Metals Soar as Federal Interest Payments Reach Staggering Levels

Mike Maharrey: Greetings. I'm Mike Maharrey, a reporter and analyst here at Money Metals, and I'm joined today by economist and commentator Peter St. Onge. And I love how he describes his work on his own website. He says, “interpreting news on the economy in plain English without the jargon in double speak to show what they're trying to do to you.” Peter, greetings, and what are they trying to do to us?

Peter St. Onge: They're trying to rip us off as always pretty much par for the course. They're trying to get as much power as possible. They're trying to feed their own radical activists using taxpayer money to declare war on the American people. So pretty much what they've been trying to do for 150 years now on the organized left.

Mike Maharrey: Yep, you are absolutely correct. So we have not spoken since the elections, and so I want to talk a little bit, just kind of we're a month in, we're not even a month really. We're like two weeks in to the,

Peter St. Onge: It feels like a year in, but yeah. Yeah, we're like 14 days in or something.

Mike Maharrey: The amount of stuff that has been going on is astounding and there's a whole buffet of topics that we could really discuss, but I want to start with something that is very near and dear to my heart as a subject. And I know you talk about it a lot as well, and that's the trajectory of spending and the national debt. And I talk about this all the time, and most of the time people's eyes glaze over and they don't care. And so I'm just going to pose this question to you. Why do you think that this national debt even matters? Why should we worry about it?

Peter St. Onge: Well, you can look at it on two sides. Alright, so on the day-to-day side and on the sort of end game side, day-to-day, the national debt, right? It's 36 trillion. The federal government is spending something like 1.2 trillion in interest alone. And that's probably going to keep going up because they're replacing old cheap debt with new expensive debt because the Fed screwed it up and interest rates are really high. And so to put that in perspective, in Bill Clinton's day, the entire federal government didn't cost much more than 1.2 trillion. So that's an enormous amount of money. It means that the wheel has to keep spinning faster. We have to run on a treadmill just to stay in place. And if you put that together with Biden, we were looking at about $2 trillion deficits. So you put that 1.2 trillion in debt interest together with 2 trillion in deficits, and pretty soon the national debt starts to just consume the entire economy.

So, you've got a CBO projections of 50 or 75 trillion in debt. And at some point the productive economy is essentially being bid away in order to channel resources into the federal government. And so we start to look sclerotic, right? First we start to look like the union where they're just running on fumes, running on the glories of past free market economy. And eventually you keep going until you get all the way to the Soviet outcome where you've got this tiny little private sector. There were people selling vegetables out of the trunks of their lots back in 1990. I mean, there was a minuscule private sector, but it was so overwhelmed by government being able to outbid resources that the economy just grinds to a halt and it starts going in reverse. We have never at our lifetimes really had an extended period of the economy going in reverse.

I mean like Argentina style, where a rich country plunges into a poor country. That has not happened in the United States in our lifetimes. If it does the social consensus, the degree to which people are sort of happy and nice to each other, that's going to change very, very rapidly. So that's sort of the standard narrative on why the debt matters, because it's loading brick after brick on the camel's back when that breaks, a lot of very bad things happen. Now, you could, as a anarchical capitalist, of course, you could also zoom out and you could say, well, screw it. We'll just default. The American people seem to assume that we're going to default. One of the biggest complaints that fiscal conservatives or fiscal hawks have is that the American people don't seem to mind that we're wasting $8 trillion in Afghanistan or whatever. They don't treat the money like it's real.

I mean we're looking at something like a million dollars per household, maybe more. It's an enormous amount. Why does that not bother people? Well, perhaps because they don't actually think that we'll repay it, right? So if we go back to the last debt crisis that we had in the developed world was in Europe around 2011, 2012, and that kicked off with Greece. And what was fascinating about Greece, so the Greek government started threatening that it was going to stop paying the national debt. It was just going to basically default on it. And what's fascinating is that the amount of debt interest coming out of Greece at that time was less than the amount coming out of the US right now. In fact, it was less than what was coming out of the US in 2011. The moral of the story being that countries don't default because they can't pay, they default because they wake up one morning and they start demonizing German bankers and Chinese bankers and they say, you know what? Screw the foreigners. We're not going to pay.

They find some pretext, the debt, maybe it was incurred for them. In the case of Europe, you could argue that the Afghanistan adventures, a lot of these, they're not really benefit us. We don't import oil from the Middle East is the benefit Europe, whatever the excuse is, you could absolutely win an election telling the American people, Hey, listen, you want to make a quick 36 trillion and shaft Wall Street and shaft the Chinese that is a vote winner. I guarantee you.

Default the debt. You issue a new script where you're taking care of the widows and orphans. Social security, trust fund, pension funds, private pensions, government pensions, you reissue that. Maybe you're looking at 10 trillion. So you could immediately just evaporate 26 trillion in debt. It would devastate the banking system. But I mean, who cares? Really? They should have gone under in 2008. If they go bankrupt, who cares? They get wiped out and then somebody else picks up the assets. Maybe it's Warren Buffet or somebody else who's actually responsible. Maybe it's Elon Musk picks up the husk of JP Morgan. So I mean, honestly, it would be a couple of years of drama and you would definitely have economic dislocations, but on the other end of it, for 26 trillion maybe that's not a bad deal. So, that to me is a fascinating question. I think first of all, it's much, much more likely than people imagine, because most of the discussions about the end game on debt, they are looking at ability to pay and the US can, we could probably pay a 75 trillion debt if you look at what Japan's able to manage. We could pay it, but will we pay it? And that is just a wide open opportunity. And it could be a Republican, it could be a Democrat, somebody like Bernie Sanders or the next generation of Bernie Sanders. I could very easily see a guy like that saying, Hey, who exactly was this debt incurred by and who is it owed to? Let's walk away.

Mike Maharrey: Yeah, yeah. I mean that's kind of the, what was it, occupy Wall Street. I mean, that was kind of the same kind of vibe. In fact, it was interesting, you saw a lot of the old Ron Paul supporters and the Bernie supporters kind of bringing their heads together on that in some ways. So I think you make a really good point with that.

Peter St. Onge: Pause on that because that's a really good point that you make. And there was a moment in 2008 where the Tea Party and Occupy we're on the same page. And I think a lot of us were kind of excited. We were like, wow, we have this national consensus to fix the banking system and the corrupt monetary system. And of course what happened back then is the mainstream media jumped in and threw the apple of discord in there and they started with racism and whatever. They got the two sides to fight against each other. But this is a brand new day. One of the biggest things that we saw out of this election that just happened, they pulled out all the stops, man, they compared him to the Austrian corporal and the whole nine yards. None of it worked. So if we get another moment here where Wall Street really screws up and left and starts saying, Hey, you know what? We actually have some common ground. I'm not sure the media is going to be able to break that up again this time.

Mike Maharrey: Yeah, yeah, that's a good point. So kind of looking at the immediate term, there is some talk and at least some lip service now being paid to addressing the borrowing and spending. You mentioned the amount of money being spent is astronomical. It's over half a trillion dollars every single month throughout the Biden administration going out. And so we've, we've got DOGE, we've got some talk about, I mean I even read today that there's apparently going to be some movement to kind of gut the Department of Education. So we're seeing some of the right words being said, but when the rubber meets the road, do you think that Trump Congress, that they can get their heads together and make any kind of substantial cuts in the spending situation?

Peter St. Onge: Yeah, well, that's the big question. And I think that the sort of common wisdom in DC had been that do is not going to go anywhere. There have been many attempts to try to make government efficient from both left and right. Al Gore, that was his big thing. He was going to reinvent government and make it more efficient. It's been coming on all sides. They've all failed. But of course, the thing to keep in mind here is that every one of those attempts was done by Washington Insiders, and these were people who cared about their future careers. They cared about getting invited to the right cocktail parties. They were part of the system. And so people who are in the system are not going to break the system. And so for the first time we have somebody here, Elon is absolutely brilliant. I would argue he's the greatest inventor since Thomas Edison for sure. I mean, the guy is just astounding. He's like somebody we've never seen in our lives. He has got absolutely brilliant people on Doge who are using forensic software engineering to figure out where the money's going. The kind of stuff they're uncovering is just shocking. I think Inc one Twitter user, he said, it turns out there is a universal basic income. It's tax dollars going to the radical left. When you see these instant mobs of illegals right now in LA or protestors against Trump, that is all York's tax dollars at work.

If DOGE drains that, on the one hand, you can talk about the billions of dollars that matters in terms of future trajectory for debt and things like this. But more important, it is starting to look like, to me anyway, the biggest impact of Doge is potentially defunding the entire left, their entire universe of institutes and organizations during Covid, the entire sort of monoculture of leftism that was just crushing down on us, that's all taxpayer funded. Almost none of it is actually supposed to be happening absolutely corrupt. If you take that out, then you will have permanently crippled the left in this country, at which point just sit back and let the prophets roll in, in terms of liberty, in terms of shrinking the government, inevitably a lot of that does come with massive savings on spending. I think the other thing that's very encouraging is it's not really part of DOGE.

It's more Trump's foreign policy stance. He's very skeptical of the foreign wars. He has been very enthusiastic about addressing any threat to Israel. There is that. But aside from that, we have military bases in almost every country in the world, every time there's some civil war or something, it turns out we've got like 8,000 soldiers in Nigeria or something, and everybody's like, why? So I am enthusiastic. Rubio so far has been saying the right things that we need to pull back that all of these international commitments, the sort of global empire is draining us dry, which I think is absolutely true. So about half of the overspending has really been military. It hasn't even been the domestic stuff.

So, I'm optimistic that between DOGE on the domestic stuff, between exposing how corrupt a lot of this government money is, which I think drains the power of the left and then Trump's relatively pacifist or isolationist foreign policy stance, I think that we have a good chance to drain it. Now in terms of what's the concrete target, and Elon tweeted about this the other day, but it's true, you need to cut about a trillion. If you can cut about a trillion in spending per year, then you're not going to get rid of the deficit, but you need the deficit low enough that the economy grows faster than the debt. If you can get to that point, then we're not facing catastrophe anymore. Okay, we're back away from the cliff. We're not fixing it necessarily, but at least we step away from the cliff and then we can address these other issues and try to take things down step by step.

But that had been one of the big concerns is that under Biden, we were barreling towards this fiscal collapse. We started seeing these jumps in bond yields that were not necessarily coming for the Fed, but we're starting to come from market fear that I think if we can get to a trillion, then we step back from the ledge. So far, Doja is looking like it's actually outperforming a trillion. I think people are surprised so far. There is so much waste in it. It turns out it's shockingly easy to cut. Tens of billions, for sure, possibly hundreds of billions out of the budget without even, you don't even have to go to Congress. You're just going through and cutting out fraudulent payments, payments to known terrorist organizations. Just crazy stuff that voters never wanted.

Mike Maharrey: Yeah, it's interesting because you're looking at this, it's almost like nobody's looked at it before, right? It's like, we've not audited this company in 50 years and now all of a sudden it's like, oh my gosh. And I mean no shock, right? I mean, when people are allowed to operate effectively in secret, what are you going to get? This is what you get. So certainly some reason for optimism in that sense. Let's look at another topic that's big in the news right now, and that's the tariff issue, and I want to look at it more from an economic standpoint. I think you can look at it from a kind of policy negotiating tool, which I really think is kind of what Trump's doing right now. And you can kind of see that by the way, he's going at it and he's backing off when he sees that there might be some negotiation and concession.

So I guess brilliant on the negotiating front, one of the things though that I kind of want to touch on is that you keep seeing that tariffs are going to be inflationary, tariffs are going to be inflationary. And I've been pushing back against this a little bit. I want to see if you agree with me that in and of themselves, tariffs aren't inflationary. I mean, they can raise prices obviously of things that are tariffed, but I think it's important for people to understand where true inflation comes from, and that's from money creation, not from tariffs. Am I on the right track here with that?

Peter St. Onge: Yeah, I think you are. If you have a bunch of tariffs, then the things that are tariffs are going to go up, the avocados, the Chinese toys, those are going to go up. But if at the same time you are reducing either the growth rate of the money supply or if you're actually outright reducing the amount of money in existence, if you're doing that, that is going to massively overwhelm the tariffs. And so what will end up happening is toys and avocados go up a little, everything else comes down a whole lot. You might actually get cheaper with toys and avocados depending on eventually how much, how much do you have on both sides? So I think my general position on tariffs is that in unto themselves, yes, they mechanically raise prices, but first of all, they're a very, very small effect. If you look empirically, a lot of it gets absorbed by the other country's exchange rate.

We saw that with Canada where the Canadian dollar plunged like 10% on the tariffs threat, meaning that almost half of those tariffs were about to be paid out of the wheat Canadian dollar. You saw it with China where about 80% of Trump's tariffs last time they were actually covered either by the exporting companies, it just took less profit. Or the Chinese government actually stepped in and wrote them checks in order to keep those companies floating and allow 'em to maintain market share by not raising their prices in the us. So a lot of the apparent raise from tariffs actually gets eaten by the other countries. And the reason is because exports to the US for a lot of these countries, they're absolutely existential. Something like one fifth of the Canadian economy is exporting to the us. One third of the Mexican economy is exporting to the us.

So these countries end up having to eat those tariffs because they lose market shares. Now, of course, if you zoom out, one of the points of Trump's tariffs is that he's trying to encourage companies to move back to the US. Now, if he can get his tax cuts and his regulatory cuts, which he's trying as hard as possible to do if he succeeds in, if you could produce in the US and you have reasonable amounts of red tape, like normal standard for a country, not all this green and the woke and the labor and the lawsuits, if you get that stuff down, and if Trump's actually got a 15% tax rate, which is what he's talking about, you would be crazy to produce anywhere else.

This is the largest market. It's of course tariff free now and forever. If you're producing in South Carolina, you're never ever going to face a tariff in the US economy, which is after all, it's about a quarter of the entire world economy is in the us. So you get to the point where genuinely you don't have to threaten companies anymore, they will come falling over themselves, move to the us. You're already seeing that. Where a lot of countries are concerned about China's stability. China does things like arrests, foreign CEOs to put pressure on the companies to transfer tech, and I mean just really shady things. And so there are a lot of countries that already, like Japan or France or whatever they do, China plus one, they're already doing a backup. So they'll have a factory in Vietnam or India or Ethiopia for clothes or whatever. And so that plus one that is absolutely up for grabs. And in fact, if Trump can get red tape and tax rates down, you are literally going to start seeing a giant sucking sound of Chinese companies moving out and moving into the us.

Mike Maharrey: Yeah, I saw I think yesterday that I think it was Audi was looking at manufacturing cars in the US to avoid the tariff situation.

Peter St. Onge: Well, and you also want to keep in mind that you don't have to be perfect. You just have to be better than the other guy, the cleanest dirty shirt. And Europe especially, I mean Europe is just wide open. They are such a terrible environment to produce the energy policies. There have been absolutely suicidal forcing companies into these green energy projects. So electricity in Germany is something like four or five times what it's in the us If you're producing cars in Germany, electricity, power, that's a huge part of your costs. You've got arguably more regulation there for things like labor and environment. So I think that that is just absolutely low hanging fruit that Trump is very interested in stealing what's left of Europe's manufacturing base. China is a little bit tougher. China is efficient many ways, but Europe, I mean that's just wide open.

Mike Maharrey: Yeah, yeah, for sure. So obviously a lot of things to be optimistic about as we're discussing. I think we can hear that in the tone, the conversation. And it's interesting because something that we've kind of seen in the physical gold and silver business is physical investment as far as people buying bars and coins has really dropped off since the election. And I think a lot of that is that sanguine view of, Hey, the economy's going to get better. Maybe we'll get inflation under control. So why do we need to have this inflation hedge? And I'm somewhat cautious about that because despite the optimistic things, there's a lot of things that a president can't control. One of those things is the Federal reserve and the monetary policy. And as you're looking ahead, do you think that the Fed is really going to be able to get the price inflation under control, so to speak, given the fact that they created so much of it over the last two decades? Plus it's like Trump's got this big pile of garbage sitting on his desk that he doesn't want there, but it's been accumulating for a long time. How would you kind of address that as we look forward over the next three or four years?

Peter St. Onge: Yeah, it's tricky because the Fed is relatively anti-inflation at the moment because interest rates are relatively high, especially compared to the past 40 years. But as you say, there's this huge overhang of inflation that we haven't seen yet. And the reason was because the Biden economy was so lousy that a lot of the money printing did not get multiplied into bank loans. And normally about three quarters of inflation doesn't come from the Federal Reserve, it comes from the sort of miniature money printers known as fractional reserve banking. And so a lot of that has not happened yet. So if you look at the increase in money supply, since pre Covid prices have gone up something like 30%, 25, 30%, but the inflation, the amount of money printed is more like 40 or 50%. And that extra 10, 15% overhang is basically waiting for the economy to improve.

So this is where I think it gets tricky for Trump. He is absolutely doing everything right to grow the economy, but those things will also unleash those money printers as the money gets lent out to build factories or the money might be going to good things that will eventually grow the economy. But in the near term, it means that you've got this massive new flood of money printing. You sort of don't blame him for it. It was kind of cooked into the books by the Fed a couple of years ago. But what I think it means for the economy going into the next year is that they are going to need to seriously cut spending at the federal level in order to drain out some of that liquidity so that as the private sector revives and starts lending out money and building factories, the federal government needs to pull back so that it's not competing for all those real assets with private sector. So if you've got a bunch of factories being built, you need steel, you need construction workers that is going to be inflationary in less. The federal government is simultaneously cutting it out with the racist overpasses and whatever the heck they spend money on sort of bowing out and putting away their checkbooks so they're not competing things up. So I think that a lot is riding on Doge, I think a lot more than people expect. I mean, doge, but also things like military spending. We have got to reign in the federal spending.

Mike Maharrey: I think thinking about this discussion, you've really hit on this kind of overall theme that I kind of want to bring out to wrap things up. And that's the fact that you've got this massive government that is effectively crowding out the real economy. And so a lot of the solutions to the problem is shrinking that behemoth so that the actual economy can function as it supposedly, it's kind of like having a tumor. You have a tumor and it starts pressing on important, necessary organs. You got to get the tumor out of the way so that the system can work like it's supposed to. So if you can, maybe you can summarize that better than I to wrap up this discussion.

Peter St. Onge: Yeah, I think that's the perfect metaphor for it, that the government is a tumor, and it will eventually kill you. And so you have to do everything you can to shrink the tumor. A metaphor I like is federal spending basically clears the highway. It pushes all of the private spending out of the way so that the government can keep spending. That's really what the Fed had been doing with their rate hikes is sort of strangling the private sector that clears the highway. So now the feds can drive fast, they can sort of soak up all the inflation. And at this point, with Trump bringing the economy back, you are going to have a traffic jam. In other words, you're going to have inflation unless we radically shrink the federal government.

Mike Maharrey: That's a good analogy. You get the government cars off the road so that us regular people can drive.

Peter St. Onge: Yeah. Well, because the government cars aren't doing anything useful, the private sector spending, this is building factories, this is creating jobs, this is feeding your family, this is renovating your house. I mean, these are all useful things for the American people to be doing. The federal spending for transgender plays in Peru, this is not productive for the economy. Maybe we should cut back on that, especially while we've got the real economy roaring ahead.

Mike Maharrey: Absolutely. So where can folks follow your work? And I know you do a podcast, you do videos. I catch a lot of those on X. Where is Peter St. Onge? Where can I find you?

Peter St. Onge : Yeah, I'm over on x. I do daily videos on the economy and freedom, and then I wrap them up into a podcast every week. So that's @profstonge, I guess is the search term basically carried everywhere. And then I also have a newsletter that I put out every week, free newsletter, doing basically the same thing. So going back through some of these historical events, how did the federal government take over? How did we get permanent inflation? So things like that.

Mike Maharrey: Oh, yeah. Outstanding. Well, I think people can tell by listening. You're very passionate about what you're talking about and also very knowledgeable, and you get an A plus for putting things in a term that in terms that folks can understand and getting rid of the jargon. So I always appreciate having you on the show and look forward to watching things unfold over the next year or so. And we'll definitely have you back on again and we can maybe do an analysis of how things are going here in a few months.

Peter St. Onge: I'm sure it's going to be an absolute crazy year. It's going to be a crazy four years. So I think a lot of us are looking forward to seeing what happens next year.

Mike Maharrey: Yeah, absolutely. Well, thanks again for coming on the show, and we'll talk to you again soon.

Peter St. Onge: Sounds great. Thanks.