"Yellen & Co" is an interesting name for "Congress" or for "Entitlement programs".
Social Security, Medicare, Medicaid and interest expense are the four categories where spending is surging.
Discretionary spending and military spending are not elevated relative to GDP.
When debt to GDP is this high and big portion of the population is retiring, negative real rates of return are the only way to minimize the damage from massive deficits.
Insurance prices always follow trends in claims costs with a 2-3 year lag. So it should be no surprise that premium rates are rising rapidly in 2023 and 2024. In addition, the southeast (Florida in particular) had no major land falling hurricanes for a decade from 2006-2016, which allowed insurance prices to stay low. Finally, the Fed’s ZIRP policies led to the influx of alternative reinsurance capital (cat bonds and ILS funds) that provided investors with an alternative to fixed income that earned paltry returns. Cheap alternative reinsurance perpetuated a so-called “soft market”.
Finally, the energy policies of the Biden administration are moving from a high density, cost effective energy system to a low density, intermittent, and expensive energy system. This will prove to be massively inflationary, especially as underinvestment in oil supply comes home to roost.
News flash: The Fed's target 2% inflation rate must itself be raised to 3% due to inflation. It's so obvious. There is no evidence to support 2% meaning anything. The Fed is the number one guessing institution in the world. They are always flipping a bitcoin to get down and dirty with the decisions they pretend to make that they pretend to matter.
Ultimately, the problem is Keynes won. He recognized that for politicians to accept his thinking, he needed to make is simple, spend more money if things are tough, and they have taken that idea and run it non-stop ever since. as such, it makes no sense to pine for fiscal sanity, it will never arrive, or at least not during the current cycle. We need the 4th turning to come, cause all the havoc that it can, including destroying much of the financial structure, so that we can restart on a more balanced path. Alas, that will be a terrible time for most people, and there will almost certainly be revolutions around the world as the elites find themselves in a distinct minority.
With this in mind, we must consider what to do in order to survive the problems and come through them with some wherewithal and ability to not merely survive, but thrive.
I expect that on the other side, there will be a strong drive for more financially sustainable governments, at least initially, but that means that virtually every sitting elected official will need to be removed from office.
Given the insanity that passes for energy policy currently, while the idea of bitcoin and crypto currencies have appeal, the reality is energy is likely to be at a premium and so accessing any bitcoin holdings may be tough. physical stuff is the way to go I fear, gold, silver, real estate, food.
while I know this sounds apocalyptic, it seems to be the logical conclusion.
Agreed, another great article, and why I recommend FX Hedge to The X Project's subscribers.
My only difference of opinion is I think we'll be lucky if we see only 3% inflation. The government needs inflation to run higher for longer to get debt/GDP well below 100% before it can afford real interest rates anywhere close to 2%. And even with inflation running higher for longer, I think we'll see more debt monetization and yield curve control. The debasement of a fiat currency is one of the most certain and highest convictions lessons and predictions history has to offer, as The X Project has examined:
One of the problems with fiscal dominance is higher interest rates really can't do anything to lower inflation when the interest paid on debt is $1 trillion, which is stimulative to the economy. So, if we are stuck with inflation with either higher or lower interest rates, I think they'll opt for lower (at the short-end) to keep the dollar relatively weaker and to keep the bond market looking likes it functioning. Here are recent thoughts on that:
Very true about the Overton window shifting to the dark side with public acceptance of the 'sticky' high inflation rate. Interesting that people are generally so gullible as to accept this premise of 'sticky' inflation that nothing can be done about. Much like the utter BS of anthropological global warming, such is the same as accepting even one infinitesimally small part of their inflation OR their climate change narrative.
Both false arguments can easily be disintegrated with logic and facts.
The problem with inflation is spending and debt. Eliminate government spending and suddenly things begin to correct. Problem is people don't want to live through that 'ripping off the scab'. People just think they will keep plugging along and complain about it, rather than accepting the inevitable deflation coming. The longer it goes along with spending, debt and inflation, the more painful it will be to correct the situation.
Same goes for the climate change nonsense. CO2 represents 0.004% of the atmosphere (325 parts per million) and the most recent popular hysteria surrounding cow farts -methane-, represents an even smaller portion of the atmosphere at about 0.0001% (18 parts per million). Yet... that tiny part of the atmospheric gasses represents the bulk of the climate fanatics argument to go back to living in caves. Furthermore, to cut CO2 output to the extent the fanatics want, and suddenly all living creatures die as all plant matter dies without CO2 (that's plant food of course, but ignoramuses don't know that). Food chain destroyed and Shazam, earth is back to subsurface microbial activity only.
Last bone to pick is this asinine concept the United States has been in an economic growth cycle since 2009. The economy's real productivity has actually fallen steadily since about 1998 or so.
The 'growth' we have seen is rising prices, not intrinsic values, due entirely to artificially suppressed cost of money (interest rates define the cost of money really). When money is free, you get malinvestment out the wazoo. The growth 2009 to date can realistically be ascribed to money printing and debt creation alone. It has NOTHING to do with real productivity improvements or larger labor force participation ratios as BOTH metrics are below where they were nearly 30 years ago.
Eventually things correct and it all implodes, much like we are witnessing with all these boondoggle 'green energy' projects. They are not green by any means with the total energy calculus is applied, or waste disposal considered. In fact, green energy of any sort is incredibly destructive to the environment. Much more so than Gen 4 Nuclear... But hey, that's a dirty word to the ecofanatics that uniformly possess the intelligence of a vegetative farm animal.
Inflation, climate policy and debt creation benefit a VERY narrow segment of the population in a cozy club which is completely unaffected by their actions. We in the common person stratum however, we suffer because we will NEVER be in that club of elites that laughs as they stick it to you and me.
That is as long as we are unwilling to deal with it anyway as we just kick the can down the road.
Please refrain from insulting farm animals. I can look into my cow Bessie's eyes and see more intelligence than, say, Chuck Schumer.
Yellen's newly minted Treasuries are transmuted into money without any action from the Fed, other than operating the TGA.
Government spending is not going to be reduced in nominal terms. Inflation will grow well into double digits. Government programs such as Social Security and Medicare will be inflated away. The Fed will panic at some point and pull a Volcker. Perhaps 15% on the 10-year? Assets priced based on interest rates will collapse. Stocks, bonds, houses, cars, commercial RE - oh that has already started. There will be enormous destruction of money and a sharp U-turn into uncontrolled deflation and Depression.
Hyperinflation is when the citizenry lose faith in the ability or willingness of the government to curtail its spending.
Both, along with other real assets. This is not investment advice, but the continuation and acceleration of inflation, indebtedness and fiat currency devaluation are the core foundational reasoning for the following investment theses to which The X Project subscribes:
Overweight cash and short-term U.S. T-bills for optionality, given expected volatility related to the remaining list below.
Bullish gold and gold miner equities
Bullish Bitcoin
Bullish oil and oil-related equities
Bullish natural gas and related equities
Bullish uranium and related equities
Bullish industrial-associated commodities and equities
Bullish agricultural-associated commodities and equities
Bullish industrial and primarily electrical infrastructure equities
Bearish long-dated U.S. and other Western sovereign bonds
These are long-term investments with at least a 5-10 year time horizon.
2% inflation target came from the same thought process as 6 foot social distance.
"Yellen & Co" is an interesting name for "Congress" or for "Entitlement programs".
Social Security, Medicare, Medicaid and interest expense are the four categories where spending is surging.
Discretionary spending and military spending are not elevated relative to GDP.
When debt to GDP is this high and big portion of the population is retiring, negative real rates of return are the only way to minimize the damage from massive deficits.
Insurance prices always follow trends in claims costs with a 2-3 year lag. So it should be no surprise that premium rates are rising rapidly in 2023 and 2024. In addition, the southeast (Florida in particular) had no major land falling hurricanes for a decade from 2006-2016, which allowed insurance prices to stay low. Finally, the Fed’s ZIRP policies led to the influx of alternative reinsurance capital (cat bonds and ILS funds) that provided investors with an alternative to fixed income that earned paltry returns. Cheap alternative reinsurance perpetuated a so-called “soft market”.
Finally, the energy policies of the Biden administration are moving from a high density, cost effective energy system to a low density, intermittent, and expensive energy system. This will prove to be massively inflationary, especially as underinvestment in oil supply comes home to roost.
News flash: The Fed's target 2% inflation rate must itself be raised to 3% due to inflation. It's so obvious. There is no evidence to support 2% meaning anything. The Fed is the number one guessing institution in the world. They are always flipping a bitcoin to get down and dirty with the decisions they pretend to make that they pretend to matter.
Ultimately, the problem is Keynes won. He recognized that for politicians to accept his thinking, he needed to make is simple, spend more money if things are tough, and they have taken that idea and run it non-stop ever since. as such, it makes no sense to pine for fiscal sanity, it will never arrive, or at least not during the current cycle. We need the 4th turning to come, cause all the havoc that it can, including destroying much of the financial structure, so that we can restart on a more balanced path. Alas, that will be a terrible time for most people, and there will almost certainly be revolutions around the world as the elites find themselves in a distinct minority.
With this in mind, we must consider what to do in order to survive the problems and come through them with some wherewithal and ability to not merely survive, but thrive.
I expect that on the other side, there will be a strong drive for more financially sustainable governments, at least initially, but that means that virtually every sitting elected official will need to be removed from office.
Given the insanity that passes for energy policy currently, while the idea of bitcoin and crypto currencies have appeal, the reality is energy is likely to be at a premium and so accessing any bitcoin holdings may be tough. physical stuff is the way to go I fear, gold, silver, real estate, food.
while I know this sounds apocalyptic, it seems to be the logical conclusion.
Agreed, another great article, and why I recommend FX Hedge to The X Project's subscribers.
My only difference of opinion is I think we'll be lucky if we see only 3% inflation. The government needs inflation to run higher for longer to get debt/GDP well below 100% before it can afford real interest rates anywhere close to 2%. And even with inflation running higher for longer, I think we'll see more debt monetization and yield curve control. The debasement of a fiat currency is one of the most certain and highest convictions lessons and predictions history has to offer, as The X Project has examined:
Article #5: This Time is Different: Eight Centuries of Financial Folly - A summary of the book written by Carmen Reinhart and Ken Rogoff (2009): https://thexproject.substack.com/p/this-time-is-different-eight-centuries
Article #24: Principles for Dealing with The Changing World Order: Why Nations Succeed and Fail - A summary of the book written by Ray Dalio (2021): https://thexproject.substack.com/p/principles-for-dealing-with-the-changing-9e2
Article #32: The Price of Time: The Real Story of Interest - A summary of the book written by Edward Chancellor (2022): https://thexproject.substack.com/p/the-price-of-time-the-real-story-1c2
One of the problems with fiscal dominance is higher interest rates really can't do anything to lower inflation when the interest paid on debt is $1 trillion, which is stimulative to the economy. So, if we are stuck with inflation with either higher or lower interest rates, I think they'll opt for lower (at the short-end) to keep the dollar relatively weaker and to keep the bond market looking likes it functioning. Here are recent thoughts on that:
Article #37: Why Rate Cuts, a lower US Dollar, and Inflation will All be Returning Soon - Revisiting Fiscal Dominance and the US Policymaker's Only Choice: https://thexproject.substack.com/p/why-rate-cuts-a-lower-us-dollar-and
Good article with much to think about and unpack.
Very true about the Overton window shifting to the dark side with public acceptance of the 'sticky' high inflation rate. Interesting that people are generally so gullible as to accept this premise of 'sticky' inflation that nothing can be done about. Much like the utter BS of anthropological global warming, such is the same as accepting even one infinitesimally small part of their inflation OR their climate change narrative.
Both false arguments can easily be disintegrated with logic and facts.
The problem with inflation is spending and debt. Eliminate government spending and suddenly things begin to correct. Problem is people don't want to live through that 'ripping off the scab'. People just think they will keep plugging along and complain about it, rather than accepting the inevitable deflation coming. The longer it goes along with spending, debt and inflation, the more painful it will be to correct the situation.
Same goes for the climate change nonsense. CO2 represents 0.004% of the atmosphere (325 parts per million) and the most recent popular hysteria surrounding cow farts -methane-, represents an even smaller portion of the atmosphere at about 0.0001% (18 parts per million). Yet... that tiny part of the atmospheric gasses represents the bulk of the climate fanatics argument to go back to living in caves. Furthermore, to cut CO2 output to the extent the fanatics want, and suddenly all living creatures die as all plant matter dies without CO2 (that's plant food of course, but ignoramuses don't know that). Food chain destroyed and Shazam, earth is back to subsurface microbial activity only.
Last bone to pick is this asinine concept the United States has been in an economic growth cycle since 2009. The economy's real productivity has actually fallen steadily since about 1998 or so.
The 'growth' we have seen is rising prices, not intrinsic values, due entirely to artificially suppressed cost of money (interest rates define the cost of money really). When money is free, you get malinvestment out the wazoo. The growth 2009 to date can realistically be ascribed to money printing and debt creation alone. It has NOTHING to do with real productivity improvements or larger labor force participation ratios as BOTH metrics are below where they were nearly 30 years ago.
Eventually things correct and it all implodes, much like we are witnessing with all these boondoggle 'green energy' projects. They are not green by any means with the total energy calculus is applied, or waste disposal considered. In fact, green energy of any sort is incredibly destructive to the environment. Much more so than Gen 4 Nuclear... But hey, that's a dirty word to the ecofanatics that uniformly possess the intelligence of a vegetative farm animal.
Inflation, climate policy and debt creation benefit a VERY narrow segment of the population in a cozy club which is completely unaffected by their actions. We in the common person stratum however, we suffer because we will NEVER be in that club of elites that laughs as they stick it to you and me.
That is as long as we are unwilling to deal with it anyway as we just kick the can down the road.
Please refrain from insulting farm animals. I can look into my cow Bessie's eyes and see more intelligence than, say, Chuck Schumer.
Yellen's newly minted Treasuries are transmuted into money without any action from the Fed, other than operating the TGA.
Government spending is not going to be reduced in nominal terms. Inflation will grow well into double digits. Government programs such as Social Security and Medicare will be inflated away. The Fed will panic at some point and pull a Volcker. Perhaps 15% on the 10-year? Assets priced based on interest rates will collapse. Stocks, bonds, houses, cars, commercial RE - oh that has already started. There will be enormous destruction of money and a sharp U-turn into uncontrolled deflation and Depression.
Hyperinflation is when the citizenry lose faith in the ability or willingness of the government to curtail its spending.
So gold or bitcoin or ?
Both, along with other real assets. This is not investment advice, but the continuation and acceleration of inflation, indebtedness and fiat currency devaluation are the core foundational reasoning for the following investment theses to which The X Project subscribes:
Overweight cash and short-term U.S. T-bills for optionality, given expected volatility related to the remaining list below.
Bullish gold and gold miner equities
Bullish Bitcoin
Bullish oil and oil-related equities
Bullish natural gas and related equities
Bullish uranium and related equities
Bullish industrial-associated commodities and equities
Bullish agricultural-associated commodities and equities
Bullish industrial and primarily electrical infrastructure equities
Bearish long-dated U.S. and other Western sovereign bonds
These are long-term investments with at least a 5-10 year time horizon.