U.S. at risk of insolvency from higher yields; these assets would be 'destroyed' - Michael Gentile
The U.S. government is now so heavily indebted, that if interest rates continue to climb up, interest expenses alone could bankrupt the Treasury, said Michael Gentile, strategic investor and board member on several gold mining companies.
"If you take the $30 trillion of debt that [the U.S. government] has now, assuming rates go to 5%, which is not a crazy number historically on a 100 year perspective, that would be $1.5 trillion of interest expense, which would be 50% of their revenues, up from 10% of their revenues. So quite simply, they'd be completely insolvent at that level of interest rates," Gentile said, adding that the same apples to the other G7 countries.
The government’s main option is to create inflation and pay back debts with artificially devalued dollars, Gentile said.
“If they take the hard line and don’t inflate, don’t suppress rates, they’re not going to be able to pay back their debts,” he said. “I would not buy any sovereign debt yielding zero to one percent. You’re getting no return with all the risk.”
On gold, Gentile said that he is “contrarian” by nature, meaning that he would invest in a trade that the general public does not like, and would take profits once it becomes too crowded. Gold, currently, has very bearish sentiments from the generalist investor space.
“The crypto space is where you’re seeing that kind of activity…the general mainstream is not adopting gold. If anything, they’re avoiding it these days,” he said.