No “North Star” for a Global Economy Drifting in Unsustainable Debt

By Egon von Greyerz

Founder and Chairman

February 14, 2023

In this latest conversation with Elijah Johnson of Liberty & Finance, Matterhorn Asset Management principal, Matthew Piepenburg, ties together the evolving themes of debt, credit market distress, currency failures and gold pricing.

Looking first at the UST market, Piepenburg argues that Treasuries matter simply because debt matters, and debt, by every metric, has passed the Rubicon of sustainability. The obvious distortions (and recessionary signposts) within the Treasury market are made clear by the inverted yield curve and the recent declines in the USD’s relative strength as measured by the DXY.

Piepenburg maintains that the West’s sanctions against Russia in general, and the US/Fed’s strong USD policy of 2022 in particular, have backfired with staggering panache. The net result has been a clear and steady process of de-dollarization as nations turn away from the USD and the UST for a host of described reasons.

The problem in US debt markets is only compounded by the hard fact that similar weaknesses exist globally. From the EU to Japan, the BRICS to DC, there is no “North Star” nation or economy to pull markets through what is in fact a simultaneous and global debt crisis.

As debt levels and yields rise, the only solution is now a familiar one: Monetizing those debts (and “controlling” those yields/rates) with inflationary mouse-click money from a local central bank. For now, however, the Fed is tightening rather than easing, and Piepenburg explains the ironic (and dis-inflationary) consequences (and eventual pivot) of an increasingly cornered Fed.

QT or QE, Piepenburg argues that the net result is either depression or inflation, and likely both: Stagflation. Stock markets, like the Fed, offer no place to hide, as current credit and equity markets are no longer supported by repressed rates and the old tailwinds of low-rate-driven stock buy-backs and debt roll-over tricks on Wall Street.

Piepenburg then turns to Gold’s out-performance in past, present and future contexts and gives special attention to objectively bogus inflation metrics and employment data as well as the true cost of allegedly “wining a war on inflation” with creative math while simultaneously seeking negative real rates.

Piepenburg carefully discusses gold price movements, OTC price manipulations, investor mindsets and the cases made for a strong and weak USD in 2023. In the end, Piepenburg argues that gold’s direction is heading North for the simple reason that global currencies, including the USD, are trending South.