Part II: As Empires Crumble… Precious Metals Reign

In our last edition, we looked at the unbelievable risk of a US debt default.

Could it happen at some point over the not-so-distant future?

No doubt, there are cracks in the world’s premier safe-haven asset, Treasury bonds, but few would go as far as to say that it represents an actual default risk.

If you work in financial circles, you’d get mocked for speaking it out loud. So, in that vein, let’s poke the bear a little and see how it might be more realistic than most consider.

Firstly, I made the point last week that the current US President is very much accustomed to walking away from debt; most sources cite a total of six corporate bankruptcies.

And that’s not something that a typical analyst would have plugged into their ‘conventional’ models.

That’s what I detailed in Part I. You can check that out here.

So, what’s the risk here?

Well, to find out, let’s briefly unpack some historical case studies on how a sovereign default emerges…

All empires dissolve, eventually

Sovereign defaults have occurred throughout history, often alongside periods of major political upheaval.

Grand sovereign defaults arise when new governments question the legitimacy of earlier ones and their spending habits… The French Revolution is a great example.

By 1783, France was drowning in debt from its participation in the Seven Years’ War and its contribution to the American Revolution.

However, rather than address the problem, King Louis XVI and his wife, Marie-Antoinette, through their self-indulging tendencies, sent the country further into debt.

We know how that played out… Heads rolled. A new government was formed.

But as part of that process, France walked away from its creditors… Meaning years of unpaid debt and royal extravagance would go unpaid.

Ultimately, the French Empire defaulted on its sovereign debt obligations.

Similar events played out as the new Soviet government emerged in 1917… Defaulting on its national debt, which was also racked up by its Imperialist leaders.

There are countless other examples throughout history.

Bottom line: empires defaulting on their debt seems inconceivable. But it’s not unprecedented.

While not a regime change, Trump represents something akin to it in the modern world…

Compared to the presidential ‘yes-men’ of the past, who generally play ball with the powers that be, Trump represents an entirely different beast.

And that’s why the NEXT five years could look VERY different to the past fifty.

A financial system that feeds on the notion of continually rolling over its national debt eventually comes to a reckoning.

But the big question: When?

Ray Dalio, an investment icon, may offer some clues into the timing aspect of the NEXT major sovereign default event.

Dalio himself follows debt cycles and the role it plays in the demise of major empires throughout history.

And in terms of the US empire, Dalio believes it has already entered its culminating phase. The final throes before great ‘change.’

One of the key justifications being that America’s debt repayments now exceed its annual defence budget and other critical government services.

According to Dalio, this debt threshold has important historical implications that have preceded the decline of prior superpowers.

Some call Dalio’s comments bizarre or even reckless, especially given that his home country has given him so much.

But the thing is, Dalio has made billions by studying history and applying it to markets. It’s why his observations are worth paying attention to. To ignore them would be foolish.

So, if he turns out to be right, what’s an investor to do?

As Empires Crumble, Precious Metals Reign

It’s important to point out that Dalio doesn’t explicitly believe a US default will occur anytime soon.

But he does warn that the ballooning US national debt makes government bonds even more vulnerable to extreme money printing and inflation.

Perhaps to an extent, we haven’t seen play out yet.

So, based on that key risk, Dalio presents two options for investors that could buffer against a turbulent future…

The first one: Treasury Inflation-Protected Securities (TIPS).

Backed by the full faith of the US government (if that means something to you), TIPS offer a real rate of return that is shielded from inflation, unlike traditional government bonds.

In other words, inflation-protected income.

The other safe-haven asset recommended by Dalio needs no introduction: gold. While gold doesn’t pay you anything, it preserves wealth.

The key takeaway here is that Dalio and other highly regarded global money managers believe we’re entering a major phase of market instability, which means investors need to be adaptable and open to significant adjustments.

And gold’s role as a ballast through market upheavals has been timeless.

Over thousands of years of crumbling empires and once-secure currencies turning to dust, gold has held onto its value.

If you’re ready to put all of this into action, I offer a paid service that offers a model portfolio that’s equally concerned with preserving your wealth as it is with growing it.

You can find out more here.