Inside today’s Daily Journal…

In the mid-1990s, I met the last of the great pre-war, Austrian economists, Kurt Richebächer.

At the time I was a young equity analyst working for Bill Bonner. He’d recently bought The Fleet Street Letter and named me its editor. We were hosting a conference of the world’s top Austrian economists in Washington, D.C., to announce the launch of The Fleet Street Letter in the United States. Kurt was our keynote speaker. I picked him up from the airport and we spent the day together. He was an incandescent genius. And I was a sponge.

That began a decade-long friendship that lasted until his death in 2007.

In addition to being an academic economist, Richebächer was also chief economist of Germany’s Dresdner Bank. Like all Austrian school economists, he understood that credit, not money supply, is the true measure of inflation. Currencies are inflated when outstanding debt grows well beyond increases to economic activity (GDP) and productivity. The resulting increase to prices – what most people think of as inflation – only happens later (creating the Cantillon Effect) and dynamically, depending on a myriad of factors.

Gold, in Richebächer’s framework, is the real monetary base. It is the one thing that cannot be manufactured by a central bank or conjured into existence by a lending officer. Every other currency in the system is someone’s liability. Gold is no one’s liability. Gold is a physical proof of work that can only be created with labor, capital, and energy inputs. Thus, it is the natural reserve of the economic system. (Richebächer died before Bitcoin was invented. Bitcoins are also a proof of work. They require labor, capital, and energy inputs to be created.)

Money supply – M2, M3 – only captures a fraction of total dollar-system leverage. It counts cash, checking accounts, savings accounts, and some short-term instruments. But it misses the vast ocean of credit that sits outside the banking system’s deposit base: the $39 trillion in federal government debt, the trillions in corporate bonds held by pension funds and insurance companies, the $14 trillion in offshore dollar-denominated loans and bonds extended to borrowers in Brazil, Europe, and Asia. None of that shows up in M2. But all of these “invisible” dollars represent claims on future production, promises that will need to be honored, rolled over, or inflated away.

Richebächer’s Austrian school insight was that gold prices respond to the total stock of dollar-denominated promises, not just the narrow money supply. When you measure credit instead of money, you capture the full weight of the dollar system — every mortgage, every Treasury bond, every eurodollar loan. That is what gold is really pricing: the sheer mass of dollar obligations relative to the one asset that cannot be diluted.

This is why models built on M2 struggle to explain gold’s behavior from 2020 to 2026. M2 actually shrank in 2022 and 2023 as the Fed tightened. If money supply were the right variable, gold should have fallen. It didn’t. It kept climbing — because total credit never stopped growing. The government kept borrowing. Companies kept issuing bonds. Offshore dollar lending kept expanding. The credit machine never turned off. And gold, priced against that credit, kept rising.

Understanding the gold price – and being able to predict it accurately – is one of the oldest and most valuable secrets in the world.

For centuries, the ability to build a credit-based model was impossible because the data required to calculate global credit growth was a closely guarded secret. By aggregating this data, and keeping it secret, the world’s most powerful bankers (the Medicis, the Rothschilds, the Warburgs, the Morgans, etc.) could accurately predict future asset prices, such as real estate and commodities, currency exchange rates, and, most importantly, gold.

We’ve built our own global credit database that measures how much total dollar-based credit exists in the world and how much it’s growing (or shrinking) each month. Our database has two core parts: domestic credit and offshore credit.

Domestic credit is all the borrowing done by the U.S. government, U.S. households, and U.S. companies. It does not count borrowing between banks or financial firms – just the regular economy. This data comes from an organization called the Bank for International Settlements (“BIS”). You can also find this data on the Federal Reserve’s website under the code QUSCAMUSDA. As of Q3 2025, domestic credit stood at about $76 trillion. But there’s a key caveat to this data source: the BIS only releases this data after a six-month delay. (Mmmm….)

Offshore credit is dollar-denominated borrowing by people and companies outside the United States, like a Brazilian company taking a loan in dollars. Or a European government selling a bond priced in dollars. The BIS tracks these loans, too. As of Q3 2025, offshore dollar credit stood at about $14.2 trillion.