Rick Rule on the Unraveling: Debt, Gold, and the Quiet Crisis of Confidence

AInvest's Capital & Power podcast debuts with a timely and unflinching conversation featuring Rick Rule, one of the most seasoned and respected voices in natural resource investing. The former CEO of Sprott U.S. Holdings and current head of Rule Investment Media brings decades of capital markets experience to bear on a wide range of topics—offering insight that is especially relevant for investors attempting to navigate a structurally fragile economic landscape.

WATCH: The $37 Trillion Lie — Rick Rule Exposes What They’re Not Telling You

Rule doesn’t do euphemism. And when he says, “We’re liquid, but we’re not solvent,” he’s not reaching for a metaphor. He’s diagnosing a system where short-term liquidity masks long-term insolvency—and where the math simply doesn’t work.

“Let’s set the stage first with the arithmetic,” Rule began. “Almost everybody knows that the on-balance sheet liabilities of the US government, accumulated on-balance sheet deficits, now exceed $36 trillion. And most people know, if they care, that that number gets bigger by $2 trillion a year. That’s a problem. 120 % of GDP and growing.”

But the real time bomb, he says, is off the balance sheet. “The net present value of the off balance sheet liabilities of the U.S. entitlements—Medicare, Medicaid, Social Security, federal pensions, military pensions—that number is a hundred trillion dollars… and it also grows at between two and two and a half trillion a year.”

“At the federal level, we owe $130 trillion net, an $11 trillion plurality of what we're worth over what we owe at the federal level before personal debt, corporate debt, state debt, local debt… that number grows by $4.5 trillion a year. This is profoundly bad math.”

Rule takes particular issue with the use of CPI as a stand-in for inflation. “The big thinkers suggest that the current rate of deterioration of the US dollar is the CPI… I would ask your listeners to employ their common sense… The idea, oh, by the way, the CPI, doesn't include tax. A cost of living index that doesn't include tax. The point is that all of your listeners need to learn not to conflate the CPI with inflation.”

“CPI is a CP lie… If you believe like I believe, that the depreciation in the US dollar… is more like seven and a half or 8% a year, then the rest of the economy comes into perspective.”

Viewed through the lens of fixed income, Rule sees a dangerous asymmetry. “If… you're getting paid 4.5, 4.6% on a 10-year treasury… and… the purchasing power of your savings is declining at seven and a half percent… you're not making 2%, you're losing 3%. If you do that 3% a year every year for 10 years… you've lost a 30-year purchasing power.”

He is not optimistic about political solutions. “There is no appetite… to reduce the size of government, reduce the entitlements and the entitlements are unfunded… They're going to fiddle with you two ways… they're going to have to raise the eligibility limit… and they're going to start taxing income above $160,000 at the same time that they means test Social Security… But it's not anywhere near enough.”

Nor does Rule think radical taxation will work. “If rather than increase their taxes, you stole all of their money… you fund the on balance sheet and off balance sheet deficit of the U.S. government for one and a half years.”

Instead, the likely outcome is currency debasement. “The only way that you can honor politically the nominal value of our obligations is to reduce the purchasing power of the US dollar… In the decade of the 1970s… the purchasing power… declined by 75% over 10 years… You take the nominal value of our obligations, $130 trillion, and you reduce them by 75%.”

“We never reduced the size of government, but we reduced the rate of the increase in government… We were able to… grow our way out of an obligation that we had devalued by devaluing the US dollar.”

Gold, in that context, becomes a rational hedge. “The price of gold may very well mirror the depreciation or deterioration purchasing power of the US dollar… A fourfold increase in demand and a 75 % deterioration… suggests to me that every portfolio needs an insurance component that is precious metals and high quality precious metal shares.”

And how should investors own it? “I own some US treasuries… I save in gold… I own the Sprott Physical Gold Trust… Other people could own the ETFs… How you own it is less important to me than the fact that you own it.”

Turning to the commodity markets, Rule sees significant upside in uranium. “I believe that Cameco (CCJ) will go from producing 18 million pounds a year to 35 million pounds a year… in a 180 million pound market, that's fairly material. I believe that Kazatomprom will do the same thing.”

“There are probably five or six good juniors worldwide, and probably four or five good near-term developers… it's not the same sort of tsunami that it was 20 years ago.”

Rare earths also present a compelling long-term opportunity. “The Chinese don't want to give us the rare earths, and we need the rare earths.”

That ties into Rule’s broader view on China’s industrial trajectory. “The Chinese need to continue to grow, and they're going to need to continue to build. They're going to continue to need stuff. They're going to continue to need energy.”

For investors, the message is clear—and personal. “Think. Invest in yourself. Don’t trust other people to look out for you… You can survive. You will survive. Or you can thrive. And the difference between those two words is all about the way that you prepare yourself and take action.”