Andrew Jackson was never supposed to be President.
When he entered the presidential race in 1828, most of the ‘experts’ viewed him as a joke candidate with no chance of victory. Party insiders assumed that, at most, Jackson might steal a few votes from opposition candidates… but that he was no real threat.
Instead, Andrew Jackson caught fire. He was the ultimate outsider with very little experience in Washington (he had briefly served as US Senator from Tennessee for just six months), and he spoke bluntly about the problems affecting everyday Americans.
And when he unexpectedly won the election and became the country’s 7th President, Jackson’s first order of business was to clean house. He announced in his inaugural address that he would remove incompetent bureaucrats from office, and he immediately launched an investigation into all departments to root out corruption.
They found plenty. It turns out that someone had been stealing money from the Treasury Department. The military was irresponsible and reckless in the way it spent taxpayer funds. Embezzlement was rampant.
Jackson closed the door on this abuse, and then fired 10% of all federal employees.
The establishment was furious. Suddenly legions of bureaucrats had lost their cushy, taxpayer-funded fiefdoms, and those that survived the culling were determined to frustrate the rest of Jackson’s term… plus do everything in their power to make sure he wouldn’t serve a second.
They refused to follow his executive orders. They smeared and slandered him. They called him every name in the book. They claimed he was the son of a prostitute. They claimed he murdered 18 people. They said he was an adulterer who lived with this wife Rachel before they were married. They insulted his wife.
(There was even a later assassination attempt against him, in which a deranged lunatic tried to fire two pistols at the President. Both misfired, and Jackson beat the man with his cane until law enforcement arrived.)
But in the end, voters saw through the fake news, and Jackson won reelection in 1832 by a landslide, utterly destroying his opponents.
Jackson was a spendthrift. In fact, he had personally almost gone bankrupt from having too much debt, and nearly lost his farm to the bank. So, he was naturally averse to debt and brought that same attitude to the White House.
In 1829 at the beginning of his first term, the US national debt was $58.4 million. By the time of his second inauguration in 1833, the national debt had fallen to just $7 million.
And on January 8, 1835, Jackson ordered the last amount owed on the US national debt– $33,733.05– to be paid off. America was 100% debt free for the first and only time.
30 years later by the end of the Civil War, the US national debt had ballooned to $2.6 BILLION, an unimaginable sum back then. But with an economy worth just over $10 billion, the debt was still only about 25% of GDP.
Various governments managed to pay down the debt slightly after the war. But most importantly, the economy grew quickly. By the turn of the 20th century, the national debt was still around $2 billion, but the economy had grown to more than $20B (i.e. debt-to-GDP of around 10%).
The national debt grew rapidly in the 1900s. But it wasn’t until 1982 that the national debt hit $1 trillion– more than two centuries into the country’s existence, and almost 150 years since the country was debt-free.
Even in inflation-adjusted terms, it took until 1941 for America to surpass $1 trillion in debt, i.e. more than a century after Jackson paid off the national debt.
Think about that: it took more than a century, even after adjusting for inflation into today’s dollars, for the US to accumulate $1 trillion in debt. The Civil War. World War I. The Great Depression and endless government “make work” programs. Multiple financial panics.
I bring this up because the US Treasury Department announced on Friday that the national debt had crossed $36 trillion for the first time.
Bear in mind it was only a few months ago that the debt had crossed $35 trillion.
In other words, even after adjusting for inflation, it took 106 YEARS for the national debt to grow from ZERO to $1 trillion. It took Joe Biden just 118 DAYS to rack up the most recent trillion dollars in debt.
And right now, there’s no stopping this momentum. By the government’s own estimate there will be an additional $22 trillion added to the national debt over the next ten years under current plans; that will be $60 trillion by 2034.
Most likely this would cause a spike in interest rates as investors would demand higher yields to compensate themselves for the government’s balance sheet risk.
But if we’re conservative and assume that interest rates simply reach the long-term, sixty-year average of 5.85%, that will be about $3.5 TRILLION in annual interest payments within 10 years.
The government estimates that it will take in about $7.5 trillion in tax revenue by 2034 but spend a whopping $6.5 trillion JUST on mandatory entitlement spending (Social Security, Medicare).
Adding another $3.5 trillion in interest expense means the deficit will be $2.5 trillion that year BEFORE they spend a single penny on everything else in government– national parks, homeland security, and even the military. Every year after would be even worse.
That’s not a political problem. It’s an arithmetic problem. And it’s a tough one to solve.
The typical “solution” of bankrupt governments is to have the central bank expand the money supply (i.e. ‘print’ money) to buy US government bonds.
This brand new money poured into bonds will cause interest rates to collapse to zero… thus bailing out the Treasury Department. But it would also cause massive inflation.
The real solution, of course, is to fundamentally change the way government does business, slash regulations, and focus on responsible spending and economic growth.
This seems to be the direction that the new administration wants to go. And hopefully they pull it off. Because if they don’t, the end result could be some really nasty inflation… not to mention consequences for the US economy and dollar’s status as the global leader.
Ultimately, this is why real assets make so much sense. They do extremely well during such periods of inflation or stagflation.
But real assets can also perform well in a high-growth environment where there is less regulation and more freedom for businesses to produce.
For example, oil and gas companies will no longer have to bend the knee to Greta Thunberg anymore; they’ll be able to get back to producing and drilling and exploring for more energy resources, and that will help their bottom lines.
And with so many of these real asset companies trading for laughably cheap valuations, there is an opportunity right now to acquire high quality producers.
The bottom line is that if these guys succeed in pulling off an Andrew Jackson, and reform government spending, many real asset companies could boom. If they don’t, real asset companies should almost certainly boom. It’s good either way.