Posted 23rd November 2023

The Coming Hyperinflationary Event And Its Effect On Gold And Silver Prices

The U.S. Treasury released its monthly statement on October 21st for September, which is the last month in the Federal 2023 fiscal year. The Treasury debt outstanding spiked up over $600 billion in just one month. The total outstanding amount is $33.65 trillion. Based on the current forecast, Treasury debt outstanding is set to increase by $1.166 trillion. But with tax revenue declining and Government spending uncontrollably increasing, that estimate is a joke. The outstanding amount of Treasury debt is beginning to go parabolic:

The chart above shows the amount of Treasury debt outstanding. The lines show the point of inflection where the rate of issuance increases over time.

Even worse, depending on how the cost accounting is applied to defense spending, entitlements, and interest expense, part of the new Treasury issuance is needed to fund the cost of interest on the debt. At its essence, the U.S. Government is now running an official Ponzi scheme. The interest payment on the debt not only has gone parabolic, but it’s fair to say that it’s gone “Roman Candle:” 

What the data shows

The chart below is a graph of the interest payments on the outstanding Treasury debt. During the great financial crisis, the Treasury spent around $400 billion annually in interest expense. Currently, the cost interest now exceeds a trillion dollars annually.  Eventually, the cost of interest alone will require a majority of the Treasury’s revenues:

There’s also the small detail of how the debt will be funded. As an investor cohort, foreign Treasury buyers historically have purchased the largest percentage of new Treasury issuance. But with the United States’ largest foreign financiers reducing their Treasury holdings, the unanswered question is “who will step up to buy the coming deluge of Treasury supply?” 

Possible solutions

One solution would be to let interest rates at the longer end of the Treasury curve (7-30-year maturities) rise to a level that might seduce foreign money back into Treasuries. Of course, interest expense is already close to the single largest budget expense. If the Fed allows the yield curve to shift even higher, it will exacerbate both the higher cost of interest and the need to continuously increase the supply of new bonds.

Both charts above reflect an economic and political system that is on the cusp of a hyper-inflationary event. To attract enough buyers to absorb the coming flood of Treasury issuance, interest rates will have to reset to a much higher level. But soaring interest rates will further cripple an already ailing economy.  Alternatively, the Fed will have to pivot from QT and print a massive quantity of money to absorb the coming Treasury supply and thereby prevent a deleterious jump in interest rates. Unless the Fed’s game plan is to let the economy and financial system collapse, more money printing is the only alternative. And this is the event that leads to hyperinflation.

Impact on precious metals prices

The prices of gold and silver and the valuations of mining stocks – from the largest cap producers to the cash-consuming junior project developers – will go parabolic along with the money supply and issuance of Treasury debt. Holding dollars will be the equivalent of financial suicide. Converting cash into physical gold and silver will be the most effective hedge against hyperinflation. Additionally, with the flood of capital that will rush into gold and silver, the Central Banks will be powerless in their effort to control precious metals prices. 

Dave Kranzler is a hedge fund manager, precious metals analyst and author. After years of trading expertise build-up on Wall Street, Dave now co-manages a Denver-based, precious metals and mining stock investment fund.

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