Luke Gromen: Peak Cheap Oil Will Drive The Next Sovereign Debt Crisis

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Originally published at: Luke Gromen: Peak Cheap Oil Will Drive The Next Sovereign Debt Crisis. – Peak Prosperity

One of the more difficult conversations to have even with the most sophisticated of investors, is in the connection between oil and the economy.

Either they don’t see it, or can’t see it, or don’t want to see it.

Luke Gromen has no such trouble.

He’s one of the more respected financial analysts and observers out there, and today we collect his deep insights into the energy markets, gold, and, importantly (financially speaking), the most likely path the Fed and US Treasury Department will be forced to take.

Those entities are now in a box canyon of their own making. The decision is now down to (a) protect the dollar or (b) protect the bond market.

Past history is 100% clear on the matter, at every possible chance they have chosen to protect the bond market. They will print and print and print even more to preserve the bond market.

If they don’t and the US cannot refinance itself, it’s game over.

With printing it’s also game over (for the dollar) but at a slower pace and one which mainly harms the bottom 90% at first, so this is the preferred path.

Is there another way out?

Luke and I grabbed at that issue every which way but there aren’t many options left.

In Luke’s view, there are three options left from a macro policy perspective:

Will it be door #1, door #2, or door #3?

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(Source: FFTT-LLC)

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Like you said, quite the barn burner of an interview! I found it very interesting that he had read “The Great Taking,” found it solid and very “disconcerting,” to put it mildly. I also noted that he figures that all the steps that could pull us out of this predicament are politically impossible and have never been taken by any country in history in a similar predicament. He confirmed what I already knew: if the .gov moves convincingly to balance its budget, cut defense and Social Security by 30%, etc. then it will be time to sell my gold. Otherwise, it will save my bacon when the currency is destroyed and replaced.

Buckle up. We’re in for a rough patch.

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This was amazing but I gotta listen a few more times before I really get it all.

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The second LG discussion Ive listened to this week. Third on yhis topic Ive been a part of.

Plant a garden…, perhaps some of the midnight veriety :sun_with_face::+1:

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For an in-depth report on gold there are two reports that one can procure in English. The first is put out by “Incrementum” and is entitled “In gold we trust report”. It printed out at 353 pages. The second report, also by them, is 173 pages. Although both reports are several years old, the detail
and principles are relevant today.

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Excellent interview! Will need to watch a second time.

I was surprised by his comment near the end that gold would have the juice and silver would be fine. Does that mean the gold/silver ratio would increase further, rather than return to an historic ratio well south of 40?

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This is one of my best days in quite a while. I had long hoped that two of the people I look up to most in the world would someday do an interview, and now that it has actually happened, I find that it exceeded my already sky-high expectations. Kudos to @cmartenson for such a great job! I eagerly look forward to the next one with Luke Gromen.

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Great interview, thank you.

Near the end, Luke hypothesised that gold might become the payment currency for oil.
@cmartenson - do you think it possible (and what might be the impact) IF:

  1. government(s) designated gold in a 1st step as the only legally acceptable currency for the purchase of oil or repayment of government debt (thereby making gold an illegal purchase/repayment currency for anything else), which would presumably engineer a 2-tier market price for gold?
  2. then in a 2nd step (after the 2nd-tier value has sunk), those government(s) would then legislate the confiscation of all gold (at the sunken market price) and avoid being accused of robbing the little people of their wealth.

Could this potentially happen, or am I wearing my tinfoil hat again? Thanks in advance for sharing your thoughts on this.

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@geedard : I’m missing something. Why does making gold the only legally acceptable currency for the purchase of oil or repayment of government debt necessarily make gold an illegal purchase/repayment currency for anything else?

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@vtgothic : sorry if I didn’t explain well…I was trying to describe a situation where government(s) might potentially try to outlaw its use for purchasing anything other than oil or for repaying government debts… (as opposed to confiscating it). This would remove gold’s “safe haven value” for the masses and leave confiscation still as a future option…I’m wondering if this would engineer the price up or down and essentially enable gold to be used as a tool of war between governments. It’s a thought experiment. Hope that makes more sense now.

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Thanks. Clear now.

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You’ve hit on my #1 concern for gold being (re)confiscated; oil gets priced in gold.

The goobermint doesn’t really care about gold right now because it’s mouse nuts in dollar terms and they’ve spent so many marketing dollars trashing gold that I believe they believe their own BS.

It will take a while to undo all that programming.

However, as soon as oil gets priced in gold and that’s the only payment an exporter will accept, then the calculus changes.

At that point, all of my gold suddenly becomes jewelry and possibly apparel.

Here’s a future picture of me opening the door to greet the federal agents seeking my gold:

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I can’t see a realistic possibility of where “leadership” in Washington, would balance the budget and make other drastic cuts. Consequently, gold is a hold and/or buy right now.

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Given the fact the debt is exponential, in 10 years it won’t grow 20T, but closer to 40T.

Interest rate will have a huge impact. I haven’t looked at CBO in several years. One thing that always amazed me, the budget always showed in 10 years, a doubling of tax revenue.

I didn’t understand how increasing oil price effects bond market.

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I’m still buying.

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Thank you for not mentioning Bitcoin. It lets me know how early I am in my diversification out of some of my Gold and Silver, and into Bitcoin and Bitcoin-related (MSTR) assets.

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Is that like left-handed cigarettes?

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Agree Jim H,

As a fellow BTC hodler, I listen to everything in terms of BTC, too!

At the 15:00-20:00 mark where Luke advises that the Fed will buy bonds without limit to keep the 10 yr bond yield from climbing past 5%. Save the bond market, hyper-inflate the currency (USDollar). This is tremendously hyper-inflationary.

Bitcoin fixes this.
(As long as no fatal defect in the internet or bitcoin appears, of course).

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You’re welcome!

You know what happens to me when someone I listen doesn’t mention soil, trees, gold, extra food, or ammunition? Nothing. Nothing at all. No reaction whatsoever. I don’t care.

I think this is because I am not emotionally attached to any particular item in my diversification plans.

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