top of page

Below we look at a world awash in debt, doublespeak and currency danger. As usual, gold gets the final world.

CARY MACROS: RECORD DEBT COLLIDING WITH RISING RATES - As has been said many times, and worth repeating many times more: “The bond market is the thing.” Why? Because bonds are debt instruments, and for the last many years, debt is king. In a world awash in over $300T in global debt, and a US economy crippled by over $90T in combined public, household and corporate debt, it has become sadly and all too clear that debt represents the wings beneath our so-called “economic expansion.” When that debt becomes unsustainable (i.e., unpayable), however, those wings are clipped and the system implodes.

Years of post-08 interest rate repression and trillions in mouse-clicked money to monetise this debt have done nothing but buy time (and political office) while placing the global economy on track for the greatest recessionary hard-landing in history.

Interest rates, of course, represent the cost of debt. It should therefore be no surprise to even the most modestly informed investor that rising rates colliding with record-breaking debt levels are a catastrophic combination—especially for bond markets. The bond market in general, and the UST market in particular, are thus a clear leading indicator of where and how this catastrophic game plays out.


That is, as the Fed raises rates at the Fed Funds Rate (FFR) level while simultaneously and dovishly selling USTs into a market that has no natural demand for the same, the over-supply of those UST’s leads to a decline in their price and hence a rise in their yields.

Rising yields on the US-10Y Treasury are the real pain indicators for the markets, as they represent the interest rate most watched by the rest of the world. Thanks to the Fed, those yields and rates are rising like approaching shark fins pointed at the US and global economy.

In short: If low/repressed rates and yields gave us the greatest and most artificial risk asset bubble in history, rising rates and yields will give us the greatest implosion in history. So why is the Fed raising rates?


But certainly, central bankers like Powell must know the dangers of rising rates. So, what is he thinking? What’s the plan behind his historic rate hikes in 2022?

The headline and official answer, of course, is to fight inflation with rising rates, a tactic taken directly from the playbook of Paul Volcker in 1980. But this official argument as well as public comparison is, in our opinion, an open fiction.

Let us remind that when Volcker raised rates to as high as 20% in 1980 to fight inflation, US public debt was $900B; today that number is over $31T—an astronomical spread which not only defies belief, but makes any comparison of Powell’s America to Volcker’s era an open insult to common sense.

Furthermore, let us also remind what everyone else on Wall Street and within DC already knows, namely that the official inflation rate coming out of the Bureau of Labor Statistics in DC under-reports inflation by at least 50%.

This means Powell is never going to beat 16% to 17% honest inflation, nor even 8% reported inflation with a FFR of 5%, 6%, or even 7%.


In sum: The hawkish narrative that Powell is raising rates to fight inflation is a ruse. So, what’s really going on? To see this, one only needs to think like a desperate and corrupt debtor, and then predict what they would do if they had all the power in the world. That makes desperate central bankers easy to predict, despite their words to the contrary. In short, Powell, like any all-powerful debtor, will use his powers of masking actual inflation while actively seeking inflation.

Huh? Really? Why? Simple: The fastest way out of a debt-corner of the Fed’s own creation is to inflate that debt away.


In market terms, this boils down to intentionally seeking negative real rates—i.e., a setting in which inflation rates are well above interest rates (i.e., the yield on the 10Y UST).

In fact, the deliberate use of negative real rates to inflate debt-strapped sovereigns out of debt is one of the oldest tricks in the history books of failed economic systems.

Powell, of course, will not openly confess that inflation destroys the middle-class and places the economy on the brink of implosion via the invisible tax on the poor and the unspoken debasement of the currency.

Instead, he will try to have his cake and eat it too by posturing to fight inflation while simultaneously seeking it –but then under-reporting inflation by at least 50%.

Pretty clever, no? In this way, the public destruction of actual inflation is downplayed (misreported) while the inflationary effects of negative rates help dig Uncle Sam out of an historically unprecedented debt pile.


Powell thinks he can walk this thin line without getting caught. That is, he thinks he can contain a recession while blaming inflation on COVID, Putin or global warning rather than admitting to the fact that years of printing trillions of dollars out of thin air is by definition “inflationary.”

Of course, another way in which the Fed can “contain” a recession is by altering the very definition of a recession with as much arrogant dishonesty as the Fed previously claimed that inflation was only “transitory.”

Despite inverted yield curves and declining GDP prints, the Fed will now tell us that a recession is not really a recession, even though we feel it and see it with our own two eyes, from Target to Amazon.

Meanwhile, the only reason Powell is rising rates today is not to fight inflation, but so that he’ll have something (anything) to cut when the recession he currently denies is too real to ignore and hence the Fed makes the inevitable pivot back to more QE.


Buying time with fluffy words to ignore hard math is the job of central bankers. So is distorting that math on everything from true inflation to an official recession.But not even the most distorted math or fork-tongued central bankers can cover-up, down-play or deny what eventually becomes too obvious to ignore—namely the decline in one’s purchasing power and the rise in one’s economic pain.


The Fed, for example, has made the USD un-naturally strong by raising the FFR. It was hoped this policy would attract foreign interest into US credit and equity markets.

This foreign interest, however, was more of a yawn than a rush. Nevertheless, the strong USD was an open headwind to the USD gold price. More importantly, by making the USD too strong, Powell forgot about the rest of the world, including the BRICS, who owe over $14T in USD-denominated debt.By making the USD stronger, Powell just crippled foreign debtors and their currencies, who are now forced to debase their own currencies to pay-back increasingly expensive Dollars.

But the Fed and the US may be pushing too hard, as many of those foreign countries are looking to strike new trade, oil and currency deals with the East rather than the West as the world slowly but surely moves from a mono-currency to multi-currency system, which will only weaken the USD’s status and power as a world reserve currency.


As debt levels mount, and are in turn monetised by billions per month in mouse-clicked Dollars, the inherent purchasing power of those Dollars gets weaker and weaker. Despite a rising DXY, the USD’s strength is only relative to other currencies like the Yen or Pound Sterling and Euro. In short, the USD is merely the healthiest patient in the ICU…

Very soon, the USD’s rise will end, as it crushes US exports as well any remaining US financial allies. Ultimately, rising rates will make US debt markets impossible to sustain, as more and more over-indebted enterprises buckle under the weight of rising debt costs. Layoffs, already in motion today, will worsen.

This will be followed by falling credit and equity markets whose only salvation will be a pivot to more QE from an “accommodative” Fed. Such a pivot, of course, is inherently inflationary as its net effect is currency debasement, which, again, is the oldest trick in the book for debt-failed nations.

Throughout history, and with zero exception, all debt crises lead to currency crises, for which gold (and not digital coins) have offered the surest and safest insurance against currencies dying in plain sight. The current crisis, and current Dollar/currency, is no exception.   EG

bottom of page