Yes, another great podcast! 🎙️ This time, I had the pleasure of joining @pahueg on Less Noise More Signal for an inspiring conversation about the global economy, mounting debt, and the future of investing. We didn't hold back: → Why France is Europe's weakest link → Why the ECB may have no choice but to step in again → How governments are using inflation to escape their debt trap → Why holding cash and bonds means destroying your purchasing power → Why Europe is losing its economic edge And, of course, why we're betting on scarcity through quality equities, physical gold, and bitcoin in the Blokland Smart Multi-Asset Fund. Big thanks to @pahueg for having me and for a great conversation! Check out the full episode! 👇 https://t.co/L3OZ389IqI

In case you were wondering why Jeroen is posting so much in Dutch about something called “Box 3”, let me explain. The Dutch government is changing how it taxes investment returns. For 2027, investors face an assumed return of no less than 7.87%, taxed at a massive 36%. Yes, you read that right. Feel free to compare that with the tax rates in your own country. From 2028, the government wants to move towards taxing actual realized returns. But because it wants to move fast and fears losing tax revenue, there are exceptions. And this is where it gets really strange. Own gold or bitcoin through a financial instrument and gains can be taxed when realized. Own physical gold or bitcoin directly and you can be hit with an annual tax on unrealized paper gains. That is completely backwards. Direct ownership is exactly what many investors want when using scarce assets to protect against financial repression, inflation, and geopolitical risks. And if gold or bitcoin rises sharply, you may have to sell part of your holdings just to pay the tax, seriously disrupting compounding. So yes, the Netherlands is furious. And rightly so. But there is another side to this story. A terrible tax does not suddenly make a good investment bad. I ran 1 million different return paths, and the conclusion is clear: even after tax and inflation, what you invest in still matters enormously. Gold and bitcoin will likely offer a much better chance of protecting and increasing purchasing power than simply retreating into savings. Fight the tax? Absolutely. I will too. But don’t give the government control over your investment decisions as well.

The Netherlands moves 86 tonnes of gold to London! The Dutch central bank, DNB, has moved 86 tonnes of gold from New York to London. The reason: rising geopolitical tensions and the desire to make the Dutch gold reserves easier to deploy during a crisis. Two observations. Why London? According to DNB, gold held at the Bank of England is easier to trade. London is the world’s most important trading hub for physical gold and, during a crisis, DNB can quickly deploy the gold, for example to raise U.S. dollars. But what kind of crisis are we talking about? If the financial infrastructure continues to function normally, I partly understand the reasoning. But DNB explicitly refers to rising geopolitical tensions and extreme systemic risks. During a genuine systemic crisis, payment systems can fail, capital controls and sanctions can be imposed, and countries can suddenly have very different interests. On top of that, London has been outside the EU since Brexit. The risk of financial and political fragmentation during a severe crisis seems more likely to increase than decrease. So why would you want to hold 32% of your ultimate crisis reserve in London and only 31% in the Netherlands? DNB is apparently choosing greater immediate tradability over greater direct sovereign control. Whether that is the best trade-off during an extreme systemic crisis is certainly not self-evident. The real message DNB writes: “Keeping a larger share of the gold reserves in London strengthens the function of gold as an anchor of trust. Gold is seen as the ultimate reserve asset because it is ideally suited to hedge extreme systemic risks.” So gold is the ultimate anchor of confidence to hedge extreme systemic risks. Not my words, although I agree with them 100%. And yet economists, investors, and journalists continue to repeat the argument that gold does not deserve a place in an investment portfolio because it generates no cash flows. But that is not the function of gold at all. Gold is nobody’s liability. It cannot be printed and is specifically meant to preserve value when confidence in the financial and monetary system comes under pressure. The relevant question is therefore: Is the probability of a financial, geopolitical, or systemic crisis rising or falling? By moving 86 tonnes of gold, DNB has basically answered that question itself. Answer it for yourself and adjust your portfolio accordingly.

Why a primary deficit is a massive reason to change your investment portfolio When primary deficits, the budget deficit BEFORE interest expenses, are presented, a lot of investors, journalists, and even economists look at the numbers and think: well, that’s not too bad. Likely this is because budget deficits are normally presented as a total, hence including interest expenses, and as you will know by now, those expenses are huge and rising fast. But the gigantic impact of running primary deficits becomes clear when you measure them against the “fiscal sustainability gap.” This is exactly what I do in my book, The Great Rebalancing. The fiscal sustainability gap is the budget SURPLUS a government must realize just to maintain existing commitments, expenses, and outlays without debt levels going up even more. For the United States, it is estimated that a surplus of 0.6% of GDP is needed to keep debt stable. Again, a lot of people look at this number favorably because it is “pretty close to zero.” But you have to compare that number with the actual deficit. After the Great Financial Crisis, the U.S. total and primary budget deficits averaged roughly 6% and 4% of GDP, meaning the fiscal sustainability gaps were a staggering 6.6% and 4.6%. With a forecast primary deficit of 3.6%, the U.S. is still looking at a 4.2% fiscal sustainability gap. Just imagine what the U.S. would have to do to close that gap. Cut spending by more than 4% of GDP, raise revenues by more than 4% of GDP, or some combination of the two. Living standards would decline sharply while taxes would spike. The first chart, h/t @KobeissiLetter, shows that some European countries do much better on their primary balances. It is no surprise that the list contains several highly indebted countries like Italy and Greece. But even those surpluses are too small to close their fiscal sustainability gaps. Now for the investment part of the story. The U.S. already pays more than 3% of GDP in interest expenses, and this is heading toward 5% of GDP. Not only does this sound pretty unsustainable, it also offers governments of highly indebted countries an opportunity to kick the can down the road. Force interest rates lower, ultimately toward zero if you ask me, and with the help of their central banks, governments can reduce one of their biggest budgetary pressures with the stroke of a pen. Forcing interest rates lower is much easier than cutting mandatory spending on Social Security and healthcare or increasing already high tax rates even further. None of this is rocket science, but the implications are tremendous. They WILL hurt your assets, pension, wealth, and ultimately the quality of your life, which, unfortunately, depends a lot on money. Highly indebted governments will crush the value of that money, your savings, and your bonds through financial repression, negative real rates, money creation, inflation, and outright currency debasement. That is why primary deficits are lethal for traditional investment portfolios in a debt-driven economic system. And this is exactly why I launched the Blokland Smart Multi-Asset Fund almost three years ago, holding zero cash, savings, money market funds, or bonds and allocating only to scarce assets like quality equities, physical gold, and bitcoin. Primary deficits are not just a government problem. They are your problem too.

A French politician now wants debt cancellation! France is a political mess caused by unsustainable debt accumulation. Over the past 30 years, France’s debt-to-GDP ratio has doubled from below 60%, the target set by the Maastricht Treaty, to 116% of GDP. The first French presidential election debate was totally dominated by the budget and debt levels. One left-wing candidate, Mélenchon, has proposed simply canceling part of the French debt held by the ECB. There are so many angles to this, all showing just how desperate French politicians have become. First, the ECB holds nearly 20% of all outstanding French government debt. That alone should ring massive alarm bells, as debt monetization, and the currency debasement that comes with it, is all too obvious. Second, canceling debt requires the hard choice of what part of the debt is actually being canceled. This is where many economists, investors, and the like go wrong when arguing that against all that debt there is also a huge amount of assets. While that is true, those assets and liabilities are not evenly distributed. Hence, canceling part of the obligations still demands a tough decision about who gets the bill. And canceling ECB-held debt does not magically make the liability disappear. The Eurosystem loses an asset while its liabilities remain, ultimately reducing central-bank income, future profit distributions, or public-sector net worth. Someone still pays. Third, what does Mélenchon think will happen to the credibility of both the French government and the ECB? French bond yields will spike, worsening debt sustainability as interest expenses soar. Inflation will spike as well, as the price level adjusts to the loss of credibility that those nominal government liabilities will ever be repaid in full in real terms. Since the ECB has also bought massive amounts of bonds issued by other eurozone countries, their yields, especially those of highly indebted countries such as Italy, will be pushed higher as well. To prevent another sovereign debt crisis, the ECB will be forced to buy even more bonds or risk the eurozone falling apart. And then what? Will those bonds be canceled as well? The credibility and the value of the euro would implode. Fourth, I assume that every investor paying at least a bit of attention to what is going on in France understands that cash, savings, and bonds are the worst assets to hold to protect against debt-driven political turmoil. France will likely not default, but any effort to keep an increasingly unsustainable debt burden afloat will ultimately require some combination of financial repression, negative real rates, central-bank intervention, and inflation. That makes nominal claims such as cash, savings, and bonds exactly the wrong assets to rely on for protection. You want scarce assets like physical gold. And believe me, once this narrative takes hold in the broader investment community, you’d better have some bitcoin in your portfolio as well. France is the canary in the coal mine. The ECB and policymakers will have to go to great lengths to keep the debt-driven system from falling apart. Are you ready for that?