The Economic Future is Sad, Simple & Already Obvious

The foregoing title may seem a bit sensational, no?

With all the recent hype about a gold-backed BRICS currency emerging from this summer’s South African meet-and-greet vanishing like oar swirls, one can understand the argument that many gold bugs chase (and create) click-bait like teenage bloggers.

And the precious metals space is no stranger to being labeled perma “doom-and-gloomers” to keep the retail trade forever moving.

Fine. Understood. Yep. I get it. We are all “just selling our book.”

The Current Facts are Sensational Enough

But here’s the rub: One doesn’t need to be a doomer or a gloomer to interpret bond signals, basic math, historical lessons, current geopolitics, or openly obvious energy and precious metal flows with common sense.

If so, one sees the writing on the wall of nations going broke, currencies losing faith and sovereign bonds falling like rocks.

In short, one doesn’t need to sensationalize headlines or forecast doom when the current facts and numbers are more than sensational enough.

USTs: Crying Alone in the Corner

Foreigners hold about $18T worth of US assets, of which $7.5T are Uncle Sam’s increasingly embarrassing and unloved IOUs.

But those IOUs are looking a lot less attractive as an increasingly debt-soaked USA ($33T and counting of public debt) seeks to borrow an additional $1.9T (net) into the back-end of 2023 and issue another $5T of USTs into the next year, all of which has even Jamie Dimon pulling at his hair.

But who will buy those IOUs? Be honest.

And if foreigners start simultaneously dumping existing USTs into an already obvious US debt crisis, subsequent pain levels here and abroad, already felt, will only rise exponentially.

This is not fable but fact.

Even American banks, traditionally the biggest buyers of USTs, are now cutting back rather than ramping up their purchases…

And hedge funds, currently marginal buyers of USTs, could easily face liquidity scenarios where they will soon be massive sellers of these unloved IOUs.

Basic Math, Basic Liquidity

Meanwhile, as Powell’s higher-for-longer and (in my opinion) bogus war on inflation pushes the Dollar higher at the same time oil prices are inflating (shale production declining in the Permian, Russia cutting oil exports while US makes deals with Iran?), those foreigners currently holding that $7.5T worth of USTs will need liquidity to buy higher oil and pay-down increasingly more expensive (USD-denominated) debts.

This liquidity crisis mathematically means more dumping (rather than buying) of American sovereign bonds and hence more shark-fin rising yields (as bond prices fall), which, mathematically, will send debt costs fatally higher for companies, individuals, home owners and, yes, governments, already way over their skis in debt.

This is important, because, well… the bond market is important, a theme I’ve been hitting week after week, month after month, and year after year…

Gold Bulls Crying Wolf?

Again, some will still say that such basic math and blunt warnings from boring credit markets are little more than gold bulls crying wolf.

Unfortunately, history confirms that nations spiraling into a debt whirlpool always end with a currency crisis followed by a social crisis followed by increased centralization and less personal and financial freedoms.

Do such centralization trends feel familiar to anyone with their pulse on the current Zeitgeist?

So yeah, desperate bond markets matter, especially when measured in a world reserve currency which, like all currencies marked by unpayable debts, will be the final bubble to pop.

A Broken America Going Broke

The simple, empirical and now increasingly undeniable fact is this: America is writing checks its body can’t cash.

Even the US government is cracking/splitting under the pressure of its debt burdens, as anyone tracking the soap-opera with Kevin McCarthy can attest.

And whatever one thinks of Florida’s Eddie Munster Congressman, Matt Gaetz, it’s hard to disagree with his blunt declaration before a row of cameras outside the nation’s Capital– namely that America, already reeling under de-dollarization and debt woes, is now, as he puts it: “F—ing broke.”

Is he too just crying wolf, or should we consider the foregoing math? You know, basic facts…

No Good Scenarios Left

There are no good scenarios left for a country, currency and sovereign bond which has replaced productivity, balanced budgets, trade surpluses and national income with historically unprecedented debt, twin deficits and a central bank which has become the un-natural and de-facto (yet busted) portfolio manager over our shattered economy and totally centralized markets.

As I’ve been saying/asking for years during this slow and openly-ignored frog-boil toward credit implosion (nod to any lobby-bought politician near you), who will be the final buyer of our fatal debts in a world where no private sector entities have the balance sheets to do so?

The answer is sad, simple and already obvious: The Fed.

And where will the Fed find the money to pay for those increasingly more expensive debts (nod to Powell)?

The answer is sad, simple and already obvious: Out of thin air.

The Inflationary End-Game

Such inevitable monetization (i.e., QE + Yield Curve Controls) of historically unprecedented and drunkenly managed debt levels will, of course, be inherently inflationary despite intermediary disinflationary events (i.e., falling credit and equity markets).

All of this makes me repeat the ironic conclusion (shared by even the St. Louis Fed’s June white paper on Fiscal Dominance) that Powell’s so-called war on inflation (QT + rising rates) will end in historically inevitable inflation in the form of mouse-clicked trillions to “save” our system at the expense of our currency.

Already, the US Treasury Dept (See Josh Frost) is telegraphing its plan to make US bonds more “resilient” (i.e., liquid) via a not-so-clever plan to buy-back its own IOUs.

In other words, the Treasury Dept will be drinking its own (poisoned) Kool Aide with increasingly debased (yet relatively strong) USDs mouse-clicked out of, again…nowhere.

Does this seem like a good plan to any of you already feeling the daily decline of the inherent purchasing power of your greenback?

For Now, The Dumb Gains in Consensus

Yet despite such clear and common-sense signals from the simple math of debt gone wild, consensus still favors the long-duration UST as the relatively safest harbor in an admittedly broken global ocean.

Faith in the TLT today is almost as desperate as faith in Captain John Smith of the unsinkable Titanic.

But if math and history are not altogether ignored, cancelled or forgotten, a 15-point fall in the TLT and subsequent spike in already fatally high rates seems the most probable outcome.

Why?  Because there just aren’t enough natural buyers of Uncle Sam’s criminally negligent bar tab other than a magical (and inflationary) money printer.

That’s just how we see it.

Soft Landing? It’s Already Hard

Meanwhile the Pravda-like efforts by policy makers (and the infantry and artillery support from their vertically integrated media platforms) are still pushing the “soft-landing” narrative despite nearly every indicator (bankruptcies, layoffs, yield-curves, YoY M2 growth, Fitch downgrades, Conference Board of Leading Economic Indicators and Oliver Anthony cries) making it painfully obvious that we are ALREADY in a hard-landing.

(And weren’t these the same soft “experts” who told us inflation was “transitory”?)

Folks: Things are already hard, not soft.

August in America lost 4.1 million days of work due to strikes (think Ford, GM etc.) as the West tries to tell us in one headline after the next that China (with 7 of the world’s 10 largest shipping ports) is the real problem and hence the least investable.

Hmmm.

A Global Problem

If anything, China and the USA suffering together will eventually make 2008 seem like a decent year for capital markets and global economies…

The hard reality is this: All western sovereign bonds are in historically deep trouble at the same time that China is facing real estate and debt bubbles on top of geopolitical shifts and hence supply-chain disruptions which are neon-flashing tailwinds for even greater price inflation in all those American products made in, well: China…

For all of these reasons, we favor assets best positioned to play where the inflationary hockey puck (or polo ball) is heading, not just where it sits today.

China: Changing the Gold Price

One of these assets, of course, is physical gold.

Speaking of China, what it has been doing with this asset is nothing short of extraordinary and foretells a great deal of what we can expect in the months and years ahead in the West when it comes to debt, inflation, rates, currencies and gold.

Or to put it even more simply: China is repricing the gold trade.

Unbeknownst to most who get their market data (and interpretations) from the legacy financial media, China has been quietly evidencing a clear intent (as well as ability) to weaponize gold against a now weaponized USD.

In particular, China’s central bank recently lifted limits on gold imports, whose temporary imposition, according to the Western press, was a failed effort to defend its currency and to curb USD outflows.

But as with most things legacy press-related, the real story is about 180 degrees opposite…

That is, our Google-searching, 30-something “investigative journalists” ignored the fact that: A) gold in China is bought in Yuan not Dollars and B) and that gold premiums in China jumped back to 5%.

In short, it seems that China did not fail to defend their currency but just succeeded in showing the world that their domestic policies can impact gold pricing.

In fact, the import restrictions only caused the gold price to rise within China’s boarders by a spread of over $120 per ounce over London spot.

However, once the import limits ended, the price spread fell to $76/ounce.

Stated more simply, China just proved that it can control gold, and by extension inflation expectations, rates, and even the USD.

This is because there is a clear and obvious correlation between gold flows (West to East) and gold pricing.

In the past, those flows (from London) were greatest when gold was sinking in price. But now, and for the first time in decades, the flow East is happening even as gold is rising.

Why?

The Natural Flow from Worthless Paper to Precious (Monetary) Metals

It was my consistent belief that despite no official gold-backed BRICS currency or explicit arbitrage of gold for oil, gas or other real assets, a more natural and expected trade would be unfolding with nearly the same intent and result, all of which will spur further Chinese gold buying (and Dollar dumping) over time.

Net result? Western gold pricing will be chasing/rising to the levels of domestic Chinese gold.

As the Chairman of the Shanghai Gold Exchange, Xu Luode, said in 2014:

“Shanghai Gold will change the current gold market with its ‘consumed in the East but priced in the West’ arrangement. When China has the right to speak in the international gold market, the true price of gold will be revealed.”

Please read that last line again.

As we warned literally from day-1 of the suicidally myopic sanctionsagainst Russia, the net result would be tighter relations between Russia and China, two countries already openly tired of the USD being the tail that wags the global dog.

If you haven’t noticed, Russia is selling much-needed oil to an openly oil-thirsty China in CNY rather than USD.

As gold, priced in CNY, buys more energy in China than in the west, more of that monetary metal will flow toward Shanghai, whose power over the London pricing of gold is about to ratchet upwards.

This was so easy to foresee, but the Western media likes to hide such foreseeable facts. After all, one of their greatest sins is the sin of omission.

When weaponizing the world reserve currency against Russia, the US-lead West forgot to mention what Luke Gromen described as its “Achilles Heel”—namely, the unallocated gold markets based out of London.

Changing Battle Tactics

By changing the trench lines of the gold-for-energy battlefield, China and Russia are slowly, but predictably, weaponizing gold and energy commodities against a weaponized USD.

In the long run, my bet is on gold and I’m not alone.

Just ask all those central banks stacking the physical metal and dumping America’s paper debt at record levels.

Like an army amassing troops, cannons, horses and supply wagons at the boarder, these central bank gold movements are obvious signs of a coming battle for a new trading system with less focus on Uncle Sam’s debt-based trading model and debt-soaked currency.

Needless to say, this is bullish for gold, which unlike the US markets and economy, is the true “resilient” asset, holding its price power despite positive (though manipulated) real rates and spiking UST yields.

This may further explain why the downside volatility for long-duration USTs is now higher than the downside for physical gold, something not seen in almost half a century.

Just saying…

The Economic Future is Sad, Simple & Already Obvious

The health of the world economy is clearly linked to the health of global leaders. That clearly raises the question if unhealthy leaders create a diseased economy or if an ailing economy creates sick leaders. 

It doesn’t really matter what came first since the Western world economy is now as close to being terminally ill as it has ever been and its population is continuously getting unhealthier. 

And weak Western leaders focus on peripheral political issues, whether it is climate, ESG, Covid vaccines, gender and other woke topics. 

Nothing new in that. Arranging the deck chairs on a sinking world economy clearly seems meaningful to hapless leaders rather than preventing the ship from sinking. 

Gargantua in the picture above/below personifies, gluttony, greed and a self-indulgent world. But we don’t need to turn to a 500 year old story book by the French author Rabelais to study the vices of mankind. 

The health of a nation is clearly also reflected in the health of its leaders. 

Recent health leaders in the USA, Belgium, Canada and Britain certainly don’t give a signal of “mens sana in corpore sano” or “a healthy mind in a healthy body” as the Roman poet Juvenal wrote 2000 years ago.  

Or as the Greek philosopher Thales said 2600 years ago: “What man  is happy? He who has a healthy body, a resourceful mind and a docile nature.”

We must also ask if the poor health of the global financial system is linked to the choice of the chief of the Bank of International Settlement (BIS, the central bank of central banks). 

The latest BIS quarterly review refers to the opaque off balance sheet derivatives market. I am still of the opinion that total derivatives including the shadow market could easily be $2-3 quadrillion. $2 QUADRILLION DEBT PRECARIOUSLY RESTING ON $2 TRILLION GOLD

Well, it certainly seems like Gargantua was a role model for many of these leaders. But unhealthy living is not just the privilege of leaders. Only 10% of adult US population was obese 50 years ago and today 45% are obese. So the trend is clear and within the next 10 years, over 50% of the US population will be obese. And Western Europe will of course follow the US example as they always do. 

So why am I talking about obesity in a financial newsletter? Well because as I said above, it comes from self-indulgence and greed which is the current state of the Western world economy.

As I have discussed many times, we are coming to an end of a major economic and cultural cycle.

Only future historians will  know if this is a 100, 300 or 2000 year cycle. If I ventured a guess, I would have thought that it could be a very long cycle like 2000 years. 

There are many similarities with the ending of the Roman Empire like, debts, deficits, taxes, decadence, self-indulgence, wokeness etc. 

Empires don’t disappear overnight. It is a long outdrawn process. If we take a starting date for the beginning of the decline of the current Western Empire, dominated by the USA, it would probably be the creation of the FED in 1913. This private central bank was the great enabler for bankers and industrialists to control the system. As Mayer Amschel Rothschild said in the late 1700s: “Give me control of a nations’s  money and I care not who makes the laws.”

The mighty US economy emerged after WWI as a major economic power whilst the European continent was suffering from the effects of the war. In spite of superior economic performance, the US already started to accumulate  budget deficits in the early 1930s. And since then buying the people’s votes was the number one criterion rather than a balanced budget.

So far, in the last 110 years there have been less than 10 years with a real surplus in the US. As I often point out, the Clinton years produced fake surpluses since the debt continued to rise. But plus ça change – things never change. 

As long as there has been any form of money, governments have always found ways to destroy its value. 

There are many ways to debase a currency, like less gold or silver in a coin or using a cheaper metal. Paper money has obviously been the perfect tool for corrupt governments. This is “the Finger Snapping Method” as a Swedish central banker explained when asked how money is created. Just snap your fingers and the money arrives. Or as my colleague Matt Piepenburg calls it “Mouse Click Money”. 

EMPIRE OF DEBT AND MEDIOCRITY

Having driven through Corsica this summer, you realise that wherever you go in these parts of the world, you are in the midst of history, a history which was so much more glorious than the current Empire of Debt and mediocrity.

Corsica was ruled by the Republic of Genoa from 1284 to 1768 when it was ceded to France. Napoleon was from an Italian noble family and was born in Corsica in 1769 a year after the island became French. So by just one year, history could have looked very different with Napoleon as an Italian General and leader. 

Napoleon wasn’t the only famous Corsican, Christopher Columbus was born there 3 centuries earlier and became famous for having led the way to the colonisation of the Americas when he in 1492 sailed across the Atlantic believing that he would reach Asia. 

But sadly, those glorious periods of history are long gone. Today there are no heroes and few statesman or explorers who make history. 

Not a single one of today’s “glorious leaders” will be remembered by history, whether we talk about Biden, Sunak, Macron, Scholz, or Meloni.

Sadly the world has a motley crew of aspiring statesmen who will be forgotten the day after they have left office. 

But they will all have left a memorable legacy – a debt burden of $340 trillion plus derivatives and a shadow banking system of $2 quadrillion at least. 

And it is this debt and the irresponsible deficit spending that leaders should focus on if they intend to cure their economies. 

But sadly no one has the courage to rein in unlimited deficit spending. Because buying the favour and votes of the people is the only way to conclusively hang on to power. 

So what will happen next is self-evident:

MORE DEFICITS & RUN AWAY DEBT

As the graph below shows, US debt will at least be $40 trillion at the beginning of the next presidential period. I forecast this already 7 years ago when Trump was elected president. No genius required for this forecast just pure extrapolation of the trend. On average US debt has doubled every 8 years. 

But $40 trillion debt by 2025 is just the beginning. Just look at the next graph. 

With the same extrapolation of debt doubling every 8 years which has been very accurate, debt will be $100 trillion in 2036. 

As the interest rate cycle continues to rise, we will at a minimum see 10% by 2036. Personally I think it can be a lot higher. 

Still at 10% on $100 trillion debt, just the interest cost will be $10T against $1T currently. 

I would be surprised if the budget deficit in 2036 will be less than $10T!!

So there we have it, the road to perdition for the US seems very clear. 

Sure, it could be argued that this is all speculation.  Of course it is, but it is more than that since all it does is to extrapolate historical trends. So dismiss it at your peril. 

HIGHER INTEREST RATES AND INFLATION, COLLAPSING BOND MARKETS, 

Interest rates peaked in 1981 with the 10 year treasury at 16%. We saw the cycle bottom in 2020 at 0.5%. Rates are now going up for probably decades but with the normal violent volatility. 

Long term inflation has just started an uptrend. No one should be fooled by the temporary correction of the rising trend.  

HIGHER COMMODITY PRICES, ESPECIALLY OIL

As fracking returns now have peaked, the world has seen peak oil. Add to that the increased cost of producing energy as I have written about in previous articles and we will have the perfect energy storm. 

LOWER ASSET PRICES

The Everything Bubble will now turn to the Everything Collapse as I have outlined in previous articles. 

HIGHER GOLD PRICE

As gold buying continues to move from West to East with gold most probably becoming the new Reserve Asset for central banks instead of the dollar, there will be a total repricing of gold as I have covered in previous articles, such as A DISORDERLY RESET WITH GOLD REVALUED BY MULTIPLES. Gold demand will increase substantially. Since gold production cannot be increased, an increase in demand can only be satisfied with higher price, not more gold. 

IT IS NOT ABOUT BEING RIGHT BUT ALL ABOUT NOT BEING WRONG

As I often say, forecasting is a mug’s game. So it is easy for critical voices to reject my predictions above. 

However, no one should focus on if my predictions are inaccurate. 

Instead, everyone should consider the massive risk cloud that is hanging over the world currently. And I haven’t even discussed geopolitical risk. 

The key is to protect yourself, your family and your investors.

Wealth Preservation is absolutely critical and physical gold is historically one of the best investments for protecting your assets. 

Everyone is going to lose out in coming years. The ones who lose the least will be the winners. 

The Economic Future is Sad, Simple & Already Obvious

In many recent articles and interviews, I’ve warned that Powell’s “higher for longer” war against inflation will actually (and ironically) lead to, well… greater inflation.

That is, the rising interest expense (nod to Powell) on Uncle Sam’s fatally rising 33T bar tab will inevitably need to be paid with an inflationary mouse-clicker at the Eccles Building.

I’ve also consistently maintained that Powell’s war on inflation is mostly just optics, as he secretly seeks inflation to help pay down that bar tab with an increasingly inflated/debased USD.

Powell achieves this open lie by publicly declaring a steady decline in inflation by simply misreporting the true CPI number.

As John Williams recently argued, true inflation using an honest (rather than the openly bogus BLS) measure is now closer to 11.5% rather than the officially reported headline rate of 3.7%.

This should come as very little surprise to those whose eyes are open to the Modis Operandi of debt-soaked/failed regimes. As former European Commission President, Jean-Claude Juncker confessed: “When the data is too bad, we just lie.”

But even for those who still believe the current Truman Show inflation (and “soft landing”) narrative out of DC, the Bezos Post or legacy media A, B, or C, there’s more fire adding to the inflationary flames than just bogus narratives and calming platitudes.

In particular, I’m talking about oil-driven inflation, and nothing burns faster.

Scary Flames in the Oil Supply

Left or right, the dumb out of DC just keeps getting dumber.

Between rising rates (nod to Powell), which make capex investing untenable for US oil producers, and a Weekend at Bernie’s White House, which has spent years effectively legislating US oil into oblivion, US energy supply is falling, and we all know that weakening supply leads to higher prices—and inflation.

Meanwhile, Saudi Arabia, whom that same White House called a “pariah state,” has not been warming to Biden’s awkward fist-pumps and increased production pleas, but rather joining other OPEC leaders in cutting, rather than expanding, oil production.

Gee, what a geopolitical shocker…

Net result, both national and global oil inventories are falling, and falling hard.

The Awkward Oil Two-Step

The once “go green” White House realized that the world, and inflation scales, still revolves around oil, especially after sanctioning Western Europe’s former energy supplier in one of the most short-sighted (i.e., stupid) policy decisions since the Iraq war.

This may explain why Biden changed his stripes and why there was a sudden pivot toward allowing greater US shale output in 2023 by pumping more cash into those shale fields at a pace not seen in 3 years.

Unfortunately, however, this may be too little too late (like Powell’s QT) to prevent oil price shocks and higher inflation into year end, thus adding insult to an already injured (and rising) US CPI measure of inflation.

As oil supply tightens, oil prices, and hence inflation rates, rise together with bond yields and interest rates—a perfect storm for over-inflated bond, stock, and real estate markets.

Those prices and inflation rates would be even worse if Chinese oil demand rises—which is why current Western headlines are literally praying for China to implode first. This might explain why The Economist has had two consecutive cover stories about an imploding China.

See how big media and big government sleep together?

Tying it Together

Regardless, we need to tie all this together.

If, as I see it, inflation (however misreported) becomes obviously more real and felt, the consequent rising bond yields will make the USD stronger and Uncle Sam’s bar tab more expensive, which hardy bodes well for America’s twin deficit black-hole of unpayable debt unless…

…Unless the Fed starts printing more fake and inflationary money to buy its own IOUs and weaken its export-killing, and BRICS-ignoring, USD.

Again, no matter how I turn the macros, the Fed will eventually have no choice but to pivot toward more instant liquidity and hence more inflationary policies to save/monetize its broke(n) bond markets.

Once this inevitability becomes a headline, the temporarily rising USD will be seen for what most of the informed world already recognizes—just another fiat monster backing a world reserve currency in the hands of a nation whose debt to GDP and deficit to GDP ratios mirror that of any other banana republic.

Reality is Hard to Look at Directly, But not for the BRICS

Many in the US or EU may not wish to see this. Bad news, like death and the sun, is hard to stare into.

But the BRICS nations, no strangers themselves to embarrassing balance sheets, are seeing this clearly.

Although I never bought into the gold-backed BRICS currency hype, I have zero doubt that this amalgam of commodity-heavy nations has a common enemy in the current US-dominated (and USD-driven) international trade system, whose hegemonic days are now numbered and whose alliances, as we warned from day-1 of the Putin sanctions (economic suicide), are forever de-dollarizing away from DC.

Moreover, the BRICS don’t need an “official” gold backed currency to trade their real assets in gold rather than Dollars. All they have to do, as Marcus Krall and I recently discussed, is request payment for their exports in gold.

The BRICS+ nations are hardly the perfect marriage of unlimited trust and efficient coordination. Nevertheless, they share an existential threat from an over-priced USD and negative-returning UST.

Furthermore, and as I recently noted at the Rule Symposium, they may not trust each other completely, but they do trust gold completely.

System Change is Now a Matter of Survival

Never has the phrase the “enemy of my enemy is my friend” found a better home than among the rising list of BRICS+ actors who recognize that their very survival hinges upon escaping the suffocating death of paying > $14T of USD-dominated debts whose rising costs (rates) they can no longer afford lest they become vassals of DC.

As Luke Gromen recently observed, from the perspective of the BRICS nations, it’s “either hang together or hang separately.”

A Changing Petrodollar?

China, for example, can not abide forever by a petrodollar system of oil purchases. As the world’s largest oil importer, it mathematically recognizes that it will eventually run out of dollars to buy that oil.

In short, China needs to come up with a better plan—outside the Greenback.

And they will.

By the way, have you noticed the next BRIC in the wall? It’s Saudi Arabia.

See a trend? See a looming change in oil currencies?

Just saying…

As I warned months ago, this Saudi trend away from DC and closer to Shanghai could eventually be a key driver in slowly unwinding the current petrodollar system between a once “friendly” US-Saudi relationship toward a now weakening relationship which hitherto ensured the global demand (and hence the survival) of an otherwise debased paper Dollar.

If the petrodollar system radically or even slowly unwinds, this will do far more to destroy demand and the inherent purchasing power of the USD (and send gold skyrocketing) than any gold-backed BRICS trade currency.

And yet with all the recent sensationalism preceding the BRICS summit in South Africa, almost no one saw this—at least not in the legacy media.

Imagine that…

Other Tricks Up the BRICS Sleeve: More USD Assets than Liabilities

Aside from knee-capping the USD via a shift (gradual or sudden) in the petrodollar trade, it’s worth noting that but for South Africa, the remaining BRICS nations have more USD assets than liabilities, which means they can start dumping USTs to the detriment of Uncle Sam in order to raise USDs.

Many idealogues and US-thinktankers still think the US has all the power over these silly little BRICS nations who allegedly suffer from a dollar shortage.

The chest-puffers still see the USD as all-powerful and all-controlling, after all, just ask Iraq or Libya…

But the dollar-forever crowd is missing the forest for the trees or the basic math of fantasy debt.

If you haven’t noticed, the US just added an extra $1.9 trillion of insane borrowing to the back end of 2023.

And they did this as rates are rising and with the Fed still in full QT/suicide mode.

This mathematically places downward price pressure on bonds and hence upward cost pressure on yields, a scenario America simply can’t play out for much longer at $95T+ in combined public, household and corporate debt.

If the BRICS nations chose to add a layer of US asset dumping to this toxic mix, the ramifications for Uncle Sam would be even more staggering/painful for a debt-based system already on the cliff’s edge.

This is Bad, Really Bad

To repeat: The macros, no matter how I turn them, have never been this bad, this vulnerable and this foreseeable.

The US is now trapped in a vicious circle of debt for which there is no way out other than a currency-destroying return to more artificial, QE “stimulus” and the mother of all inflationary waves.

The horizon is now clear: Yields are up, twin deficits are up, inflation, even the mis-reported kind, is up, and yes, GDP is up too, but as I recently wrote, debt-driven GDP growth is not growth, but just debt.

Unless DC cuts spending at record levels (which kills election results for political opportunists and thus won’t happen), the only tool Washington DC has is more fake money and more real inflation, which means the Dollar in your wallet, checking account or portfolio is about to insult you.

The Economic Future is Sad, Simple & Already Obvious

Have you heard the good news?

The Atlanta Fed GDPNow estimates a 5.9% growth in real GDP for Q3 2023. In nominal terms, we can even boast of an 8.9% surge.

What fantastic news! Growth! Productivity!

This must mean we can all breath a collective sigh of relief as Powell continues his valiant war against inflation as GDP rises, right?

I can almost hear the champagne bottles popping from the Eccles Building to the Bezos-owned Washington Post.

The financial wizards have saved us once again, right?

Wrong.

Oh, so, so, so, so WRONG.

Why?

Debt-Driven Growth is Not Growth, but a Slow Death Trap

As usual, the answer lies in math, history and, of course, THE BOND MARKET.

For years and years, I have tried to make one point (and indicator) almost reflexively clear, namely: The Bond Market Is the Thing.

This is because the bond market reflects debt forces, the most cancerous of all market killers once they metastasize from the acceptable to the fantastical, and the cheap to the unaffordable.

Today, we stare upon the greatest national and global debt bubble in history.

And the cost of that debt is getting higher, not lower.

This should be the key theme of every conversation, but instead, our citizens are arguing over gender neutral bathrooms and exciting politicos (opportunists) scurrying for power like donkeys fighting for hay.

Far better, in my opinion, if the people understood boring things like sovereign bonds…

In particular, they just need to consider and understand yields on Uncle Sam’s IOU (with particular emphasis on his 10-Year UST), which tells us the market’s measurement of the cost of debt.

And given that debt is the sole (rotten) wind beneath the wings of the post-08 American dream, when those yields rise like approaching shark fins, we all need to pause and think deeply, realistically and, hence differently from the consensus pablum which currently passes for financial reporting.

The Open Secret Hiding in Plain Sight (Ignored Shark Fins…)

As Luke Gromen has been warning for quite some time, and as my partner, Egon von Greyerz, has been arguing/expecting for even longer, we are now seeing rising yields on the 10Y UST while inflation rates (intentionally misreported) continue to fall—temporarily.

Folks, this is worth understanding. It’s not hard to do. But it’s critical.

That is, we need to understand how scary it is to see GDP rising alongside 10Y Treasury yields.

So, let’s dig in.

Debt-Based Growth is the Oxymoron of, Well…Morons

GDP is rising because government deficit spending (on everything from yet another preventable yet losing war in the Ukraine to stimmy checks for migrants [“asylum seekers”?] pouring through Texas) is rising well beyond sustainable levels.

Near-term, spending always leads to growth. But when that spending is done on a maxed-out national credit card, the short-term growth (i.e., GDPNow forecasts above) come at a comical, yet serious price.

Stated otherwise, spending, even deficit spending, has quick benefits; the debt consequences, and economic pains, however, take longer to show their economic (moronic) effects.

But when they do, the sickening results are as mathematical as they are historical.

A Tale of the Drunk & Stupid

If one, for example, were to hand a college frat boy his rich uncle’s credit card and permit him unlimited credit, that frat boy would undoubtedly throw the kind of seductive campus parties which would ensure his popularity along side many, many weekends of extravagant bacchanalia and a campus filled with smiling, drunk undergrads.

Soon, the frat house would construct its own elaborate bar, with weekly transports of unlimited beer kegs, a billiards room adorned with flat-screen TVs and 24-hour ESPN.

Others, even from universities miles way, would embark upon a joyous pilgrimage, crowding their Friday-night gatherings with shouts of awe and cries for more vodka shots.

The fun would seemingly never end.

Until, that is, the credit card bill came and the rich Uncle was tapped out.

At that point, the frat house’s growth story devolves into a comical escapade of the drunk and the stupid, which effectively describes the profiles and policies of our so-called financial elite.

The DC Frat House

When GDP spikes on the tailwind of deficit spending, the Fed starts to suffer from the beer-goggle effect of blindness to reality.

It then feels even more pressure (or drunken confidence) to raise short-term interest rates, which also sends the USD higher in the near-term but just about everything else (i.e., stocks, bonds, real estate and tax receipts) lower.

This means the risk of a market implosion in a setting of rising GDP increases exponentially, which is precisely what we saw near the end of 2018 when Powell tried to tighten the Fed’s balance sheet and raise rates at the same time.

Net result?

Markets tanked by Christmas, and as the new year rolled in, the Fed was bailing out the repo markets to the tune of hundreds of billions/week and printing inflationary money quicker than Nolan Ryan’s fastball.

Ignored Patterns, Ignorant Polices

But this otherwise ignored pattern, like a fast-ball, is pretty easy to track. The more the Fed hikes rates, the fatter and more expensive are Uncle Sam’s deficits as GDP rises on drunken (deficit) spending.

This leads to a mathematical case of “fiscal dominance,” which even the St. Louis Fed confessed in June (and of which I recently explained here)—namely, the ironic scenario in which the war on inflation (fought with rising rates) actually causes more inflation.

Why?

Because rising rates don’t just stimulate a GDP frat party (as per above), but they make America’s debt costs (interest expenses) skyrocket into the trillion/year category, which can then only be paid by a Fed mouse-clicker, which is the inevitable inflationary consequence of Powell’s deflationary “higher-for-longer” policy.

Stated otherwise, Powell, like Robert E. Lee, Napoleon, Paulus, Westmorland and Zelensky, is fighting a losing war.

Or for you film buffs who recall Maverick “writing checks [his] body can’t cash,” America is issuing IOUs its Treasury Dept. can’t pay—unless, of course, it prints a lot more fake/fiat money.

And those IOUs (i.e., USTs) are rising at a sickening rate, which means bond prices (which move inversely to supply) will fall and yields (which move inversely to price) will rise.

Read that last sentence again. It’s our bond market (and nightmare) in a nutshell.

And when yields on US 10Y USTs rise, the interest expense on Uncle Sam’s $33T bar tab becomes a bayonet wound to the economy and the market.

Horribly, Horrible Bad News

Thus, when we see GPD growth rising at the same time UST supplies (and hence yields) are climbing at a rate not seen in 55 years, this is not good news—it’s horribly, horribly bad news.

Not only are rates rising along side GDP, but our deficits are growing even deeper and hence this vicious circle of debt just gets deadlier and darker.

And this means the need to cover those deficits by printing trillions out of thin air becomes clearer and clearer, which means inflation is no longer a debate, but as fatally foreseeable as Pickett’s failed charge at Gettysburg.

We Need a Bigger Boat

In the coming months, or early into 2024, Egon and I foresee rising US sovereign bond yields and rising rates which will be near-term deflationary for risk assets and disturbing for Main Street economies no longer able to re-finance their way out of a national debt trap.

At some point thereafter, the cost of those debts will demand a monetary response (money printing to the moon) which will be, by definition, inflationary for regular Joes and no help to mean-reverting markets.

In short: We not only see inflation ahead, but stagflation to boot.

In such a setting, the USD, like the stern of the Titanic, will go from rising, and then temporarily pausing, to sinking fast to the bottom.

Again, the bond market is the thing.

Those yields matter. They are the approaching shark fins racing toward our shores which no one wishes to see.

Instead, we get to watch another billionaire running for office bare his naked chest (and hidden will to power) for the camera…

But as warned already, these shark fins matter, and we are most certainly gonna need a bigger boat…

The Economic Future is Sad, Simple & Already Obvious

Matterhorn Asset Management partner, Matthew Piepenburg, sits down with Rick Rule and Jim Rickards at the recent Rick Rule Precious Metals Symposium to discuss the future of the USD, the rising BRICS tide and the Realpolitik of any realistic (i.e., immediate) gold-backed BRICS trade currency.

Each of the trio share their views on the de-dollarization trend, with Piepenburg and Rule taking a far less optimistic view of any immediate gold-backed trading currency emerging among the BRICS nations in 2023.

Toward this end, Piepenburg argues that not even BRICS nations are ready to limit themselves or their financial powers to a gold-backed trading currency; and certainly not to a gold-backed sovereign currency. That said, all agree that the weaponized USD is losing trust and that the UST is losing demand as a post-sanction world moves further and further away from Dollar-based trade agreements.

For Piepenburg, the end-game is clear. Debt drives policy and debt drives current market directions. This debt will not and cannot be sustained by GDP growth or tax revenues, which means ultimately money printers will continue to de-value that world reserve currency, and hence devalue the once hegemonic respect for the US holder of that currency. All agree that gold’s role in protecting investors from this increasingly beleaguered, self-destructive, debased and less popular US currency is becoming increasingly clear.

The Economic Future is Sad, Simple & Already Obvious

In this extensive presentation by Matterhorn Asset Management partner, Matthew Piepenburg, we separate the iconic America from the current and debt-soaked America to better prepare investors with facts and figures rather than platitudes and nostalgia.

Piepenburg opens with a sober look at US debt to GDP and Debt to Tax Receipts data to underscore the increasingly unsustainable profile of US debt levels and the increasingly ineffective solution of paying for that debt with “mouse-click” money.

Piepenburg addresses the four turning points which placed America in this openly absurd situation. He then turns toward current, yet failed, policies to save a central bank and US system now trapped between a rock and a hard place…

Debt levels monetized with fiat money are naturally inflationary. But now Powell is “fighting” this inflation with rising rates—which are dis-inflationary. Piepenburg explains how such temporary measures are ultimately inflationary, despite desperate attempts in DC to claim a slow victory over inflation. In the meantime, Piepenburg gives example after example of the hard rather than soft consequences of Powell’s “war on inflation,” which he compares to Napoleon’s march on Moscow—that is: You win a battle but lose the war.

In the end, and despite dis-inflationary (and even deflationary market corrections), the end-game for an America with increasingly unloved bonds and increasingly distrusted dollars is more central bank liquidity—which by definition is inflationary. Of course, gold is then discussed as history’s most obvious answer to this equally historical debt and currency trap.

The Economic Future is Sad, Simple & Already Obvious

This 25 minute video with Matthew Piepenburg and myself is probably one of the most important discussions that we have had.

For years we have both warned investors about the consequences of a system based on unlimited money printing, debt creation and money debasement.

The world economy and the financial system is now on the cusp of a precipice. 

No one can forecast when the coming violent turn will come. 

It can take years or it can happen tomorrow. 

Future historians will tell us when it happened.

In the meantime investors have one duty to themselves and their dependents which is to protect their wealth from total destruction. 

Money printing and debt creation have taken markets to dizzy and unsustainable levels. 

Since Nixon closed the gold window in 1971, both global and US debt is up over 80X!

And asset markets have been inflated by this fake money with the Nasdaq up 120X and the S&P up 44X since 1971. 

But the bubbles are not just in stocks but also in bonds,  property, art, other collectibles etc, etc.

In our view, the time to pay the Piper is here and now. The consequences will be costly, even very costly for the investors who ignore this major risk. 

Just as bubble assets can go up exponentially they can implode even faster. 

RISK OF MARKETS FALLING 50-90%

Sustained corrections of 50% to 90% in stocks and bonds are very possible and when the bubble bursts it will go so fast that there won’t be time to get out or to buy insurance. 

Whether the Everything Bubble turns to theEverything Collapse today or tomorrow, the time to protect your assets is before it happens which means NOW. 

Forecasting the gold price is a Mug’s game . But understanding the significance of gold for protecting against unprecedented risk is not. We had the Ides of March in mid March this year when 4 US banks, led by Silicon Valley Bank and Credit Suisse, Switzerland’s second biggest bank all went under in a matter of days. 

That was a rehearsal. Bad debts and rising interest rates are a timebomb for the banking system. So is the $2-3 quadrillion derivatives risk. This gargantuan risks are before us  now and could materialise at any time starting this autumn. 

The risk ofA Catastrophic Debt Implosion is just too big to ignore. 

In our video discussion below Matt and I discuss these risks and most importantly, the best way to protect or insure against this risk. 

Owning physical gold outside the banking system is by far the superior method to preserve wealth.  

But it is not just about buying physical gold but how you own it, where you store it, in what jurisdictions etc.

This is an area which MAM/GoldSwitzerland has focused on for a quarter of a century and has developed a superior system for HNWIs. 

Please watch this important discussion. 

Egon von Greyerz

The Economic Future is Sad, Simple & Already Obvious

In this brief yet engaging conversation at the recent Rick Rule Symposium in Florida with Charlotte McLeod of Investing News Network, Matterhorn Asset Management partner, Matthew Piepenburg, calmly separates harsh realities from BRICS hype with regard to the de-dollarization themes of 2023.

After a brief discussion on Piepenburg’s path to precious metals and role at Matterhorn, the conversation turns to Piepenburg’s understanding (and prioritization) of risk management and wealth preservation. Piepenburg sees the lack of such risk thinking as a central concern and open threat to personal wealth in a current backdrop of artificially elevated markets and herd-buying/chasing of unsustainable market tops. 

Equally ignored is the hidden risk of currency debasement slow-dripping in real time as debt levels cross the Rubicon of sustainability. Piepenburg argues that “soft-landing” narratives of late are far too soon to call, and that evidence of current and pending “harder landings” are all around us.

Piepenburg keeps it simple. If we assume the US will not allow sovereign bonds to fail or deficits to contract, we can easily foresee more synthetic liquidity, and hence inflation, as the longer-term endgame.

Piepenburg also addresses the “horrifying” profile and slow rollout of CBDC in the years ahead.

As to the BRICS narrative and the rising headlines around a gold-backed trading currency emerging from the August BRICS conference, Piepenburg is far less sensational. Despite his open concerns for the USD and the clear evidence of post-sanction de-dollarization trends, he is not holding his breath for any immediate and gold-backed trading currency to de-throne the USD. Instead, Piepenburg foresees rising inflation forces, continued currency debasement and increasing evidence of centralized controls over our personal and financial lives—all of which make a strong case for owning physical gold outside of the global commercial banking system. 

The Economic Future is Sad, Simple & Already Obvious

In this extensive discussion with the Jay Martin Show, Matterhorn Asset Management’s founding partner, Egon von Greyerz, addresses the catastrophic consequences of the current (and historical) debt cycle. History confirms that such debt bubbles inevitably collapse under their own weight, leading to potential hyperinflation and an implosion of assets. While von Greyerz cannot predict the exact timing of these events (no one can), it is essential that investors inform and prepare themselves for the obvious. 

• 00:00:00 The Fall of Empires? Jay opens by asking von Greyerz his thoughts on the potential fall of the US Empire and the overlooked risks within Europe. Egon addresses the conditions typical to the end of an economic cycle and warns that the ramifications of such an unprecedented debt cycle could be catastrophic for the world.
• 00:05:00 Debt & Currency Risk. Egon ties currency risks to the debt cycle discussion. He emphasizes that debt is the overwhelming and undeniable danger to the global economy. Despite efforts by governments and central banks to manipulate credit markets and postpone pain, Egon sees no avoiding a global currency crisis. He describes an exponential phase where inflation gradually increases before suddenly skyrocketing, leading to potential hyperinflation. Ultimately, he foresees an implosion of assets in which bond values will be detrimental to the global economy. Rather than predicting exact dates, von Greyerz focuses on protecting himself and others from these risks.
• 00:10:00 Warning Signs. The conversation turns to the warning signs of the looming debt crisis, including the recent banking failures, rising credit defaults and bankruptcies. Egon also points out that inflation may be higher than officially reported, causing increased costs for everyday items. While the signs are not yet causing panic in the market, Egon argues that the continuous stream of money creation has artificially propped up the markets beyond their natural expiration dates. As a result, debt levels have skyrocketed to higher levels, which means the consequences will be greater when they implode.
• 00:15:00 Debt is Global. Von Greyerz reminds that previous debt bubbles were limited to individual countries or continents, but now every country around the world is facing a debt crisis. Global debt, officially reported at $325 trillion, is in fact much larger when factoring in the grotesque expansion of the derivatives and the shadow banking system. 
• 00:20:00 What Matters Most. The conversation turns to “safe haven” locales whereby some have the luxury and ability to live in different countries. Most people, of course, don’t have such options. For Egon, the truest safety rests with a strong support system of family and friends rather than material possessions. He suggests that changing our values and focusing on things like nature, books, and music can bring fulfillment and happiness. He also mentions the need for a shift in societal values, as the world is currently focused on materialism.
• 00:25:00 Ignored Realities. The conversation turns to more cracks in the global economy, including nations losing sight of their founding ideals and freedoms at the same time that migration problems and realities are not being realistically addressed. China, in particular, will suffer from its debt situation and speculative bubble; but it is a closed economy and perhaps easier to control, despite immense suffering within its borders. The conversation then pivots to the Ukrainian War, where Egon believes it is not a war between Ukraine and Russia, but rather a classic proxy conflict between the United States and Russia. He points out that the Ukrainian people and the Russian people do not want war; it is the leaders who are pushing for it. Peacekeeping efforts are not being prioritized, worsening the situation. Both speakers conclude that the war is detrimental to the world and Ukraine, and that a resolution is urgently needed.
• 00:40:00 War & Energy. In this section, von Greyerz addresses the relationship between the US and Europe, particularly in terms of sanctions against Russia. Von Greyerz argues that Europe is weak and simply follows the instructions of the US, while the rest of the world does not participate in these sanctions. The US has successfully separated Germany from Russia in terms of energy dependence, but this has caused unnecessary suffering for Germany. Toward this end, von Greyerz addresses the global energy crisis, marked by rising energy costs. As a result, the world will have less and more expensive energy in the foreseeable future, as renewable energy cannot fully compensate for the decline in fossil fuels. Von Greyerz reminds that there is currently no viable alternative to fossil fuels in the short term, as renewable energy sources like wind and solar are still decades away from replacing them. 
• 00:50:00  Gold Stacking Banks. Egon then explains the trend of central banks stockpiling physical gold. He argues that there is no gold rush yet, but the inflows are gradual and steady. He predicts that the real gold rush is still to come, as the world faces the biggest financial and currency collapse in history. The shift from the West to the East, particularly with the rise of the BRICS countries and the Shanghai Cooperation Organization, will have a major effect on the gold price.
• 00:55:00 The Dying Dollar. Egon closes by highlighting the devaluation of the Dollar and other Western currencies due to excessive printing, prompting a mass move away from the world reserve currency. Von Greyerz suggests that gold will be the most natural replacement for central bank reserves, emphasizing the need for a significant revaluation of gold to accommodate future demand. He believes that those who fail to recognize this shift will be left behind and face costly consequences. Von Greyerz emphasizes the need for individuals to start considering and understanding risk rather than focusing on monetary gains, as he anticipates a major perception shift in the world.

The Economic Future is Sad, Simple & Already Obvious

Before I got the invite to a swank prep-school out East, I used to spend my Spring afternoons on a baseball diamond not too far from the home field of Derek Jeter, who was still playing local ball in Kalamazoo while I was harboring high-school fantasies of playing for the Detroit Tigers.

Glory Days, Simple Lessons

Those were dreamy days of young fantasy. Alas, the Tigers never called, so I hit the books rather than the minor leagues and never looked back.

But like all old men with “glory days” memories, sports taught me a lot of metaphorical lessons.

Like having a team ringer who could hit or pitch years ahead of his time (or for you football/soccer folks, a deadly striker).

Even before the first inning was over, we all knew the harsh pleasure or pain of either: 1) having a “ringer” on our team, or 2) facing one on the other team.

In short, if one team had the most obvious “heat” (or unstoppable striker), it was the team that was going to win.

It was simply the Realpolitik of sports.

Thus, if we were playing against a Derek Jeter (or a Lionel Messi), we all silently knew the game’s outcome before we bravely trotted onto the infield.

Or to put it even more realistically, if my high school baseball team ever had to play the NY Yankees, there was not a snowball’s chance in H.E. double toothpicks that we were going to win that game.

This is fairly easy to grasp. Even our coach (McKenzie) would/could admit such hard truths.

The Debt Endgame is Obvious

Oddly, however, when it comes to US debt levels, and hence the end-game for US credit markets, rates, currencies and Fed policy, almost no one wants to see or admit the obvious.

That is, if we were to compare the Fed’s war against inflation to a baseball game, Powell’s odds are about as good as my Michigan high school team (The Lakeshore Lancers) beating the NY Yankees.

And here’s a few (and otherwise obvious) reasons why.

The Ignored Downgrade

Fitch just downgraded Uncle Sam’s IOUs from AAA to AA+.

For now, it seems no one cares. That is, most still think the Lancers can beat the Yankees.

Why?

Because the NY Times, the Wall Street Journal, Bloomberg and the Financial Times are all doing a wonderful, timely and concerted job of telling average Americans not too worry, as recession and inflation fears are now largely behind us.

Alas, has Powell beaten the Yankees?

Hmmm.

A Lying Chorus

Whenever I see a discredited cabal of media sell-outs all telling me at once not to worry, I start, to well…worry.

After all, when an FBI can have Facebook remove posts about vaccine facts or CNBC starts ignoring alternative views on a neocon war in the East, I tend to get skeptical of the “official version” of just about anything and everything.

What these esteemed financial media “experts” are failing to tell you is that the recent (and ignored) Fitch downgrade was premised upon the fact the America’s debt to GDP ratio (125%) is just too high.

In fact, it suggests that Johnson & Johnson or Microsoft have less a chance for defaulting on their debts than the United States.

What our media guides are also failing to mention is that the Fitch downgrade of 2023 was preceded by a similar S&P Rating downgrade in August of 2011.

Two Downgrades, Different Signals

What’s different about the August downgrade of 2023, however, is that Uncle Sam’s debt levels are much higher (scarier) than in 2011.

In fact, bond demand (as measured by the TLT) actually rose by 25-30% after the 2011 downgrade!

Really?

See for yourself:

This was because folks still believed the US of A and its IOUs were simply too big to fail and that such “risk-free” Treasury bonds were a safe-haven in any storm.

By 2014, however, the rest of the world was singing a different tune.

When adjusted for inflation, then as now, those so called “risk-free-returns” were nothing more than “return-free-risk,” which is why foreigners have been net-sellers of Uncle Sam’s IOUs ever since…

And what is even more interesting about the downgrade of 2023 is the fact that more Americans are finally catching on to this.

That is, and unlike the 2011 response to the S&P downgrade, the 2023 downgrade led to a dumping rather than buying of those very same (and increasingly downgraded) IOUs.

Again, see for yourself:

Main Street Finally Catching On?

What these charts are saying is that Americans are slowly starting to see the end-game of our debt-strapped American baseball team.

For decades, our dads and grand-dads have taught us to seek bonds as protection in dangerous times.

That is why US retail investors and US banks have either been suckered (on Main Street) or forced (at the bank level) to buy Uncle Sam’s promissory notes for decades with blind faith in DC’s ability to, well, beat the NY Yankees…

In 2023, however, more folks are distrusting what is an essence a negative-returning 10Y UST (i.e., what the fancy lads call “negative term premiums”), which means US bonds aint our dad’s (or grand-dad’s) “safe-haven” anymore.

Powell Running Out of Good Pitches

This, of course, poses a real problem for Powell’s baseball game against inflation, for Powell has no good fastballs left, just a weak curve ball (Fed’s balance sheet) and a crappy slider (rate manipulations).

That is, whenever the bond market runs out of liquidity (as he saw in the repo crisis of 2019, the UST crash of 2020 or the recent bank failures of 2023), Powel only has two choices/pitches to work with, namely:

1. Do nothing (and watch bonds tank, rates spike, deflation rip, economies crumble and markets frog boil toward implosion), or
2. Reach for that magical mouse-clicker at the Eccles Building and print more fiat money (and hence monetize Uncle Sam’s debt with inflationary bravado).

Powell’s Endgame vs. Powell’s Fantasy

For me, the end-game is clear.

In fact, I see it as clearly as if my Lake Shore Lancers were forced to play 9 innings against Jeeter’s Yankees, namely: “We’re gonna lose this game.”

For now, we are only in the first innings of this painful and embarrassing contest.

Powell, having broken the middle class, a number or regional banks and the normal shape of a robust yield curve, is already declaring victory over inflation and recession (along with a chorus of “yes-sayers” from the WSJ to the FT) and continuing his higher-for-longer fantasy of rising rates into the greatest debt bubble of world history.

How’s that for fantasy?

Maybe I should I try out for the Yankees myself?

Ignoring the Ringer (and the Math)

But what Powell (and the consensus-driven markets) aren’t seeing is the ringer on the other team—namely the fast-ball reality of simple math.

That is, as Powell raises rates, the cost of Uncle Sam’s debt has now crossed the Rubicon of payable.

Ironically (and sports are full of ironies), Powell’s war against inflation is in fact going to end up being inflationary, as the only way to inevitably and eventually pay the interest expense alone on Uncle Sam’s $33T deficit is via a money-printer.

And that, folks, is inflationary (what the fancy lads call “fiscal dominance”), which is bad for long-dated IOUs but good for gold.

Thus, and regardless of current headlines, bullish fantasy and media-ignored credit downgrades, I see yields on sovereign 10-years going higher for longer, which is not a view shared by consensus or those who even feel that a great high school team can beat the Yankees.

The Hopeful Crowd

Of course, there are those who may feel and hope that Powell and his squad of weak-armed experts can get US debt to GDP levels from 125% to 80% (which is the only ratio where normalized rate hikes work) by cutting spending costs.

Hmmm.

In that case, Powell and his equally weak teammate at the US Treasury Department (Yellen) or perhaps even Joe Biden, with his 20 MPH mental fast-ball at the White House, can sit down and decide where the USA is willing to tighten its belt.

Will it be by cutting entitlement spending?

Good luck staying in office with that game plan…

Will it be via military cuts?

Those who truly run DC from the Pentagon are not likely to agree…

Or perhaps there are still those deluded fans in those high-school bleachers who think Powell can grow his way out of a 125% debt to GDP ratio?

Hmmm.

Well, mathematically (just saying), such a gameplan would require 6 consecutive years of 20+% GDP growth, something which can (and will) NEVER happen in a high-rate baseball field.

The Angry Crowd

Thus, the only way to “grow,” and the only way to save Uncle Sam’s unloved bond market, is via liquidity, and that liquidity ain’t coming from GDP, tax receipts or 20% economic growth.

Nope.

It’s gonna come from a Fed mouse-clicker. Trillions of fiat Dollars—and that folks, IS gonna be inflationary, and it’s gonna crush the guy on the street, farm or high-school coaching staff.

In short, Powell’s fight against inflation is just in the 3^rd inning.

In the end, inflation and negative real rates are the only pitchers/options left in Powell’s weak bullpen (short of a deflationary depression), which means, alas, he won’t be winning this game in the 9^th inning.

Of course, such baseball metaphors, math, policy and inflation/deflation cycles aren’t easy to time with precision nor be understood with fancy Wall Street lingo by every Jane or Joe on Main Street.

Afterall, not everyone has the time or luxury to debate monetary policy (or baseball memories) when they are just struggling to make a car payment or fill their gas tanks (and those prices are going to go higher) as the BLS fudges the math on inflation data or the NBER tweaks its comical (and lagging) recession indicatorfor political rather than transparency motives.

But whether one be carrying a baseball bat or a guitar, it’s becoming clear from Farmville Virginia to Stevensville Michigan that something is “broken in the force.”

As distrust of a weaponized media, Dollar and justice system collides with politicized science and rigged markets, Americans are steadily losing faith in the so-called “experts.”

Toward this end, I won’t be the first nor the last to remind readers of the recent viral sensation, and Virginia guitar-picker, Oliver Anthony.

He recently opened his new American anthem by declaring “it’s a damn shame” that he’s “been working overtime-hours for bull-sh— pay” in a new world where “your dollar aint sh– and taxed to no end,” while the rich men North of Richmond “just want total control.”

Sound familiar?

Strike a cord?

More times than not, a baseball or a guitar can say more than a financial blog.

This debt game is going to end badly. They ALWAYS do.

PS: I love Richmond.