.
“Bond holders have to lose on a real basis for America to win. And I'm a big fan of America winning.”
Unless the US implements draconian austerity or achieves a productivity miracle without massive unemployment (which Grman considers impossible), gold will continue to outperform all other assets.
“unless you get draconian austerity or some sort of productivity miracle that also doesn't lead to massive unemployment, which I think is an impossibility, but setting aside those caveats, then I would start to think about looking at selling gold to buy long-term bonds.”
Stay diversified in your portfolio—stocks will be fine, but long-term bonds should be avoided because they represent the largest structural mispricing in the market.
“I think it's important to stay diversified. Um I think stocks will be fine. Uh I just think long-term bonds are just avoid.”
As compensation for maintaining asset values (required to fund entitlements), working-class and middle-class people will need to accept significantly higher labor costs for services—skilled trades, lawn care, roof repair, pool building—creating a virtuous cycle where laborers earn more, start families, buy houses, build cars, reinvigorating demand.
“If there's nobody coming in that'll do the work for them cheaply, then they're going to have to pay for the work and you'll actually be able to uh as a as a workingclass guy have a house and a family... you know, you're going to need to pay a lot more for services around the yard on to get the roof fixed, to cut the lawn, all those things... Uh, laborers have to do those things. And you're going to have to pay for it. And then they're going to turn around and they're going to start a family, buy a house, build buy a car, and that starts feeding on itself uh in a in a virtuous cycle”
Multipolarity (the rise of competing power centers replacing US unipolarity) is the critical context for understanding gold demand, because as multipolarity expands, central banks will continue accumulating gold as the only reserve asset that competes with the dollar; conversely, if multipolarity recedes, central banks will shift back to dollar accumulation.
“Now we were in a unipolar moment. What did gold do? It went from 40% collateralized to 20% in 1989 when the Berlin Wall came down and kept going down. I think it bottomed at 5% maybe 2008 2010...and has been rising slowly...It's up to 10%. So uh you've got to watch for I think multipolarity why it's so important to watch is ultimately there are no other reserve assets to compete with the dollar. People are right when they say that gold competes with the dollar. Gold competes with treasuries in reserve assets. And so as multi-polarity rises, central bank gold buying is going to keep going up. If something happens where multi-polarity starts to recede, then gold buying is going to go down by central banks, dollar buying will go up”
Wealth inequality can resolve without a massive bear market in the S&P 500 through: (1) significant dollar devaluation; (2) significant inflation; (3) extremely tight immigration controls; (4) yield curve control—this combination would create wage spirals benefiting working/middle class without equity collapse.
“if you have a two to threeyear period of significant dollar devaluation and significant inflation paired with extremely tight immigration controls paired with yield curve control, I think you would get um something that resembled uh a significant decline in wealth inequality um without a real massive bare market. I think actually a bull market in the S&P um significant dollar deval devaluation is going to trick trick off a lot of liquidity. It's going to uh kick off a lot of inflation.”
The ratio of US official gold (at market price) to foreign-held US Treasuries is a key collateralization metric: prior to 1989 it never fell below 20% (long-term average 40%), in 1980 during a real dollar crisis it reached 135%, and today stands at only 10%—indicating severe under-collateralization of foreign debt.
“the market value of US official gold. So, 8,100 tons times the market price of gold uh, as a percentage of foreign held treasuries outstanding. Uh, prior to 1989, uh, that was never less than 20%. So, US for official gold collateralized our foreign debt by 20 at 20%. Uh, the long-term average was 40%. Uh, when we had an honest to goodness dollar crisis in 1980, it went to 135%. Today, with as much as gold has moved, that number is 10%.”
Yes, stocks still make sense to hold as investments despite nominal value increases paired with dollar devaluation, but investors must understand that stocks are 'fairly highly valued' but NOT as highly valued as the Treasury market, which is the biggest bubble.
“yes, yes, that stocks do make still sense still make sense to hold in my opinion. But be yes, you want to be diversified... Uh, stocks are fairly highly valued, but I think it is so so critical for investors, for the average investor to understand, not get swayed by guys like Powell saying stocks are fairly highly valued. He's not wrong. He's just leaving out important context... stocks are fairly highly valued, but they're not as highly valued as the treasury market. Think about that. Treasury market is a risk-free asset underpinning everything else out there.”
Wealth inequality can resolve itself without a massive stock market bear market if the US implements: (1) significant dollar devaluation paired with inflation, (2) extremely tight immigration controls preventing labor supply increases, and (3) yield curve control keeping mortgage rates low, creating wage inflation that benefits working-class and middle-class Americans while eroding elderly asset holders' purchasing power.
“if you have a two to threeyear period of significant dollar devaluation and significant inflation paired with extremely tight immigration controls paired with yield curve control, I think you would get um something that resembled uh a significant decline in wealth inequality um without a real massive bare market. I think actually a bull market in the S&P um significant dollar deval devaluation is going to trick trick off a lot of liquidity. It's going to uh kick off a lot of inflation. Uh but if you have very strictly controlled immigration, uh then I think you're going to end up with a bit of a wage spiral um and a wage spiral that benefits the very people that have been most hurt by the economic system of the last 40 years. The working class, the middle class, right?”
Capital controls are a potential risk but are not something Grman expects to happen, because if draconian capital controls were imposed, it would end the dollar's reserve status as structured post-1971, which would be a catastrophic strategic loss.
“Capital controls I agree are a potential risk of some description. Um but I think it's also really important if if there's if there's draconian capital controls um that's the end of the dollar's reserve status as structured post 71 certainly. So I'm not counting on that to happen. Uh, I don't think it'll happen”
Current conditions are unusual relative to the last 50-70 years of economic history, suggesting investors are in uncharted territory where multiple outcomes (continuation, moderate stress, systemic crisis) have non-negligible probability.
“we are off the reservation in relative to the last 20 years, 30 years, 40 years, 50 years, 60 years, 70 years of economic history. Um, I'm not saying it's going to rhyme word for word, but boy, if it if it rhymes a little bit, it can be a huge advantage to investors uh to know what to look for. So, that's that's how I've thought of it.”
US official gold holdings (8,100 tons) as a percentage of foreign-held Treasury securities should historically have remained above 20% collateral coverage and averaged 40% long-term, but today stands at only 10%, indicating the foreign debt has grown 4-5x faster than gold reserves, making current conditions closer to the 1980 dollar crisis (135%) than to any postwar equilibrium.
“United States uh, foreign held uh, excuse me, the market value of US official gold. So, 8,100 tons times the market price of gold uh, as a percentage of foreign held treasuries outstanding. Uh, prior to 1989, uh, that was never less than 20%. So, US for official gold collateralized our foreign debt by 20 at 20%. Uh, the long-term average was 40%. Uh, when we had an honest to goodness dollar crisis in 1980, it went to 135%. Today, with as much as gold has moved, that number is 10%.”
Powell is being disingenuous when warning about stock valuations because he knows stocks must rise annually to prevent Treasury market collapse and his political role prevents him from saying this openly, but Groman can say it and use this insight to advise clients.
“I mean again he can't say it. I guess I should be thankful because he can't say it. I do get to say it. It's right and we can help clients by saying it and he can't say it because look at the end of the day he's a politician. He has to be a politician.”
The long-term debt cycle being described is not imminent but is the multi-decade structural pattern; gold collateralization has just turned from 5–7% and is now 10%, meaning the cycle is in early stages and will take years to play out.
“Now, this isn't all going to happen by next week, everybody, but I'm just saying this is the long-term cycle we are in. And we just turned off of 5 to 7%, we're at 10%. That number gets to 50, 60, 70%. They'll start thinking about letting some go to buy long-term treasuries.”
The 1931 analogy provides a useful scenario map without claiming identity—it's not saying 'a Hitler is coming' but rather that the setup is structurally similar and investors benefit from knowing what to look for when such setups emerge.
“I'm not saying it is the road map. I'm not saying there is a Hitler coming something like that. All I'm saying is the setup is remarkably similar and at a time when we are sort of off the reservation in relative to the last 20 years, 30 years, 40 years, 50 years, 60 years, 70 years of economic history.”
Russell Napier (value investor) is right that value stocks would mitigate repatriation risk better than S&P 500 because value stocks are more cheaply valued, though this mitigates but doesn't eliminate repatriation risk.
“Look, I think repatriation uh is a real concern for sort of short-term downside for equities... I'm a huge fan of Russell Napier. I think he's brilliant. Um and I agree value stocks would mitigate that risk um relative to the S&P because they are more cheaply valued.”
Gold collateralization bottomed around 5% in 2008-2010 (the nadir of unipolarity) and has been rising slowly since, now at 10% over the last ~5 years, reflecting early-stage multipolarity expansion.
“I think it bottomed at 5% maybe 2008 2010 um and has been rising slowly. It sort of bottomed along there for about 5 years in the 5 to 7% range and is now rising. It's up to 10%.”
Powell is being disingenuous when he says stocks are 'fairly highly valued' because he's omitting the critical context that stocks are less overvalued than the Treasury market, and he knows this but can't say it because he's a politician.
“Stocks are fairly highly valued, but they're not as highly valued as the treasury market. Think about that. Treasury market is a risk-free asset underpinning everything else out there... And paradoxically, then it's critical to remember that that's a reflexive relationship... Powell can say whatever he wants about the valuation of the stock market, but unless he wants to stand aside and let the treasury market dysfunction, stocks have to rise 105% a year every year forever... So uh sorry I get a little exercised here about this, but I just think it's really disingenuous on Powell's part. I mean again he can't say it. I guess I should be thankful because he can't say it. I do get to say it.”
Rising political instability in the US—including the assassination of a public figure (Charlie Kirk reference appears to be an error or misstatement), polarized reactions, and a shooting at an ICE facility in Dallas—indicates the beginning of the destabilization pattern that preceded 1933 Germany.
“all of this toxic mix is as then leading to political instability. We had the, uh, tragic assassination of Charlie Kirk. We've had a very polarized reaction to it. We had, I'm, as I'm recording this here today, Wednesday, September 24th. We had, uh, shooting at an ICE uh, facility in Dallas. Things are getting shippy uh, to say the least. I am not encouraged.”
China's record 2024 trade surplus of $990 billion, combined with gold imports of 1,384 tons valued at $22,000 per ounce, would mathematically balance if gold were properly valued at that price, meaning Western complaints about Chinese trade imbalance are misdirected and reflect Western failure to value the dollar correctly relative to gold.
“Um first in a vacuum. Um the price if you just look at China's record trade surplus in 2024 of I believe $990 billion and you look at China's gold imports which I think were 1,384 tons in 2024. Um if you valued gold at $22,000 an ounce, it would have b balanced China's trade. So all these all these westerners whining about China's unbalanced trade, it's not a it's not a trade issue. They imported a bunch of gold to balance their trade. It's the West's fault. If they would value the gold properly, if they would value the dollar properly against gold, which was $22,000 in 2024, then China would have run balanced trade.”
Long-term bonds should be avoided as an investment because they are part of the biggest bubble in the market relative to equities and will suffer from structural dollar devaluation and inflation.
“I think it's important to stay diversified. Um I think stocks will be fine. Uh I just think long-term bonds are just avoid.”
Investors should remain diversified including some allocation to stocks (especially value stocks), gold, and Bitcoin rather than going 'all in' on any single asset class, because the current environment is unusually uncertain with multiple possible outcomes (financial, geopolitical, domestic political) and no single asset class will outperform in all scenarios.
“I think it's really a waiting issue. It's a diversifying issue. Um I don't think you ever want to be like totally out of the system totally trying to like you know because when I say what's the six ball shot off the side into the side pot. What is that? That's like going all in bitcoin all in gold all in bonds all in all in anything. We are not in the part of the cycle where you want to be going all in anything. You you want to there are lots of different things that can happen. we are off the reservation in terms of potential opportunities or or risks um financial geopolitical domestic political they you want to stay low on your skis in terms of your diversification.”
If draconian capital controls were imposed, Bitcoin would be arguably the most perfectly designed asset in history to circumvent them, and gold would also perform well, providing offsets to capital control risk.
“if it did, uh, I I I think Bitcoin is arguably perhaps the most, uh, perfectly created asset to avoid capital controls in the history of mankind. And I also think gold will do really well in that case, too. And so, you would have offsets”
Grman expects the gold/oil ratio to rise substantially from current levels over the current cycle, suggesting gold is undervalued relative to oil.
“I don't think many people uh have grasped that yet, but they will soon. So that's I think um I think gold is sniffing it out somewhat. But um you know I continue to expect uh the gold to oil ratio as high as it's risen to end up this cycle much much higher than where it trades today.”
Gold could reasonably reach $40,000 per ounce, representing 2x to 4x current prices, with 4x to 13x being possible in a real crisis scenario; 2x to 4x is described as 'still open field running' unless conditions change fundamentally.
“I think it could go 40,000 [12:35] you know that gives you some frame right uh two times four times 13 in a real crisis which I'm not calling for but I think I think two times to four times is sort of still you know I think that's that's that's probably open field running still from this point unless something really changed”
If China's record 2024 trade surplus of $990 billion were settled by gold at $22,000/oz, and China imported 1,384 tons of gold in 2024, then gold at $22,000/oz would have balanced China's trade—meaning Western complaints about China's trade surplus reflect currency misvaluation, not unfair trade.
“if you just look at China's record trade surplus in 2024 of I believe $990 billion and you look at China's gold imports which I think were 1,384 tons in 2024. Um if you valued gold at $22,000 an ounce, it would have b balanced China's trade. So all these all these westerners whining about China's unbalanced trade, it's not a it's not a trade issue. They imported a bunch of gold to balance their trade. It's the West's fault. If they would value the gold properly, if they would value the dollar properly against gold, which was $22,000 in 2024, then China would have run balanced trade.”
Trump's recent pivot on Russia-Ukraine policy (shifting from previous positions to suggesting EU/NATO should fund the war) is 'noise'/'nothing burger'—it's not a strategic policy shift but reflects Trump's broader loss of leverage in other domains (Doge, trade wars, Treasury markets).
“my take on it is that it was it was a nothing burger. It was noise. Um in my view he said essentially uh that he wants the EU to pay for the ongoing war NATO as well. uh in my opinion is really a sign of ongoing desperation or increasing desperation on his part because I think there's a whole lot of things that he thought he had when he came in uh in January and one by one they have all not fared well uh in terms of Doge in terms of his leverage in the trade war in terms of how the Treasury market did”
Trump's recent pivot on Russia-Ukraine, saying he wants the EU and NATO to pay for the war while reversing months of anti-Ukraine statements, is a 'nothing burger' and sign of desperation as his initial negotiating positions (DOGE deficit cuts, trade leverage, Treasury market strength) have all failed and been reversed.
“my take on it is that it was it was a nothing burger. It was noise. Um in my view he said essentially uh that he wants the EU to pay for the ongoing war NATO as well. uh in my opinion is really a sign of ongoing desperation or increasing desperation on his part because I think there's a whole lot of things that he thought he had when he came in uh in January and one by one they have all not fared well uh in terms of Doge in terms of his leverage in the trade war in terms of how the Treasury market did”
Gold will also perform well in a capital controls scenario, providing similar capital flight benefits as Bitcoin but with different properties and a longer track record.
“I also think gold will do really well in that case, too.”
Trump's backtracking on various positions is reflected in the acronym 'TACO' ('Trump Always Chickens Out'), suggesting a pattern of announced positions followed by retreat when actual leverage is tested.
“they've come up with an acronym taco Trump always tacos Trump always chickens out uh as a result of of the backtracking”
The Cleveland Guardians beat TK Scooble and the Detroit Tigers in a recent game using small ball tactics, and the Guardians are now in first place.
“Huge victory for the Cleveland Guardians last night over the Detroit Tigers. We are uh we're in first place now. We've we've overtaken them. Uh beat TK Scooble who is unbelievable to watch pitch in person. It was at the game. So uh he's he's really something. But we were able to uh guards ball him, small ball him out.”