Future of the Dollar
I have to give full credit to George Gammon and the Rebel Capitalist for pointing me to this fact in one of their recent videos. Please check him out on Rumble and YouTube.
He has made a point challenging famous investor Paul Tudor Jones on the future of the dollar and inflation. As I wrote here–> the only path forward for the financialized world is more and more debt, spending and as a result inflation. This is baked into the cake right now–anyone who tries to save in fiat currency is about to be toasted (the same position as Jones).
Also, as you’re probably aware, the dollar has become a weapon of destruction by holding other smaller economies hostage, too. While some economies will have no choice to be under the influence of this, many neutral or otherwise friendly countries are seeing this and taking note that they don’t want to be next to be sanctioned! More below:
The Divergence
You’re familiar with the dollar debt doom loop (see below) but I find it quite unlikely given how paramount the central entities are to sustaining the economy since 2008 (and especially now!). Why crash the asset prices and make the debt larger in real terms when you have a money printer? It’s like a fox starving while he’s inside the hen house.
Therefore, there’s another threat for the longevity of the US Dollar which goes something like:
- Money printing AND spending leads to an elevated money supply and thus inflation against goods and services.
- Spending leads to a higher amount of debt which is needed to be refinanced or “rolled over” in the future
- Due to inflation and higher debt levels, investors are going to want higher interest yield on their bond investments (to buy the debt again when it rolls over) before they are convinced to buy (Major question if Cayman Islands, Belgium and Luxembourg are really buying, but this is another post!)
- Higher interest rates mean that the interest on the (now larger) debt load is larger
- Recycle to the top again
In effect, what Paul Tudor Jones said in a recent interview was that all roads lead to inflation. I subscribe to this idea (but disinflation in the short-term), but there’s a peculiar part involved here that shows just how strong the ideas of Marxist-Leninism has reached in the US economy.
Great Deal Below (in Spanish too)
The part of higher interest rates to entice more and more money managers and foreign governments may be true but not true for all. Global dealer banks effectively have access to a never-ending stream of reserve cash support. They hold access to Fed facilities, Repo facilities and the balance sheet of everybody connected to the Eurodollar system for immediate support. Imagine your bank account being tied to your entire families’ so you never really have to worry what is in your account.
While the investors are considering the real return (interest net of inflation) the global dealer banks may not care what inflation is at any given moment. If you’re an investor managing 100M dollars, you’d be keen to note what inflation stands at relative to your investment made. If inflation is 5% and bonds are paying you 5.45% ,it’s an unattractive .45% return in real terms. It’s likely not sufficiently attractive for you to purchase the debt and therefore the government has no buyers to roll over their debts. They (like you and I), are looking at a return on their investment.
However, dealer banks are not making decisions with their limited partners’ capital, their source of capital is directly from deposits. Deposits as we know are subject to a fractional reserve requirement where banks are able to lend out multiples greater than what they hold in deposits. Depositors do not deposit money in their account because they are seeking a wild return, rather the only thing they care about is that they can retrieve it when they desire; a return of investment.
Knowing this and the fact that global dealer banks have access to not single digit billions or high digit millions, but trillions of dollars–they are happy with the way things are going. For instance, if you’re giving depositors 1% and you’re loaning out this money at a rate of 4% or selling bonds yourself, than this small 3% return is pretty good. Why? Because 3% of 1T dollars is 30,000,000,000 dollars! At that point, it hardly matters what inflation sits at when you’re able to pocket small spreads on significant amounts.
What this dealer bank business and how do I start one today!?
Different Goals
The divergence is that banks are literally playing a different game given their access and connection to the “free” money flow in the Eurodollar system. They are incentivized to collect a spread, thats it. They are not subject to the same aims that you and I or even investment managers with millions of dollars hold due to our requirement to make wise decisions because of the inflation threat [as a result of the increasing debt loads & interest deposits].
Suggestion
I’ll throw out a suggestion that the US economy may not be doomed to crumble as a result of inflation risks (going the way of Venezuela) and higher interest rates. Instead, the problem may be the complete Soviet style of running the economy with only a few banks purchasing all of the countries’ debt. The increasing centralization of the economy always leads to economic destruction; So the US destruction may look more like the collapse of the Soviet Union, China or Brazil’s economy rather than Venezuela or Weimar Germany. Pick your poison.
Hammer Point Home
Why might this happen? Because the Treasury can continue to sell lower interest debt as they know the big banks are happy to purchase it for their spread. Sooner than later, the only people who own all of the debt will be central entities (look at the number one holder of the US debt right now, it’s the Federal Reserve).
Most people are unaware that in the USSR they only had 1 bank known as Gosbank; the financialized economy is heading in this direction if they want to stave off a massive inflation threat–at least for now
Comment
I find it difficult to view the USA as not being royally screwed when you look at the debt and spending. It’s getting worse day by day! Everyday is a good day to spend in Washington. Debt can only paid by cheaper dollars in which case the validity of the US debt collateral for the existing financial system gets weaker and weaker every year. In other words, less are willing to play with the American kids in their sandbox, especially if they are known to be a bully.
Global dealer banks may not immediately care as they’ll just get a spread (loan/bonds) on a gazillion dollars on deposits, basically ensuring the can is kicked down the road a little longer. In other words, the American kids in the sandbox play with themselves to have fun. But for investors, it’s (treasuries) a time bomb either from the perspective of higher interest, inflation or the fact that it’s seen as bad, untrustworthy collateral.
Banks Don’t Need us Anymore (Button Below)
Yet again, another reason to get yourself some gold!
Put Simply
Investors want higher interest rates to cover inflation but the banks and government are okay with collecting their giant spreads on unlimited cash and spending more and more every month.
Closing
Again, this comes down to the future of the global economy by taking a long-standing look at where things are going to end up. In so far I can tell, the debt load coupled with the weaponization of the dollar will force investors and foreign counter parties around the world to consider alternatives (like gold as you can see). At the same time however, the incentive for the global dealer banks and domestic banks is to simply keep the money printer hot and collect a margin (however small) on a ginormous amount of capital–talk about risk free return! The USD is in a tug-of-war as we speak.
This combination is something I see that will accelerate the death of the dollar and by extension, the USA’s chances of regaining prosperity. You have one side who benefit from inflation and economic distortions and the other side who will exit this system for alternatives such as BRICs, their own sleepy domestic economy, or gold. For the time being, you may have noticed that I accept USD dollars to onboard you as an On The Ball Member, but I am chronically aware that this is going to be one big hot potato one way or another.
Thank You For Reading, Subscribe Here, Be sure to Grab the Free Newsletter and Consider Sharing!
#StayOnTheBall
