I'm Charlotte McLeod with InvestingNews.com, and here today with me is Don Hansen, a private investor who's been investing in gold and silver mining stocks for the last 21 years. Thank you so much for joining me, great to have you in person. I'm delighted to be here again. Yeah. Well with you again. In person for the first time, yeah. It's the first time in person. Yes. And I do really encourage people to go back if they haven't seen the previous several interviews that we've done,
those are all focused on your gold and silver stock analysis. So in the description to this video we'll include the links to the previous interviews so people can watch them. This time around we've got a little bit of a different topic. So you've done a whole bunch of research on the history of the US debt-to-GDP ratio. So we're going to go through your findings. And where I thought we could start is the background, the history that you've uncovered, the different findings that you've seen there. Yeah, I decided that I wanted to do a deep dive
into the US government's finances. And I had read about the significance of the debt-to-GDP ratio. And so I went — in fact, all my data comes from the St. Louis Fed. So it's not some flaky or whatever gold bug person or whatever. This is the legit stuff. And I collected the debt-to-GDP ratio for the US government back from 1945 all the way up to I used 2025. So you end up with a full 80 years. And then I did it every five years. And then I analyzed the changes. I tend to be a numbers guy anyway, an engineer by training, and so I used that kind
of thing in my business career as well. So I did that. And I came up with some very striking kinds of information that I wasn't aware of. And I can share you just an overview of that. Initially, in 1945, at the end of World War II, the US government of course had spent a great deal of money on the war, and the debt-to-GDP ratio then was 111 percent. Very high. And the interesting thing about that is that by 1965 it was down to only 43 percent. Because they had balanced the budget pretty closely and had good economic growth. So you had higher GDP growth,
and you had debt growth. So that brought the percent down. So that was a great period in time, right? And then after that, from '65 to '85 actually was still fairly stable. That went actually down to 32. And so by '85 it was only 41. So fairly level, because you had a debt-to-GDP growth rate during that period that was 12 percent a year in debt, but 12 percent a year in GDP. So obviously the ratio stayed the same. Then in 1985 to 2005, things really changed. And we can talk about why that was when I get through the summary of this, but the debt grew 9.3 percent
in '85 to 2005. But the GDP only grew 6.1. So obviously then the debt-to-GDP ratio was climbing, and in 1985 — or 2005 — it was up to 61. So you're going up 50 percent in 20 years. But still, that was only a modest increase comparatively, because what came later was in 2005 it went all the way up to where I'm projecting in 2025 it'll be over 150 percent. So yeah, the growth rate from 2005 to 2025 would be about 9.5 percent a year for debt, but only 3 percent for GDP. And I was familiar with some economic research that had been done by two economists about 20
years ago, Reinhart and Rogoff. They studied economic history and particularly focused on the debt-to-GDP ratio. And in that book a primary conclusion was that if a country gets anywhere close to 100 percent it becomes very difficult to grow the economy. And so certainly the data here supported that. The other thing I learned in what — we're talking about an average here of 3.3 percent for the GDP growth through that period. But the Federal Reserve now forecasts that over the next 10 years, the average GDP growth will be only 1.8 percent. In other words,
it's continuing to decline. So being an engineer by nature, I decided to graph the numbers. And what I came up with was basically an exponential curve. But you can see in this first period, where it was relatively stable, but then it went ooooh — and that's what exponential curves look like, where the slope is getting steadily steeper, and more and more rapidly. So that's the reality of exponential functions. But the thing that's fascinated me was the extent to which a lot of different things happened during this period, but yet it still stayed on the curve. It's like
there was something fundamentally going on here. That — it was just going to happen, it worked like that. And what I began to think about is that what happened was that we had a steadily increasing amount of misallocation of resources so that the growth steadily declined, and this got steeper. Because — and the reasons for that are — I would combine them into three areas. And I wanted to go into Austrian economic theory, because that's my belief is what really works. A capitalist economy requires three things for it to work well. It needs sound money,
it needs a free market and it needs limited government, okay? So what happened over this time period where this started to go like that — initially, we lost sound money in 1971. And you started to see changes in things there. But of course, that was cumulative. What we did was we lost control of stabilizing the money supply. And I have data here about the money supply, which shows how that changed. But it just steadily — we traded more and more money, and so we lost control of that. The other thing that we did through that period, especially through the
'80s and on, is that we lost the free market. Most people think that somehow capitalism doesn't work very well now. But the problem is when you lost sound money and the free market, then you don't have capitalism anymore, okay? We abandoned it, it didn't abandon us. And how we lost the free market was the most important market price in the economy is the price of money, and the government was controlling that. And then they had the rebit in the '70s or '80s or whatever — they were also
responsible for the unemployment rate. So they became more and more interventionist in terms of trying to control things. And they also tried to not have recessions anymore. And they did that by controlling things and the price of money, which is why they went to the zero interest rate policy. That's a big part of why this whole thing went this way. But then the intervention in the market caused the allocation to capital to change. And the critical thing in an economy's determining
where the capital is allocated is what they call the burden rate. It's basically an interest rate that a company needs to be able to achieve in order to justify its existence, and so if that burden rate is 7 or 8 percent, which it was for many years, then only the best companies who have the ability to achieve that kind of return, because they're satisfying customer needs, they get funding. When you drop that rate down to practically zero then everybody gets money. So the money gets allocated to entities, companies that aren't doing a good job, that are not
necessarily competent or efficient or anything. And that got really extreme then, as we know, in the last 20 years where the Federal Reserve and Bernanke lowered the interest rate down to nothing. Then everybody got all tons of money, corporations borrowed for nothing and bought back their stock, and we had all this goofy stuff, SPACs and everything. Then you had a big bubble in real estate and equities all because of the free money, but that's the interference in the market. And that caused that problem. And of course, the third part then is the limited government.
And the limited government is important because the government shouldn't be intervening in the market. And when it does that, then it tends to create problems that it then comes and tells us that we need to give them more power so they can fix problems they created. So it's a — it's a difficult situation. And it's taking us in a very bad place. Because this thing keeps going like that. And at some point, something will break. And I can talk to about what I think that's going
to look like if you'd like. Yes, I would love that. I had an "aha" experience about that where I realized that the thing that will break, and almost always will break, is the currency. And the reason for that is that of all the variables involved in these economic situations, the one variable that the government cannot control is the exchange rate of the currency. Because it's determined by everybody else's buying and selling. So it has no — so that's what breaks. That's what gives up. And if you look at the history of
countries who've gotten into debt crises, that's always what happens, that's always what happens. And the United States, unfortunately, is extremely vulnerable to that. And that's because there are countries that actually have problems and the currency wants to go down. But if they have been running a trade surplus for many years, they have collected a lot of dollars. They can use those dollars to buy their currency back to keep it from going down. And so countries like China, Japan,
Korea that have had trade surpluses for years, they don't have a problem with that. They're going to be — and that's why Japan has had a high debt-to-GDP ratio, but they haven't had much problem. Well ultimately they will. But because they've had that trade surplus for so many decades, that's a huge cushion. And also their population, they're really good savers and they're very patriotic. So they've been buying their government's bonds. Ultimately that's not sustainable, but the US doesn't have that privilege. We don't — we can't
do that, because our currency was the world's reserve currency. The other issue that makes the US more vulnerable — and it's actually a bigger deal — is that because of all the trade deficits that we've run for so many years. There's I don't know how many trillions of dollars outside the United States. And to add insult to injury with that, a lot of those dollars initially went into Europe and the European banks started to take those dollars and loan them out. But they did that
with fractional reserve banking, which means they would loan out a lot more dollars than they had. And because that's not a regulated system like it is in the US, where the banks have to have a certain amount of reserves, and they can only loan up to a certain percentage of that, there was none out there. So we don't even know how many dollars are actually out there, because of the eurodollar system that is that big. So you have this enormous quantity of dollars outside the US. And we can't
do anything about that. And so if there's any loss of confidence among a fairly small percentage of that enormous pile, it's going to put big-time pressure on the dollar in the downside. But one of the ways I like to explain to people about currencies is the currency of a country is like the stock of a company. People want to own the stock in a company because it has a good balance sheet or has an advantage with good products. Everything's going well, right? If the company all of a sudden is about to go bankrupt, or lots of things are going sideways,
they want to dump it. Same thing is true with the currency. So when you see this going like that, at some point people who hold the dollars are going to say, "Wait a minute, why do I want to hold a depreciating asset?" And that's already happening with our Treasury debt, where we have got to issue a lot of new debt. In fact, in the next 12 months, according to the Fed, there is a trillion dollars worth of old debt that's maturing, that has to be reissued. That was of course only charging
1 or 2 percent or whatever, now it's gonna be 5. And we're going to have a $2 trillion deficit, so we've got another $2 trillion. So that's a total of $10 trillion in the next 12 months that the Treasury has to issue. And then you ask yourself, who's going to buy it? The foreign central banks won't buy any more — they've been selling theirs. The Fed's on quantitative tightening, so they've been selling theirs. And banks in the US don't want to buy because they were already
stuck with it, and they've got all kinds of bonds that are now worth half of what they paid for them, which is what happened with Silicon Valley Bank and etc. here in the first quarter of this calendar year. So the US public has been buying to some degree. But the problem is with $10 trillion coming to market, are they going to be willing to buy it at 5 percent? Maybe they'll want 6, 7, 8? We don't know if that's where you're getting into a real crunch already. Because who wants to own
Treasury debt? And so it's — the next calendar year is going to be very problematic. Yeah, it certainly seems so. Yeah. And I now see some people are talking about this sort of stuff. Brien Lundin yesterday actually in his talk referred to this subject as well. So I hope more and more people are getting aware of it. But if the politicians in our country — if they are or aren't, they're not going to do anything about it anyway. They're not going to raise taxes. Well that won't work and — because the government's sort of stagnated at this point,
and they're not going to cut spending. Spending is going to go up. It's going to go up because of retirees. So Social Security and Medicare is going to go up. It's going to go up because interest expense is going to go up, because of what we just talked about. Defense spending is going to go up because we've got two wars going on. And that's all — so it's not going to change. And besides that, we're already on this treadmill where we have the misallocation of capital. And
the misallocation happens because money is going to things that don't produce anything. And you have the growth of bureaucracy — bureaucracy doesn't produce anything. Government gets bigger, but it doesn't produce anything. So you have got so much of that going on, and so many things in all aspects of our economy where they're expanding in some bureaucracy, whether it's in the universities — they're really bad, they spend a lot of money with staff and to set up more professors. And on and on — we could go on and make a long list of places where money
has been allocated that isn't producing anything. And that's why this looks like that. And that kind of happens with mature countries who think they're so rich that they can afford to do everything and anything without actually looking at is this actually producing anything that helps the average person. So this is the misallocation of capital curve. That's what I call it. Because that's what's happening. And that's why it has this — it's kind of taken on a life of its own.
Yeah. So we're building toward this breaking point, I think you've laid out really well all the different things that are contributing now and have contributed historically to where we're going. So how can investors prepare? And what does that breaking point look like? How does it play out? Okay. Well, the first — I'll answer the second question first. And the way that — the best way that we can prepare is — because the currency's going to collapse, I'm sure of that,
that's what we talked about earlier — that you should have real assets of some kind, whether it's real estate, or timber, or a good business that's paid for or precious metals. I think having all of those is a good thing depending on how much money you have, but the critical one that you should have is gold and silver. And I'll tell you why. Gold and silver is divisible. You can buy 100 ounce bars or a quarter ounce coin, right? Real estate's not divisible, timber is not divisible. So it's not easy to transact with that, right? The other thing is
that the value-to-weight ratio is ideal for something that's money. That's why it's been money for thousands of years. And of course, silver is ideal for day-to-day transactions. You can buy a good meal in this hotel for 1 ounce of silver, and silver's pretty cheap now. Well, and gold has always been used for savings, and that's still true. The other thing about it is that gold and silver are chemically inert. You can — we find gold and silver coins on galleons that were sunk in the 1500s, when the Spanish were bringing it home, and they find them and it's
still — you still can see what it is because it's chemically inert. So it's a really extraordinary item. And then whether you buy the bullion coins or whether you buy the companies that produce it is the subject of our previous interviews. So I won't go there, but that's what that is. The other thing that I think is the ultimate outcome here. Unfortunately, I think there's only two outcomes that are going to happen. Anything in between is not sustainable. The first outcome, and
the one that I would absolutely hope it happens, is that we end up going back to capitalism, but we have sound money, free markets and limited government. And that will ultimately provide the greatest opportunity for society to improve the standard of living of the average person, and to be happier and healthier and everything. That's the good way. The other one is that we go towards a dictatorship of some kind, where there's a dictator individual, whether it's a Hitler or a Stalin or a Mao Zedong, or somebody like that that controls everything. And they tell you,
"You're safe, I'm taking care of you." But of course you have to give up your freedom in every way. And I think it's going to be one or the other. Anything in between is actually unstable. What we have now is unstable, because we're not — we're straddling these two worlds. And that won't last. So how we get there depends on how well we understand and share with each other, what these choices are, these options. And that we try to help each other to understand that
and that we choose wisely. Because going to the George Orwell's 1984 version, which is where the government controls everything, including what you think and say, is a terrible idea. And it will end up being a dark ages period, like between — the thousand years between 500 to 1500 AD, where basically nothing happened, there was no innovation. You can't have innovation and progress if there's no opportunity for people to have new ideas. The countries on the planet that didn't
progress from the Renaissance on like Europe did — those countries were highly centralized and controlled in both Asia and in the Islamic world. They were not in Europe. It was composed of those little small city states all around, and they innovated like crazy, they created all these things — all the development of science and art and literature and everything, all out of the fact that they were decentralized. The interesting thing I read in a book by Niall Ferguson, he's a great historian. He wrote a book called "The West and the Rest" and explained why
it was that Europe just exploded with all this creativity and improvement and standard of living for the ordinary person, whereas it didn't happen in China and the Islamic world. And one of the things that I was struck by was the fact that the most important of those innovations was the Gutenberg printing press, right? The printing press was not legal in either China or the Islamic world, because the leadership didn't want that — people to get all these new ideas. It was a threat to the control of the centralized authority. And that's just an example
of why did that happen that way. Yeah, you know, certainly I have to say I prefer that we go toward option one. But I feel a little bit worried about our capacity to get there. I wonder. Yeah, right now I do. And one of the main reasons I worry about — and probably you even more than I because you're in the media world — and there is a tremendous effort underway to censor people who have ideas that are not consistent with the government's narrative. And I see that all the time. A lot of my information comes from
alternative media, like Substack and Rumble and other organizations like that, because I don't trust the mainstream media. Because they lie to us all the time — they do. They're like — we could spend a whole interview talking about that because there's a long list if you want, unfortunately. But that's the way it is. And we — of course the whole disaster with COVID was full of that. And so yeah, but I — I believe that ultimately that we as humans are going to be wise enough to make the right choice. But one of the ideas that
I'm really fond of talking to people about is that — to understand that there's a major difference between intelligence and wisdom. And what has happened to us is we've been misled by people with PhDs who have 150 IQs except — so they're very intelligent — but they have no wisdom. I've known people who didn't have a high school education who understood how the world works a lot better than those people. So I think it's really important to think, well what is wisdom? What does it look
like? What does it mean? We have to have that. And so we understand. That's why the Austrian economic system really works, because it's built on looking at what worked — it's what got us in the western civilization to where it is. It wasn't perfect. It has its issues. I mean, one of the things I disagree with some of the Libertarians about — these so-called anarcho-capitalists like Doug Casey, whom you know, and who doesn't believe that we should have any government. And I think
that's not correct. I think government has a very important role to play. And I would use it and have a log like a referee in a sports system, whether it's basketball, football or whatever. Where there are rules, and the referee's there to enforce the rules. And in a democratic system, what we should have then is the people as representatives. Set the rules, and the government enforces the rules. And it does the minimal amount, because it doesn't want to waste our resources, because we need them to produce the things that people need. So anyway.
Alright, well this was really good. Are there any final thoughts you want to add? Or did we cover all of the points? I think we covered — I think we covered everything that I wanted to talk about today. I think we did. This was really good. And you know, for anyone who is seeing this as their first interview with you, it's very different than the other ones. And if people want to have more information on what they should do, I'll link to those because we talk about analyzing the gold and silver stocks, we talk about how to
build your gold and silver portfolio. So I'll have those links for everybody who might want to look at that. So thank you so much. Great to do this in person. Thank you. Yes, I agree it's fun. Yes. Hope to do it again soon. For now we'll let you go out onto the conference floor and finish up. So once again, I'm Charlotte McLeod with InvestingNews.com, and this is Don Hansen. Thank you for watching. If you liked this video, make sure you subscribe to our channel. We'd also
love to hear your thoughts, so leave us a comment below. We'll see you next time.
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