What is the point of no return for U.S. debt and gold coins
HalfDime
Posts: 279 ✭✭✭✭
The "Point of No Return"
The "point of no return" for U.S. debt generally refers to a level where the debt burden becomes so large that it triggers a self-reinforcing cycle-often called a "debt spiral"-where the government must borrow more just to pay the interest on existing debt, causing the debt to grow even faster. At this stage, the ability to stabilize or reduce the debt without severe consequences is lost.
Research and several analysts point to a debt-to-GDP ratio of around 90% as a critical threshold. Beyond this level, each additional dollar borrowed produces less than a dollar in economic return, meaning the debt burden grows faster than the economy's ability to support it. As of late 2024, the U.S. government’s gross debt-to-GDP ratio is already around 122%, well above this 90% threshold.
Once past this point, the risk of a debt spiral increases: higher interest payments require more borrowing, which fuels even higher debt and interest costs. This cycle can lead to:
Loss of investor confidence in U.S. Treasury securities
Higher borrowing costs
Pressure on the Federal Reserve to monetize debt (print money)
Risk of currency devaluation and inflation
Potential for financial system instability or even default in extreme scenarios
Why Gold Coins Becomes Attractive
As the U.S. debt approaches or surpasses the point of no return, gold coins becomes increasingly attractive as a hedge against the risks of inflation, currency devaluation, and financial instability. Investors often turn to gold when they lose faith in the government's ability to manage its finances or when the value of the dollar is threatened by excessive debt and money creation.
Gold Price and the Monetary System
Some analysts suggest that if the U.S. were ever forced to return to a gold-backed system to restore confidence, the price of gold would need to rise dramatically to cover the monetary base or even just the currency in circulation. Recent estimates put these hypothetical gold prices at $9,051 per ounce (to back notes and coins) or $22,085 per ounce (to back the entire monetary base), far above current market prices.
The U.S. has likely already crossed the debt "point of no return" as defined by historical and economic research, with a debt-to-GDP ratio well above 90%. This increases the risk of a debt spiral and loss of confidence in the dollar, making gold a more attractive asset for investors seeking protection. Unless the U.S. enacts major fiscal reforms, the debt and its associated risks are likely to grow, potentially leading to a radical shake-up of the financial system.
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The point of no return is something to keep in mind for anyone who thinks spending can go on forever, and how it is affecting gold coin prices daily.
Comments
I would be nice if the article had linked to this research and analysis of a 90% threshold. What was actually researched?
Let's look at this little diagram. According to the "90"" rule, Lesotho looks to be better than France. Really?
Knowledge is the enemy of fear
OP was pretty clear which nation he is speaking of. Quit trying to muddle the conversation with useless pizza looking puke.
The price of gold is set by faith, or lack of, in the currency it is priced in.
Muddle? Pizza puke?
You're something else derryb. What happened to challenge the data not the messenger? Why are you so darn hypocritical?
I'm asking why 90%? What is the research? It's amazing that you don't even think to ask these questions. Is the OP inferring Japan or Sudan (both over 200%)? Which collapses first? Is that the point?
And whats with pizza? Here's a question for ya. Which is more, 2 18" round pizzas or 1 24" round pizza?
Knowledge is the enemy of fear
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Where is Switzerland on that graphic ?
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Ask Visual Capitalist. There are many countries not listed. You should ask about those too.
Knowledge is the enemy of fear
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I already know why. Because Switzerland's ratio is less than 59% (about 37%).
I chose Switzerland because it is often viewed as a model of financial sanity.
The higher the ratio, the less opportunity for future economic growth.
The ratio is also sort of a proxy for measuring how much burden has been placed on the younger generations to work hard and support the older citizens and support the pre-existing debt structures.
In a different thread very recently you postulated that a person should buy US Treasury bonds instead of gold at this point.
Personally, I would never buy bonds. But I think you should sell every bit of gold you have and buy bonds (the closer to the center of the pie the better).
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i was wondering the exact same thing. i had to go to the world debt clock
Might be a great trade. A 1% drop in interest rates could be a 20- 25% return on bonds. Thats like gold going to $4200. And you get a more favorable tax schedule. That ain't to shabby!!!
I like pie, especially the center. Sometimes the crust it burnt or dry. Do you like dry pie?
Knowledge is the enemy of fear
Cherry pie, pecan, apple, peach, blueberry, pumpkin, black raspberry, banana cream, mincemeat pie. Man I like pie. Variety just like the ole investments. RGDS!
The whole worlds off its rocker, buy Gold™.
BOOMIN!™
Blackberry pie. Shepherds pie.
Debt-to-GDP Ratios at the Time of Recent Major Sovereign Defaults
The last major sovereign defaults occurred at a wide range of debt-to-GDP ratios, depending on the country's economic context, access to markets, and the structure of their debt. Here are the debt-to-GDP ratios for some of the most significant defaults in recent history:
Greece (2012): Greece defaulted on its debt in 2012 when its debt-to-GDP ratio was around 172%–175%. This is one of the highest ratios at which a modern developed country has defaulted.
Argentina (2001): Argentina defaulted with a debt-to-GDP ratio of about 54%, which is relatively low compared to Greece and Lebanon, highlighting that solvency is not just about the ratio but also about growth prospects, currency stability, and access to financing.
Russia (1998): Russia defaulted with a debt-to-GDP ratio of about 50%, mainly due to a collapse in government revenues and a currency crisis.
Lebanon (2020): Lebanon defaulted in 2020 with a debt-to-GDP ratio exceeding 170%, reflecting years of fiscal mismanagement and economic collapse.
Venezuela (2017): Venezuela defaulted with a ratio around 45%, but extreme economic contraction and hyperinflation made repayment impossible.
Ecuador (2020): Ecuador defaulted with a ratio of about 65%.
Ukraine (2015): Ukraine defaulted with a ratio near 70%.
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Some went belly up at a lower debt to GDP ratio.
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Your house and your chickens are actual "investments".
Everything else you have written about are "speculations" (especially SLV and other "paper" trades).
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You should go for it.
Although,
if interest rates go down, gold would tend to go up.
If interest rates go up, the bonds would be losers.
If interest rates stay basically the same (which is my prediction for the next 12 months or so), then the only income from the bonds would be the interest (which is something, at least).
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Trump wants interest rates down. The bond market wants a higher rate for US debt risk. The Treasury has to roll over about $8 trillion this year, on top of a couple more $trillions in deficit spending. yikes.
The difference between the US debt and other sovereign debt defaults is that the US has/had the world's reserve currency so any comparison between the US and other major currency defaults is probably not valid because of the scale of the amount of the debt. Lots of governments, banks, hedge funds and retirement plans don't want it to fail.
More accounting tricks, including the incorporation of gold into a bond - won't entice other countries to buy our bonds now because the debt has been out of control for too long and because they see the potential for future confiscation. Hence, the BRICS continue to gain ground.
It's a mess. Go ahead coho, buy bonds and tell your clients to do the same. It's gambling and nothing more.
I knew it would happen.
So do you believe it is just or appropriate to compare the USA (the most dynamic, innovative, powerful, productive and diverse country in the world) to Lebanon, Ecuador, Venezuela, Ukraine, Russia, Argentina and Greece?
Knowledge is the enemy of fear
Our financial crisis in 2008 was a warning sign that we are no different.
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According to you, as you have stated many times here, we (the people of the USA) are "WEAK".
So which is it, are we the most dynamic/innovative/powerful/productive/diverse, or are we "weak" ?
You need to get your story straight.
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We sailed right through it and prospered for 15+ years, so I'd say we are much different
Knowledge is the enemy of fear
One might be able to bench press 400 pounds yet cry if stung by a bee.
Knowledge is the enemy of fear
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Your narrative seems to change direction like the wind, to suit whatever antagonistic slant you want to put on things at the moment.
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The weak view facts that dispute opinion as antagonistic.
Knowledge is the enemy of fear
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Those who seek to antagonize, simply for the sake of their own entertainment, will ultimately fail.
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Then stop antagonizing. You follow me around like a love-sick puppy. Give it a rest already.
I provide a sound counter arguement with the intent of stimulating independent thought. If you think that's antagonistic then that's on you.
Knowledge is the enemy of fear
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Repeatedly stating that we are "weak" and then stating the opposite that we are the most "dynamic/innovative/powerful/productive/diverse" is NOT a sound argument in the slightest. And your "facts" carry no weight at all because you have no credentials or successes in life that you point to.
If you don't like the replies or reception to your posts, you are free to stop posting here anytime you like.
You don't seem to have any interest in actually learning anything, only in condescending for your own gratification. Many times you have belittled a post and then added "I love this place". This points to your sole intent which is to get off on your own self-perceived superiority.
At one time your avatar was a person shooting a gun. Then it was an ugly joker mask to hide behind. And now it is some kind of weird "king" posturing on a throne. Do these avatars reflect who you are ?
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A not-so "gem" antagonistic post from the past:
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PS:
That "Ugly End of Globalization" article from 2019 accurately predicted the inflation we experienced.
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You are clueless and my credentials are my business, not yours. You can stop with your love affair. I aint interested.
As are you.
As do you.
Yeah, I like guns as do most in this forum. So what!!??
Yeah, joker mask was in response to covid. So what?
Yeah, that's a redneck as the pope, in response to our orange king posting that he's the pope. Good enough for him, good enough for me. So what??
Yeah, I do.love this place. I derive great insight from society from this forum which I use to my benefit.
And here's another avatar I might use. This one cracks me up. What do you think?
Knowledge is the enemy of fear
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An article from 2019 about the end of globalization accurately predicted the inflation we have recently experienced.
But at the time you called it "gobbledygook" and "hilarious" that anyone would "condone" it ?
NOBODY "condoned" it, but sometimes you have to agree with things you don't like.
Your track record making predictions appears to be abysmal.
That can't be a good thing for your clients.
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Do you enjoy posting photos that many likely find offensive? Could just be me, but I sure don't see any reason for posting that image that appears directed at a certain religion, and and rather insulting. Or perhaps it is some 'woke' art, or a message I am overlooking?? What trash.
Take me to your leader. Lulz. THKS!
The whole worlds off its rocker, buy Gold™.
BOOMIN!™
Here is a quiz question that is relevant to the question asked by the OP:
What do the US, Canada, Australia, Japan and UK have in common as it pertains to the question asked by the OP?
(There are other countries that could be added to the list)
The "Denominator Effect" has generally kicked in at 135% of GDP but that was in eras before flexible exchange rates.
Today, the figure might be 150%...but it varies country-to-country......some countries have huge savings and are net exporters (i.e., Japan) and can withstand for DECADES a level of 200-300%.
It took Greece DECADES to implode even though they were taking on more debt and they are a 3rd-rate economy.
Countries that say they don't want to hold U.S. Treasury or MBS debt have no other markets to invest in. Our daily trading volumes for fixed income are 10-20x other sovereign or corporate or MBS/ABS markets.
Most people don't know this when they talk about the end of the dollar as a reserve currency.
Not even remotely true.
They are all countries that my Italian and Irish cousins have never travelled to ?
Sorry, couldn't resist Cliff Clavin's classic response on the Jeopardy episode from "Cheers." 
Seriously, most have Debt/GDP ratios > 90% I believe. Don't think Australia does.
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The "point of no return" in this case means that, at this point, the US debt will never be paid off. It will just be carried along indefinitely, putting a burden on the new people coming in to the system that they have to work hard to support the older generations and service that debt.
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Agree, the point of no return occurred the moment our leaders learned they could simply raise the debt ceiling. It is a continuing occurrence that should get it's own federal holiday. Buyers of our debt do so because they believe the interest will continue to be paid to them. They have faith that it's a safe investment for them as long as the US and it's currency have not collapsed and that the US money creators will keep raising the debt level to keep making the interest payments. Of important note is the reduction in foreign purchases of US debt in recent years. Much of this has to do with their diminishing need for dollars for international trade (BRICs?). But it appears they are also losing the faith they once had in the US itself as a good investment:
The price of gold is set by faith, or lack of, in the currency it is priced in.
I always figured that hyperinflation would take care of that pesky national debt.
It won't take long to pay off all of Uncle Sam's bills when we're all walking around with $100 trillion banknotes in our wallets.
(Maybe that's what the politicians are counting on).
didn't work that way in Zimbabawe.
The price of gold is set by faith, or lack of, in the currency it is priced in.
This chart does not show a reduction in foreign purchases. It shows the percent of treasuries held by foreigners. If non-foreigners buy more than foreigners, then the ratio will drop. What it may show are smart Americans. They didnt want 2% bonds, but they do want 5%. Even if both foreigners and domestic demand increases, the chart will appear as you posted if domestic demand increases faster. To prove your point you should use actual amounts of foreign buying, not a graph of holdings. Do you have actual numbers?
Knowledge is the enemy of fear
You will never get a cogent answer to your question.
Knowledge is the enemy of fear
What do the US, Canada, Australia, Japan and UK have in common as it pertains to the question asked by the OP?
These countries all operate on fiat currency systems, meaning their currencies are not backed by gold or other physical commodities. Gold coins are not used as circulating currency in any of these nations; gold is held primarily as a reserve asset by central banks or as an investment by private citizens.
But Greece is NOT a "modern developed country." It's a 3rd-rate, tourism-dependent country that endured 30 years of Socialist idiocy. Still took decades to go down the toilet.
And private property rights...and independent Central Bank...the rule of law.....strong monetary policy leaders...etc.
Country dependent on oil and didn't have time after the USSR collapsed to create a Rainy Day SWF. Oil fell to $10/bbl. in 1998-99, down from mid-$20's.
War-torn country, run by God-Knows-Who (Iran ? Hezzbollah ? The PLO ?).
Again...economic MORONS (Moronics ?
) who did EVERYTHING wrong: fiscal spendthrifts....incompetent central bank...no rule of law...private property rights eviscerated.
Most of these defaults have NOTHING to do with debt but lawlessness, monetary shenanigans, ending of private property rights, dependence on commodities subject to boom/bust cycles.
Another one.
Another one. Debt/GDP and "The Denominator Effect" aren't the problems here, idiots better-suited to perform open-heart surgery than run an economy are the problem.
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We went over this before. Our central bank (the Federal Reserve) is NOT independent.
If it was truly independent it would not have member owners/stockholders (which are large banks, for the most part).
The FED does what the owners want it to do. That is NOT "independence" at all.
You write that open-heart surgeons are "idiots". I don't think so.
When I went to engineering school, most of the students that couldn't cut it there transferred over to the business school.
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We DID go over this before and you STILL don't know how monetary policy works or how the Fed works.
Having non-voting shareholders who cannot effect changes in policy is not an indication of non-independence.
Most of the Fed's "shareholders" are small-to-medium sized banks.
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But the biggest banks hold the most shares.
The question that should be considered is, why are there "shareholders" at all ?
The largest banks apply their influence in choosing the Fed Governors.
This is not "independence".
It has always been the propaganda of large banks that the FED needs to be independent. But those banks won't tell you that they own shares in the FED and they choose who runs it.
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Goldfinger you will probably go down with the Titanic someday, they said it was unsinkable after all.
BTW who appoints members of the Federal Reserve BOG's, the ones who are suppose to be independent? That's right. They aren't.
They own NO SHARES in the corporate sense. They contributed capital and it isn't talked about in any earnings calls by ANY bank.
Stop trying to imply that they are a secret, Cayman Islands-based shareholder that has accumulated a dangersous bloc of shares that is able to affect changes.
No, they do NOT. You think the banks wanted Lisa Cooke or Mrs. Raskin or some of the other idiots ?
No, they don't. Again, you don't understand how the Fed works or how banking works.
Why don't you tell us just 1 time when Citibank or JP Morgan Chase or Goldman Sachs were able to affect monetary policy or the appointment of a Fed Governor or FOMC voting member. It's nonsense.
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The largest banks apply their influence in choosing the Fed Governors. PRESIDENTS.
This is not "independence".
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From the Chicago Fed web site:
https://chicagofed.org/people/board-of-directors/director-classes
"Federal Reserve member banks elect Class B and Class A directors."
From the Federal Reserve web site:
https://federalreserve.gov/faqs/how-is-a-federal-reserve-bank-president-selected.htm
"Subject to the approval of the Federal Reserve Board of Governors, the president is appointed by the Reserve Bank's Class B and C directors"
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No debt here and many gold coins. Some peeps remain to be sheep. RGDS!
The whole worlds off its rocker, buy Gold™.
BOOMIN!™