BRICS Update – September 2023

BRICS, Currencies, Economics, Geoeconomics, Monetary Policy, Uncategorized, , , ,

We wouldn’t go as far as to call the recent BRICS summit a non-event, but the clarity many of us had been hoping for at the end of August has not yet emerged. The main feature of this year’s summit was to add additional countries – 14 members now in total with many more waiting in the wings.

Adding all of these countries at once would have been impractical – and difficult. However, it’s not the actual ‘official’ membership rolls that matter – it’s the spirit of the agreement behind the countries who have already entered – and those who will enter moving forward.

This trading / currency bloc has a largely singular purpose – to remove reliance on a weaponized US Dollar. While it’s true that many in the US and Europe don’t perceive the western financial system as a weapon, much of the rest of the world does. Our perceptions in this instance don’t matter. It is the perceptions of the growing BRICS bloc that matter. A secondary, but related, goal is to move towards multilateralism on a variety of fronts. We’re going to focus on the economic and financial aspects of this.

Simply put, these countries are tired of being told what to do. They’re tired of being told they have no self-determination. They’re tired of being sanctioned when they don’t do as the collective west wants. They’re tired of the colonialist French (just one example) taking natural resources while the people in the countries who provide these resources live in abject poverty. This is perhaps the most important takeaway of the big globalization movement in the 1990s and early 2000s – the goal was NEVER to raise the living standards in these countries, but merely to use whatever levers could be applied to get the resources from these countries for use by the ‘first world’ nations. Again, they’re tired of it. This alone is the primary fuel for the BRICS movement. They have united against a common enemy – the weaponized US Dollar, SWIFT, and the many other structures that have arisen from the USDollar’s hegemony.

Put in this particular light, it would make sense that BRICS would introduce some type of currency. We have always assumed that it would be gold-backed. Why? Another worthless paper currency isn’t going to have much appeal – if any. If there is to be a new currency regime, there must be something unique about it that provides it with the necessary credibility to function. For many years, we economists have felt gold-backing would provide that credibility.

However, the landscape has changed over the past several years and as such, we need to revisit our prior assumptions. Could the mere disdain for the USDollar and it’s financial system be enough to give even an unbacked new currency credibility? A few years ago, we’d have opined in the negative. Now? It seems possible that perhaps a backing isn’t really necessary. At least not at the outset. Countries are already cutting deals to exclude the dollar using national currencies – none of which are backed by gold or any other commodity money. The resource-rich countries might argue there’s an implied backing – extracting natural resources requires tremendous amounts of economic activity. Could that activity in and of itself be enough to provide credibility? Yes – because that’s what’s going on right now. Again, it comes down to perceptions. If these countries view national currencies as less risky than the USDollar system, then that’l how they’re going to behave.

Do the BRICS nations have enough gold to back a currency either now or in the future? Absolutely. This is some of the information we were hoping to get out of this year’s summit. What we did see is a prototype of a potential BRICS note. While the providence of the images we’ll show cannot be 100% verified at this time, the rolling out of a new currency is an event that must be chronicled and studied. What we lack at this point is the clarity of the actual mechanics of the currency. Some questions are:

Who will issue the currency?

What (if anything) will back the currency?

Will non-BRICS members be required to obtain the currency in order to trade with BRICS members? This is huge for countries like the US

If the currency eventually used is a ‘hard’ currency (with commodity backing), what will be the peg?

If the bloc decides on national currencies instead, how will exchange rates be determined?

If there IS a BRICS currency, will it trade against other currencies in global FOREX markets?

If the bloc is serious about making this work, then we can answer some of these questions now. We can certainly opine on what ‘should’ be done. However, given the fluid nature of the situation – and the fact that the world is already mired in another regional (proxy) war and several smaller ones, the situation on the ground is likely to change rapidly and the attendant amount of disinformation will certainly be present – as is the case anytime countries are at war.

It is also worth mentioning that the BRICS countries do no agree on many other matters. Some of the countries have trading alliances with NATO nations for example, while others do not. Again, the single point of focus thus far is to (at a minimum) decrease dependence on the USDollar and its hegemonic system. Surely there are some current and aspiring members that would love to see the Dollar disappear from the world stage. Others are simply looking for a stable and reliable alternative.

Instead of ad hominem attacks, the US and the collective west would do well to take a huge step back and look at WHY the BRICS alliance started and why it is growing. From our vantage point, the wounds the Dollar has sustained have been largely self-inflicted, which is consistent with economic and monetary history. We simply don’t learn from history. Or, worse yet, there is enough hubris involved that policymakers think they can do things so much better now than in the past. Again, history indicates otherwise.

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Recent Monetary Actions – 8/4/2023

Banking, Bond Market, Currencies, Economics, Geoeconomics, Government Statistics, Interest Rates, Monetary Policy, , , ,

The past few months have produced some rather notable monetary activity. For myriad reasons, the money pumping of the not-so-USFed during the period of 2009-2019 produced nominally higher price inflation, but not anywhere near the increases in prices that should have occurred. Our operating theory as the 2008 crisis was ending was that the newly unveiled ‘quantitative easing’ nay relentless money printing, would push up both consumer prices and the nominal prices of various asset classes as well. In essence, the ‘fed’ would replace the burst US residential housing market bubble with yet another bubble.

The central bank of the US, followed by other G7 central banks, embarked not just on money printing, but money channeling as well. The blowout preventers, if you will, for this excess were primarily the US Bond Market and the US stock market as well. Bond yields were artificially low during much of this period, thanks to the fed monetizing USGovt debt. Nominal yields were a joke. Real yields were far into the red. The US consumetariat didn’t notice this because, as always, credit was easily obtained. The consumer just dove deeper and deeper in debt. This was not a US-centric phenomenon. The European Union behaved in much the same manner, but the EU blew up a massive residential housing bubble as well, particularly England. Technically, England is no longer in the EU, but for practical purposes, this distinction is negligible.

What many people (investors in particular) forget is that there are always cycles. These cycles can rather easily be altered by extraneous actions of central banks, governments, and even consumers. However, the more distorted or prolonged the boom is, the bust is all the more pronounced. Think of Newton’s Laws and apply them to monetary policy and economics.

With the proverbial spring fully compressed by the massive deficit spending commencing in 2020, the not-so-USFed poured literally trillions in fresh dollars into the USEconomy, monetizing massive amounts of government debt to finance social spending. Since the US consumer, as a whole, has negligible savings, when economies were shutdown, the government became the primary support structure at levels never before seen. The ‘channeling’ of the 2009-19 period went out the window and the fresh dollars were poured directly into the consumer economy. We all know what happened next. Prices head for the stratosphere.

We noticed something curious start at the end of Q1 2023, however. The US M2 monetary aggregate began to contract – for the first time in.. well, forever basically. Was this a one-off month or the beginning of a new trend. We’ve seen a few months’ worth of data now and it would appear that there is something of a trend brewing. Deflation. Not falling prices, but an actual contraction of the money supply. It is interesting to note that during this stretch, US stock indexes, particularly the DJIA have forged towards all-time highs. What gives? Housing prices have taken a hit, which, in ordinary circumstances, would be a good thing – from an affordability perspective at least, but the reason housing prices are cooling is simply because the cost of mortgages has been pushed out of the reach of many by mortgage rates that are still hovering around 7%.

Our thesis – for now at least – is that the not-so-USFed is once again channeling money, but not in the same way it was during the 2009-19 period. It appears – and we admit it is very early to say for sure – that the consumer economy has, in the aggregate, been cut off from new money. The financial economy has not. However, the net effect is the contraction of the US M2 aggregate.

Interestingly enough, the last data pointed to a reversal, which complicates the situation a bit. The reversal could end up being a one-off event, or it could be a true reversal in the trend. Further study on prior deflationary periods is in order. In any case, the top to bottom action in the aggregate as shown above does explain the slowing of the rate of price inflation. Remember, inflation is a monetary event that manifests itself in prices. While the mainstream financial press claims otherwise in their headlines, the whole of their reporting proves they know the truth and choose to obfuscate, which is typical.

Since monetary data has a significant lag associated with it, we will not be able to ascertain until likely the end of 2023 or Q1 2024 if this is definitely the case or not. There should be anecdotal indications between now and then and we will certainly keep the readers of this blog appropriately informed.

Sutton/Mehl

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Banking Crisis Update – April 5th, 2023

1 CommentBailouts, Banking, Currencies, Economics, Monetary Policy, RIsk Management, Uncategorized

Andy Sutton / Graham Mehl

The past few weeks have been fairly ‘quiet’ regarding bank failures, but, much like a hurricane, we’re in a bit of an ‘eye of the storm’. There are several graphics that follow which will hopefully reinforce the main point – the crisis is nowhere near over. While getting direct information has become quite challenging, we maintain several data series that were previously discontinued by the publishers.

Graphic #1 – Monthly Changes in Bank Deposits – as of March 2023

In the chart above, you’ll note the timeline on the x axis. The data stream begins in 1971. March of 2023 just provided the LARGEST single month drop in bank deposits – EVER. We had nearly a trillion dollar bank run during the month of March and not a single word was uttered by any official, policymaker, or media talking head. This should not be much of a surprise – the financial industry and government have learned extremely well the lessons of Cyprus and other places in the past decade. Transparency is the mortal enemy of a fiat money system.

Let’s not split hairs here – there isn’t a single commodity-backed currency on the planet at this time so everyone else is doing the same thing we’re doing here in the US.

1930-1932 Reboot?

It certainly appears that is a distinct possibility. We’ve opined for many years now, much to the chagrin of readers, that the not-so-USFed would indeed try to rescue the dollar one last time before the cycle ended. What we’ve seen over the past few months are the possible beginnings of a contraction in the monetary aggregates (Deflation). We’ll let them graphic below speak for itself:

The above graphic is M1 in the United States. The timeline starts in 2000. The incredible spike towards the middle/end of 2019 is responsible for the massive spike in price inflation that we’ve seen in the past 18 months. There’s a delay of between 9 and 21 months from spikes in money supply to the knock-on price increases. Note that the spike in M1 started pre-pandemic.

We’ll show one more chart before we close this brief update. United States M2 – now the broadest (officially) tracked monetary aggregate. It’s painting a similar picture. The timeline is set to that of the M1 graphic above for easy comparison.

M2 tends to move more gradually than M1 because it contains more subtypes of money. We’ll post a chart at the end of the piece where you can see the various components of the aggregates. But what is noteworthy about the above M2 graphic – we’re seeing the first actual deflation in almost a century. This isn’t price deflation (falling prices), this is the actual removal of dollars from the system. If the deflation of 1930-32 was truly the accident that everyone claimed, then policymakers ought to know well enough to avoid it again.

In a fiat monetary system, only the central bank can remove money from the system. Ours did it at the beginning of the depression and it certainly looks as though they’re doing it again. We’ll deal with the fallout that will result in the next update. To give a small hint – think about debt that was taken when the money supply was at its peak.

The chart of monetary aggregates in the United States is directly below.

Stay well,

Andy / Graham

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A Quick Check-In, the Farce of GDP Reporting and a New Monetary Regime

Banking, Consumer Finance, Currencies, Debt Ceiling, Economics, Geoeconomics, Government Statistics, Modern Monetary Theory, Monetary Policy, National Debt

Hello friends,

Yes, we are still alive! And kicking too – at least most days! It’s been two years since we published anything, but we’ve been very busy, nonetheless. We’d like to take a moment to point out a few indisputable (and very provable) facts. 

Let’s play connect the dots, shall we? This is a bit off-topic of the day but might be instructive for some in your spheres of influence.

1) MMT (Modern Monetary Theory) is in full force. The ‘Fed’ – and the rest of the world’s central banks – are printing funny money like crazy. Hence no more M2 here in the US. For reference, M3 was discontinued in March 2006.

2) That funny money is pushing consumer prices at an admitted rate of 4+% annualized. Let’s assume that’s true even though we know it’s much higher.

3) GDP in every major economy is measured in currency, NOT units of goods and services produced/purchased/sold.

Therefore, even if every single American business, middleman, and consumer conducted the exact same amount of economic activity (produced/sold/purchased) as last year, GDP will STILL rise by more than 4% on an annualized basis. What exactly is going on here?

We all know. The international bankers are doing exactly what Thomas Jefferson said they would do – robbing us blind first by inflation, then by deflation. Lest I digress too much, GDP is NOT an accurate way to measure any kind of economic growth in its current form, especially because one of the components is government spending (look at the deficit spending last year alone!). 

The Cobb-Douglas production model that Graham and I tweaked to include more modern components of the global economy and have been running for the last decade STILL shows America in a protracted recession. It’s not a perfect model, but it’s a lot better than the one that is spouted about 4 times a year on CNBC, etc. If you haven’t already, feel free to download, read, and spread our 2019 commentary on Modern Monetary Theory. The link is at the end of the email.

Spread it far and wide. Delete our names if you wish. We want neither credit nor accolades. We just want people who are looking for a little common sense to know there’s some out there. The article isn’t perfect, but it’s the effort of two guys who love their country and feel stewardship of the blessings we’ve been given is very important. 

Next up? The ’new’ Bretton Woods and an analysis of Schwab’s ‘Great Reset’. Purely in economic terms.

Best,

Andy & Graham

Click to access MMT.pdf

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Andy Continues Discussion of the Dollar’s Fate on Liberty Talk Radio

Banking, Consumer Finance, Currencies, Economics, Geopolitics, Monetary Policy, Trade War, , , , , ,

Andy’s Notes: As always a big ‘thank you’ to Joe Cristiano for having me back on the show. Pieces are beginning to fall into place regarding the economic situation both here in the US and abroad. Incidentally, Graham and I ran our alternative GDP model for the second quarter in the US and it showed a -43% ‘growth’ rate, which was 10 percentage points lower than what the Commerce Department reported.

Joe and I discussed MMT, the USDollar as world reserve, inflation, price inflation, actions overseas by trade partners and predators alike, and finished up with some fairly straightforward advice to listeners. This is actionable general financial information. If you’ve read or listened for any length of time you’ve heard this before, but there are new people coming into the arena, so we felt a little repetition might be a good thing. Thanks again Joe!

Sutton

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Andy Chats with Joe Cristiano about the Dollar and Signposts for the Future

Banking, Currencies, Economics, Geoeconomics, Liberty Talk Radio, National Debt, Trade War, , , , , ,

As always it was a pleasure getting together with Joe Cristiano. We never seem to be able to stop at our 20 minute target, however! We talking about the Russia-China trade situation where they’re slowing backing out of the $USD, what happens when global demand for the $USD drops, some mild to moderate capital and price controls that have emerged under the cover of NCV and other useful tidbits. The link for the YouTube video is below.

Sutton

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Gold – The Opportunity of a Lifetime – Original Post 8/29/2008

Currencies, Economics, Geoeconomics, My Two Cents, Precious Metals, , , , ,

My Two Cents – “The Opportunity of a Lifetime”

For the past 8 years, wise investors have chosen to ignore the confusion and in many cases unplugged themselves from the traditional financial system, opting to become their own central bank and invest in gold and silver. Others have used a hybrid model of investing partially in the physical metals and partially in shares of precious metal miners and related companies. This has undoubtedly been the right move. The recent correction included, gold prices alone are up an amazing 45% just since my Survival Guide was published on 10/23/2006. For those who have been in since the beginning of the move, the gains have been even larger.

Many in the mainstream press will quickly scoff at the idea of holding Gold and Silver because they don’t pay dividends. So to be fair to their argument, I calculated the movement in the S&P500 Dividend Reinvested Index from 10/31/2006 to the last report at the end of this past July. Even with dividend reinvestment, the S&P500 is down 4.78% while Gold is up nearly 50%. This takes the primary argument against owning real money and blows its doors off. Granted, we’re only looking at a period of not quite 2 years here, but given the macroeconomic events that have transpired it is clear that real money was the way to go.

The question we need to ask now is pretty simple. Is anything going to change moving forward that will reverse this trend? Or, put another way, what would need to happen to make precious metals unsuitable for investment? There are dozens of prerequisites, but we’ll stick to the Big Four.

  • Since precious metals, particularly Gold are proxies for inflation, we would need to see worldwide inflation slow dramatically. A quick look at the chart below tells us this is nowhere near happening. The global supply of money in US$ terms has increased by 12.4% since mid-2007 from $53.7 Trillion to $60.3 Trillion. We’re still inflating like crazy. (Chart Compliments of dollardaze.org)
Global Money Supply
  • Geopolitical risk would have to decrease. Risk tends to be friendly towards precious metals. This because deep down, most people understand that fiat money is not real money, but only has value because its backing government says it does. Its value is based almost entirely on perception. Wars and rumors of wars tend to undermine political and therefore financial stability. On the other hand, gold has been recognized as real money for thousands of years because it is desirable, portable, homogeneous, and scarce. Scarcity and fiat money are 180 degrees diametrically opposite to each other.
  • Systemic risk to the financial system would need to be swept away. This is no simple task and, despite what Bernanke & Company choose to say, it is clear that the systemic risk to the financial system is nowhere near close to abating. Bank failures are on the rise and credit spreads are at record levels. The housing debacle has left many financial hand grenades in the portfolios of investment and commercial banks the world over and many have yet to go off.
  • Inflationary expectations would need to decrease significantly. Again, perception tends to be reality and if people are convinced that prices are going to continue to rise, then they will behave accordingly. They will seek out assets that protect their purchasing power. Commodities generally assume this role due to scarcity: they cannot be printed or digitally created like fiat money. And the more funny money that sloshes around chasing a finite quantity of goods, the more those goods will increase in terms of the fiat currency. To reverse this trend, people worldwide would have to get the idea that their money is going to buy more, not less. It is going to be difficult to accomplish that feat with the price of almost everything (except housing and stocks) going up.

Given just this cursory analysis, it is easy to see why Gold is a slam-dunk choice in terms of protecting wealth. Certainly, gold is prone to nasty corrections. Too often, people buy gold with the idea that they’re going to get ‘rich’. These folks fail to properly understand why it is they should own gold in the first place and are easily shaken out when a correction occurs. Gold should not be purchased with the expectation that it will make you rich. It should be acquired to protect your purchasing power. The recent rout in precious metals presents a fantastic opportunity for new buyers to get on board and for people who already have positions to add to them as circumstances permit.

One caveat that needs to be mentioned is the fact that the precious metal markets are prone to intervention and manipulation. These activities are disruptive to normal market function and can create disparities between the price of futures contracts and the actual metals themselves. GATA covers these activities in great detail and has done a masterful job assimilating a vast array of resources, articles, and other materials related to this topic. I highly recommend getting up to speed on this important issue before investing – particularly if you’re new to these markets.In totality, the recent correction in precious metals should be viewed not as a tragedy, but rather as the opportunity of a lifetime.

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Russia/China Currency Alliance is Now Doing Less than 50% of Business in US Dollars

Currencies, Debt Ceiling, Economics, Geoeconomics, Geopolitics, Interest Rates, Modern Monetary Theory, Trade War, , , , ,

This is something we have been talking about what seems like forever. The move away from the dollar. It was always a matter of when rather than if and unfortunately we’ve reached the point now where the majority of transactions between these two growing economic powers is done away from the $USDollar. This has many, MANY implications for all Americans and anyone else who uses the $USD as their primary means of storing wealth.

This move also explains the embracing of Knapp’s modern monetary theory that was soft-introduced back in 2018. We wrote an extensive paper on MMT and we’re posting this again below for anyone who hasn’t read it. We will be releasing another commissioned paper by Labor Day. We’ll also be re-posting relevant articles that were written between 2006 and the present on precious metals, the dollar standard, bail-ins, and general relevant macroeconomic articles as well.

Please visit the site often to catch updates. You may also ‘subscribe’ to receive a notification when new material is posted. There is no cost for subscribing and we don’t maintain any records. WordPress will keep your email address and any other info you provide – please see our Privacy Policy for more details. There will be more information shortly.

Sutton/Mehl

Here is the paper on modern monetary theory – Read/Download here.

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A Gamble for All Time

Bailouts, Banking, Consumer Finance, Economics, Geoeconomics, Modern Monetary Theory, Monetary Policy, National Debt, , , , ,

In 2008, the central bankers of the world revealed the true danger of Keynesian economic theory by staging the biggest bailout to date. There was a short flurry of complaints about the banking system being able to leverage the economy instead of just themselves and their filth-ridden balance sheets.

Fast forward 12 years. You guessed it – another massive bailout. The warnings issued after the crisis of 2008 went unheeded, banks leveraged to even greater levels than 2008 and brought the rest of the world with them. Now, not only has runaway Keynesianism enabled the banks to leverage themselves and the financial economy, now they’ve been permitted to leverage the entire world’s economy as well.

Central banks are gambling the next hundred years of economic history that they can print their way out of this mess. Instead of unwinding their malfeasance, they’re doubling down.

Many of you read our piece on ‘modern monetary theory’ last summer. That is now in play as well. This summer we’ll analyze the next move in an epic economic game of chicken. And there isn’t a person on Earth who will be left unaffected. Coming Soon…

Sutton/Mehl

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Where Do We Go from Here? Economic Analysis for Remainder of FY2020

Bailouts, Consumer Finance, Debt Ceiling, Economics, Modern Monetary Theory, My Two Cents, National Debt, Trade War, , , ,

The world started 2020 on the most shaky of terms, economically speaking. The world was already in the early stages of a contraction in aggregate demand. The covers of magazines had articles of various corporate analysts and CEOs talking about a serious recession as early as late 2018. We stress this was a global contraction, not limited to one or even a few countries. As was the case in 2008 some would fare better than others for myriad reasons. The last few months of 2019 and the beginning of 2020 saw the resignation of CEOs from several prominent companies such as Disney.

Being perpetual cynics, we wondered if they knew something the rest didn’t. The prospect of a recession was largely downplayed in the US/UK/EU mainstream press, which was no surprise. They’ve been derelict in their duty for decades now. The average American/Brit/European had no idea what was coming. Even the central banking community was bathed in complacency. They’d achieved Ben Bernanke’s ‘Goldilocks Economy‘ even if only in their own minds.

We pointed to one event as a harbinger of an upcoming crisis as early as 2016 – the appointment of Neel Kashkari to the position of President of the Minneapolis ‘Fed’. Huh? Neel Kashkari was tapped by Henry ‘Hank’ Paulson back in 2008 to head up the TARP fund created by Congress in November of that year as part of the massive Wall Street bailout brought on by a spate of bankruptcies, insolvencies, and general financial mayhem.

Why Kashkari in 2016? The last we’d heard, he was living in the mountains of California planting potatoes or some such. The TARP mess stank on every level and it was apparent that once his work was done, Kashkari was off for a long, long early retirement. So his appointment to such a position registered an 8 out of 10 on the weird-stuff-o-meter.

Moving into 2020 the United States economy was balancing on the triple supports of consumerism, financial sector activity, and government excess. The FY 2019-20 Federal deficit was going to be one for the ages long before the term ‘Corona’ was known as anything other than part of the Sun.

Geopolitical tensions were high with the sanctioned assassination of a prominent Iranian general within the first few days of 2020 and the failed ongoing ouster of Venezuelan President Nicolas Maduro at the forefront. Add to that an ongoing trade war / war of words / saber-rattling between Washington and Beijing as well as a good deal of ill-rhetoric between Washington and Moscow. That’s just a small sampling.

With nearly all of the first world nations running persistent current account deficits and the rest of the economic superstructure living heavily on debt and financial speculation, it was only a matter of time. Would it be a pin that popped the ‘everything bubble’ or would it simply just slowly deflate (not to be confused with monetary deflation)?

So pervasive was and is the presence of debt in the circumstance of nations, states, trading blocs, provinces, municipalities, companies, and individuals that the trillions of dollars racked up by the US alone was not even viewed askance by economists OUTSIDE what would be considered the mainstream of the scientific economics community. Keynesianism was like a high-quality dime store pinata. Now matter how hard it was hit, it just kept spitting out candy.

We mentioned in My Two Cents on several occasions that this whole ‘system’, if you will, would go until it didn’t. It was a confidence game, just like the multitude of fiat currency regimes that backed it in the various corners of global commerce. As long as economic actors had ample supply of tokens (currencies), and another economic actor would accept those tokens in exchange for scarce land, labor, capital, and technology, the system worked.

Then the world got sick.

There has been much talk of ‘black swan’ events. The term was coined by a current events/geopolitics author Nassim Taleb. The black swan is something that nobody is looking or planning for. It is not on the radar. Period. There have been some who have been talking about pandemics in general for quite some time now in similar fashion to your authors considering the likelihood of economic fallout from the fact that the organized world has violated every law of economics imaginable. There’s always a reckoning day.

We are not going to discuss the SARS-nCOV-02 situation from a biologic/scientific standpoint as that is outside the scope of our expertise. We’re going to focus on nCV as a triggering event or black swan and the likely economic ramifications.

The amount of money that has already been borrowed/printed and spent is mind-blowing. It cannot be complicated by the human mind. The US National Debt blew right past $25 trillion. It is hard to fathom this but the growth of the national debt is a mathematical function based on the concept of fractional reserve banking. The debt was headed to where it is now anyway. That is going to be the biggest take-home. Would have it happened this fast without nCV? Probably not, but it was headed past $25T in the next 12 months regardless.

What nCV does is give governments the world over a free pass if you will on the print and spend / borrow and spend fiscal irresponsibility that has been going on for decades now. Europe reached its breaking point because of this foolishness in the past decade. The 2020s will be looked upon in history as the decade when the USDollar finally died.

That’s a bold pronouncement isn’t it? Not really. Who in their right mind is going to continue to lend to any entity that is so fiscally reckless? Ourselves along with many others have laid bare the runaway fiscal policy that has infected the US for so long. Now there is the element of public health involved and the general consensus is that we have to continue these spending policies, bailout entire industries, and even provide income to the populace. Anyone speaking out against any of this is labeled as being against helping people.

What needs to be understood is that this ‘help’ is only temporary. Think of the minimum wage. It is a very applicable analogy. Every increase of the minimum wage only lasts so long then another increase is required to produce the same result. Now, scale that up to the world’s economies and that’s what you’ve got. The ‘system’ needs ever-increasing amounts of stimulus to produce the same effect.

While grossly overused, the analogy of a drug addict is a very good one. Eventually the addict needs a fix just to feel normal. And so goes the global economy. If the stimulus is scaled back, the economy goes into withdrawal. The US economy is around 70% consumption and has been that way for nearly two decades now. This is not just a national or government problem. It transcends all layers of the economy. Even successful companies loaded up on cheap, low interest rate debt to conduct share buybacks, thus pushing stock prices higher.

Where do we go from here?

Even before the new year began, countries and companies outside the US were cutting deals outside the dollar. The dollar’s status as world’s reserve currency was being challenged. Expect that to continue – and accelerate. There won’t be a pronouncement that the dollar is no longer the world’s reserve currency. It likely will not be a headline. It’s been happening incrementally for years now. This latest fiscal quagmire will accelerate the matter. China is testing a digital currency. Russia has thousands of tons of gold. These countries don’t get along with America and Europe on a good day. The Russians already dumped nearly all of their US Government debt, but the Chinese still have a significant amount around $1 trillion.

Treasury Secy. Steve Mnuchin claims all that debt doesn’t give China any leverage on America. We’ll allow you to draw your own conclusions.

A global reshuffling of the economic order was already taking place before 2020 started. Europe endured a partial crisis over excess debt and the austerity that followed. And all of that was just a small piece of the problem. Economic history is replete with examples of complacent countries and empires who thought it could never happen to them. Complacency might just be the most dangerous state of mind that man can occupy. We are quite sure the Romans would agree.

Sutton/Mehl

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