Luke Gromen: “The United States Is Heading Toward An Inflationary Crisis”

With each passing day, the United States loses a little more of its superpower status. This gradual weakening, which began several decades ago, has now reached a major turning point. The policy pursued by Donald Trump has opened the world’s eyes. And the financial indicators do not lie. While in the U.S. — as in most developed nations — deficits and public debt are deepening, gold is reaching new record highs. In this period of rupture, the yellow metal is reclaiming its historic role, having always been at the heart of the international financial system. It is against this backdrop that we speak today with Luke Gromen, one of the world’s foremost experts on bond and monetary markets. After more than fifteen years at the top of financial market analysis, he founded in 2014 the independent research firm Forest for the Trees (FFTT, LLC). In this interview, he shares his perspectives on the current state of U.S. public debt, the role of the dollar and fiat currencies, and the surge of the gold price.

Julien Chevalier: The American empire is in decline and the dollar is losing its attractiveness. Today, central banks around the world hold more gold in their reserves than U.S. Treasuries. How do you explain this trend?

Luke Gromen:  I think central banks hold more gold reserves because of three long-term structural trends. First, there is a gradual transition, led by the BRICS, toward commodity trading settled in gold, which increases gold’s role as a neutral reserve asset. Second, the sanctions imposed by the U.S., the extraterritorial reach of American law, and the geopolitical weaponization of the dollar system — spectacularly illustrated by the freezing of Russian foreign exchange reserves — have raised concerns in many countries about the safety of relying too heavily on the greenback. Third, there is a growing recognition of the mathematical reality that the United States, as issuer of the world’s reserve asset, cannot sustain its debt load without maintaining significantly negative real interest rates. This structural constraint makes gold more attractive than U.S. Treasuries or other sovereign debt as a reserve asset… All of these reasons explain the shift you refer to.

Julien Chevalier: The central banks of the BRICS and emerging countries are the main buyers of gold. Since 1945, and especially since the end of the gold standard in 1971, we have lived in a financial system dominated by debt and by the U.S. dollar. Do you think a new international financial system led by the BRICS and once again based on gold is conceivable?

Luke Gromen: I think it’s already underway, as evidenced by this move by central banks toward gold reserve purchases worldwide.

Julien Chevalier: You often say that the United States can no longer hope for a “soft landing” because of the size of its public debt. In your view, what factors could still delay a crisis of confidence in the dollar and in the international financial system more broadly?

Luke Gromen: The fact that central banks prefer gold over U.S. Treasuries is, in my opinion, the clearest expression of a loss of confidence in the dollar and in the international system as a whole — or perhaps more precisely, of its fragmentation. Given demographic trends, the rapid pace of technological development related to artificial intelligence, and the high level of debt, it seems difficult to avoid a crisis at this stage. To me, the only question is whether this crisis will be inflationary or deflationary. My base case is an inflationary crisis.

Julien Chevalier: Since the pandemic, inflation has surged, reaching double digits in some countries. For decades, prices have been rising, and currencies have therefore been depreciating. The French philosopher Voltaire said that “a currency based solely on trust in the government that issues it always ends up returning to its intrinsic value, that is, zero”. How do you see the value of the main currencies used today evolving?

Luke Gromen: In my view, major fiat currencies are gradually moving toward what Voltaire described when measured against harder assets like gold and Bitcoin.

Julien Chevalier: Donald Trump chose not to impose tariffs on gold, whereas he can impose tariffs on oil and other commodities. In your opinion, why has gold been spared?

Luke Gromen: Gold has been spared for a good reason. If Trump had decided to impose tariffs on gold, it would have automatically devalued the dollar against gold by exactly the amount of the tariff. Since the dollar has been consistently losing value, and especially against gold for decades, this would have had major consequences. Although Trump has stated he wants a weaker dollar, he may have considered that such a measure was too blunt an instrument to achieve this objective — or perhaps there are other rules or implications I am not aware of.

Julien Chevalier: Authoritarianism is growing in democratic societies, particularly in the United States. On the financial side, Trump is attacking the independence of the Fed while a law allowing certain stablecoins to finance U.S. public debt is under consideration. In your view, what are the main risks facing investors’ savings today?

Luke Gromen: Today, there are several major risks investors need to pay attention to. The first is obviously financial repression related to what you just mentioned, then the phenomenon of nationalization we are observing, but also the excess leverage in the financial system, as well as significant regulatory and geopolitical shifts that could suddenly reshape the environment for all investors and savers. These threats need to be taken seriously.

Julien Chevalier: Central bank digital currencies (CBDCs) are presented as a tool of monetary sovereignty, while they are set to be implemented before 2030. In your view, do they pose a threat to gold?

Luke Gromen: In my view, CBDCs are in fact the opposite of monetary sovereignty, because they would amount to establishing centralized control by the central bank over all citizens and savers. If they were used to try to prevent consumers from buying assets like gold, I think that would have far broader political implications, potentially destabilizing for markets — which, paradoxically, would be favorable to gold.