The First Quarter of the 21st Century in Review

In looking back to the dawn of this century, the first thing we can notice is our national myopia. We survived Y2k and the “dot com” bomb in 2000, so our leaders figured it would be smooth sailing from Year 1 on.

It didn’t work out that way, starting with a flock of black swans hitting the World Trade Center and Pentagon on September 11 that year. It’s impossible to predict such events, but it’s still astounding that the professional economists running the Congressional Budget Office (CBO) predicted in 2001 that we would enjoy budget surpluses as far as the eye can see, thus wiping out our entire national debt by the year 2011.

For some obscure reason, the Congressional Budget Office (CBO) issues 10-year projections of federal spending and revenues, when there is absolutely no factual or practical basis for forecasting growth or debts beyond a year or two. This vain exercise is like projecting your local weather a year from now.

The CBO’s actual January 2001 report shows how myopic economists can be. They merely projected the current trends into infinity, with no basis in fact. With that impossible mandate in mind, the CBO’s baseline projections showed a cumulative surplus of $5.6 trillion for the 2002–2011 decade.

Instead, the deficits in that 10-year period reached $6.1 trillion, a swing of $11.7 trillion. It would have been far easier to switch from a Plus sign to a Minus sign. They missed the bloated costs of Bush’s “War on Terror” after September 11, 2001, resulting in endless wars in Afghanistan and Iraq, then the real estate bubble, followed by bloated TARP bailouts to save big banks.  Here is a summary of CBO madness:

The first conclusion we can draw from this dismal forecast is that the CBO’s economists projected deficits to rise in an orderly lock-step manner, like they were drawing a straight line into the future with enough small variations that it didn’t look like a monkey hitting a calculator for 11% growth 10 times.

A second conclusion is that the 2003 Bush tax cuts were not the cause of deficits, as annual deficits fell from $413 billion in FY 2004 (starting October 1, 2003) to just $161 billion in FY 2007, so our annual deficit shrank by over 50% in the four years between the 2003 tax cuts and the 2007 real estate bubble.

All that is pretty much ancient history by now, but the endless wars, the Fed’s panicky reaction to 2008 (with zero interest rates for the following eight years – effectively, the entire 8-year Obama presidency), led to a massive deficit from the end of that crisis until today, especially in the five post-COVID years:

U.S. federal deficits averaged $1 billion a year since 2001, and $2+ trillion per year since 2020 (U.S. Treasury)

Now, we have $38 trillion in deficits, or $110,000 per American – not the expected surpluses of yore.

After a Dismal Start in 2000-09, Markets Soared in the First Quarter

How about the markets? After a virtual “lost decade” (nine years, actually) from March 2000 to March 2009, we’ve seen tremendous gains in all market indexes – and especially in gold vs. the U.S. Dollar.

By March 9, 2009, three of the four major indexes (the S&P 500, NASDAQ, and the Russell 2000) were down 50% from the start of the decade (the Dow was off by 40%), but they rallied from 2009 to 2025:

In the same 25 years, the Consumer Price Index (CPI) rose by 83%, so real market gains were lower.

The dollar fared worse – down 10% overall (and 8% to the euro), while gold and silver rose over 15-fold:

Not bad for first-quarter returns, but gold and silver are telling us that the dollar and the deficit projections by the CBO are not to be trusted, long term. In fact, President Trump has made it a goal in 2026 to devalue the dollar to the Chinese yuan to “help” exporters sell more products overseas. In fact, all the blustery talk of King Dollar is rhetoric. Most politicians want to lower their currency values in order to promote trade, making paper currencies a “race to the bottom,” while gold sits on the sidelines, laughing.

This brings us to the 2025 scorecard – a massive win for precious metals, as the dollar declined by 10%.

2025 Delivered a Major Precious Metals Bonanza

The last year, 2025, was an outsized example of the major trends of the previous 25 years – a rising stock market, but a more rapidly rising market for gold and silver. Even though inflation is receding, gold is not primarily an inflation hedge these days, but a crisis hedge, a dollar hedge and now a crypto hedge, too.

The U.S. Dollar Index (DXY) fell 10% in 2025, giving the world’s top currencies 5% to 15% gains, while the worst investments of 2025 were great news for consumers, representing lower food and energy costs:

So…if we see another 2025 in 2026, this new year will indeed be a happy one for most investors.