Pushing Cash from the Future into The Now
This is a blog that I have been hesitant to write. A blog about money and finances is literary Ambien. But the system is flashing red and most people I talk to have no clue about what is coming. So, in the spirit of hoping to reach a handful of readers, this is my stab at how we got here, where we stand today and what I see happening in the future.
An observer to our monetary system would think that the stock market is the sole and single bell weather of the nation’s wealth. The not so secret, secret is that the stock market only derives its value from the debt market. What do I mean by the debt market? I am talking about the bond market which dwarfs the stock market and is the true driver of our nation’s financial health. The debt market drives the equity market (stocks). In its simplest terms, the American people and American business are taxed so the US Government can operate and pay its debts. But what happens when the combined tax revenue of people, small businesses and corporations are insufficient to meet the total needs of the government? The answer is that the government sells Treasury bonds to make up the difference.
What the debt market does is two things. It issues debt and it buys debt. When it issues debt, it creates dollars out of thin air. Today, debt instruments are often not even in tangible form. They are created on a computer screen. Another way to look at it is dollars are created and placed into circulation with no collateral or anything backing it other than the full faith and credit of the United States government. What this really means is the dollar is backed by the full power and vast resources of the United States military.
Back before November of 1971, every dollar issued into circulation was backed by physical gold. When Nixon took us off of the gold standard it transitioned each dollar being backed by gold (in theory) to dollars backed by the ‘good faith and credit’ of the United States government. Flash forward to 1998 and the global fiscal crisis and the bailout of Long-Term Capital Management. PBS Frontline 1998 Global Economic Crash.
It was 1998 where we started in earnest injecting dollars backed by nothing tangible and thus was continued into the 2000 dot.com crisis. https://Goldmansachs/2000-dot-com-bubble. But as most people know all too well, 2008 was when the real party started. Hank Paulson, a former Goldman Sachs guy convinced the powers in Washington that if the US Treasury did not infuse billions of dollars of capital into Wall Street, the global economy would crash, and Armageddon would commence. So, Americans were forced to accept the ‘Too Big to Fail’ adaption of US monetary policy. But just the same Lehman, Bear and Merrill all went under and the billions in cash infusion was used to raise shareholder stock prices and pay millions to Wall Street executives all the time while Fannie and Freddie relaxed their underwriting regulations, and all the rating agencies looked the other way. Meanwhile Main Street was told to go scratch and figure it out on their own.
Since 2008, the strategy of quantitative easing, i.e., infusing the economy with inflated dollars has gone on with a few trips to come up to the surface for air. This has been independent of political party affiliation as both democratic and republican administrations have both looked the other way.
The reason the party has continued unabated is because of artificially low interest rates and the willingness of foreign countries to keep buying our debt. But unlike all pyramid schemes, the party eventually ends, and the little guy is left holding the bag.
Very quietly, something you will never hear about on the mainstream media; the east is easing away from purchasing western debt and moving to an asset-based economy. As interest rates increase and supply is reduced, we are now in the initial throes of inflation. But what inflation really comes down to is how much quantitative easing is being done at the Fed.
Inflation is the expansion of the money supply, not the increase in prices. The increase in prices is the symptom, not the disease.
Dollar denominated assets do not mean that other countries are sitting on stacks of dollars. What it does mean is that foreign countries are heavily invested in US Treasury bonds because of their faith in the dollar. When that faith goes away, so does the dollar as the world’s reserve currency and all the bonds sold over the past few decades come back to our shores.
Each crisis that we do not fix the system exponentially increases the risk for the next crisis.
1971……………………Nixon Takes Us Off the Gold Standard.
1987……………………Fed Chairman Greenspan bailed out a stock market panic.
1998……………………Clinton Bails Out Long-Term Capital Management.
2000……………………Fed Stops the Bleeding of the Dot.Com collapse
2008……………………The Fed Bails Out Wall Street letting Main Street to slowly die on the vine.
2020……………………COVID accelerates Quantitative Easing into Hyper Drivee.
What we are left with is higher interest rates which have not addressed inflation in a meaningful way but quantitative easing still in hyperdrive.
In simple terms central banks are operating an exceptionally large global pyramid scheme. And like all pyramid schemes, they eventually collapse upon their own weight. There are numerous indicators that this moment is upon us. So, what happens next?
The answer has been shouted from the rooftops for anybody paying attention. Since all the debt can never be repaid, the answer is to collapse the system and start over. When you hear the word reset, that is what they are talking about. How this will play out is anybody’s guess. But what most people who study this stuff agree on is the United States as well as Western Europe will move from paper currency to a central bank digital currency.
For the average American what this will probably mean is corporate and government debt will be being wiped off the books but mortgages, car loans and credit card debt will remain. The most exposed people will be those with a lot of credit card debt and any kind of variable-rate debt.
The time to get your financial house in order was yesterday because we are only one black swan event away from all of this becoming a reality.
