Veteran investor, Arthur Richards Rule IV, better known as Rick Rule, is the latest expert to sound the alarm on the long-term stability of the U.S. Dollar, warning that decades of unchecked federal spending and unfunded liabilities could erode the greenback’s purchasing power over the next decade.
What Happened: Speaking with Kitco News over the weekend, Rule says that the U.S. Government’s $30 trillion on-balance-sheet debt is only the beginning.
He highlights the $100 trillion in unfunded promises, such as Medicare, Social Security, and federal pensions, which takes the total liability burden far higher, and closer to the nation’s total household net worth at $141 trillion. This only leaves a $11 trillion buffer against household wealth, which he believes is closing quickly.
Both categories of liabilities are growing by around $2 trillion per year, Rule says. At that pace, the remaining margin will disappear within five years, raising questions about long-term solvency.
Rule believes that the country, at its current fiscal state, can no longer service its obligations such as social security, Medicare, and pensions, while adding that "the only viable path is to allow the dollar to decline."
“I believe because of this $100 trillion in unfunded entitlement liabilities that the U.S. dollar will lose 75% of its purchasing power over 10 years,” he says, pointing to the 1970s as precedent, when U.S. inflation wiped out 75% of the dollar's purchasing power in a single decade. The period also saw gold prices rise nearly 30-fold.
Speaking on gold, Rule made a very bullish case for the yellow metal, saying that he doesn’t own gold because he thinks it can get to $3,500 an ounce, he says, “I own gold because I'm afraid it's going to $12,000,” because “arithmetically, it makes absolute sense.”
Rule says that “the system isn't solvent. It's just liquid, for now,” warning investors relying on traditional portfolios and government bonds will find themselves eroded by this silent inflation.
“As purchasing power quietly deteriorates, people will either adapt or pay the price,” he concludes. “You can't paper over arithmetic forever.”
Why It Matters: Other leading market experts have echoed similar concerns regarding U.S. assets, while reaffirming their conviction in gold.
Investor Chamath Palihapitiya recently called gold the “only safe trade” on news of quantum computers capable of cracking Bitcoin’s encryption.
Leading hedge funds and financial institutions such as Bridgewater Associates, BlackRock Inc. BLK, and the Goldman Sachs Group Inc. GS have all made a beeline to increase their exposure to gold, citing similar concerns of hyper-borrowing by the U.S.
Price Action: The spot price of Gold stands at $3,362.37, up 2.21% on Monday. The SPDR Gold Trust GLD, which tracks the price of gold, is up 26.99% year-to-date.
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