Ballooning Government Deficits Make One Investment More Lucrative

By the time the experiments were over, taxpayers were out at least half a million dollars – and a pigeon was dead.

Researchers at Reed College wanted to understand gambling. So in 2012, they built a "casino"... a small 1.5-foot-by-1.5-foot wooden box, with a tiny lightbulb that illuminated several colorful plexiglass tokens.

They brought in seven White Carneau pigeons with individual number IDs. The pigeons could peck on different tokens to place bets. They could win more grain less often... Or they could opt to win less grain more frequently.

Under the colorful lights, the action was intense. Tragically, Pigeon 732 even died during the study. (The researchers didn't say why... so we can't know whether it was a result of natural causes or getting in too much debt with the wrong crowd.)

The study did reach a conclusion, though: Pigeons prefer to place risky bets with larger food payouts. We had finally put that burning question to bed...

Or so you might think. In 2020, the U.S. government decided to shell out more money on another iteration of the same pigeon experiment...

It spent more than $465,000 on the study, which was set to wrap up in April this year.

We have no idea why the government thought it was useful to continue studying pigeon gambling... why it cost as much as a small airplane (and took three years)... or why researchers didn't think studying human gamblers might be a better idea.

But three years and $465,000 later, we're waiting with bated breath for researchers to tell us once again that pigeons like to gamble.

Granted, in the grand scheme of things, half a million dollars spent on pigeon vices isn't going to sink the economy.

But the sad fact is, the pigeon-gambling study is just a drop in an ocean of wasteful government spending...

Our government flushes hundreds of billions of dollars down the drain every year on pointless projects. The U.S. national debt currently clocks in around $33 trillion.

Taxpayers are so used to stories like this, they hardly notice anymore. It's part of the reason why ballooning national deficits (government spending in excess of tax revenue) are the new normal. Take a look...

After the financial crisis in 2008, the U.S. national deficit exploded. From 2009 to 2019, it averaged around $900 billion per year. Then, it more than tripled to around $3 trillion annually in 2020 and 2021, thanks to the government's generous stimulus programs during the COVID-19 pandemic.

The deficit eased to "only" around $1 trillion in 2022 with the normalization of the economy. But it's headed in the wrong direction again...

Tax receipts are down this year. Investors are generating fewer capital gains with lower real estate and stock sales. Meanwhile, costs are rising. Inflation is making everything more expensive... even for the government.

The Congressional Budget Office ("CBO") estimates that interest payments on our national debt will cost $640 billion this year. That's an increase of 35% over 2022. And it's a big reason the deficit is expected to explode to around $2 trillion this year.

In other words, we're approaching 2020 and 2021 pandemic deficit levels... only without the stimulus payouts.

And it's only going to get worse. The CBO projects that interest costs will rise to $1.4 trillion within 10 years. That's more than we spend on our military. And it's more than we spend on social programs like Social Security, Medicare, and Medicaid.

The numbers have gotten so large that they've lost meaning for most folks. But sharper observers know where this kind of financial mismanagement will lead.

In August, credit-ratings firm Fitch lowered its rating on the U.S. government's debt from AAA to AA+. It says that it "expects fiscal deterioration over the next 3 years."

But the U.S. government won't default like individuals and companies do... It can "print" as much new money as it wants to pay for the interest and ballooning costs.

That means only one thing... higher inflation over time. When the money supply increases faster than the economy grows, prices go up. It's basic math.

In other words, elevated inflation isn't going away anytime soon.

That means interest rates are going to be much higher for much longer than folks believe. The days of near-zero percent interest rates are over.

This new paradigm is going to wreak havoc on the economy and markets. We haven't seen major damage yet. But the cracks are starting to appear. The next credit crisis is right around the corner.

That's bad news for most of us. But you can prepare...

One of the best ways is to start using a strategy that the world's best investors employ in times of crisis. It's a type of investment completely outside of the stock market that most investors have never heard of... let alone considered.

But this little-known investment vehicle is likely to be one of the best-performing asset classes over the next few years. It's a way to build your wealth when most portfolios are getting destroyed.

My colleague Bill McGilton and I recommend this type of investment in our Stansberry's Credit Opportunities newsletter. And, as I recently teamed up with our friends at Altimetry to explain, now is the best time to educate yourself on how it works.

It lets you earn safe income with the chance to earn huge, stock-like returns... Find out more right here.


Mike DiBiase

Editor's note: Our colleague Joel Litman, from our corporate affiliate Altimetry, recently aired a warning to investors – and "higher rates for longer" is just the beginning. When the credit crisis hits, many companies will see profits wiped out (while others go bankrupt). And according to Joel's indicators, now is the time to act...

This strategy outside the stock market is designed to return safe income during periods just like these. Mike has called Joel's approach "the perfect complement to our work in Credit Opportunities." To learn the details, watch their recent discussion right here.

Further Reading

"If you've relied on debt in any way... life is about to get much harder and more expensive," Joel explains. The "easy money" era is over. High interest rates are weighing on consumers and businesses. And that's setting up a serious storm in the debt markets... Read more here.

"It took two years for the Federal Reserve's rate hikes to kill the economy," Rob Spivey says. Rate hikes have finally made a dent in corporate balance sheets. More and more companies will struggle to refinance their debt – and the clock is ticking... Learn more here.