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The future of the USD and gold is as easy to see as the current reality of debt.

As global debt slowly frog-boils toward the $400T level while the USA (home of the now weaponised [and distrusted] world reserve currency) surpasses its embarrassing $34T public debt marker, the ripple effects of such simple math and equally simple financial mismanagement are now beyond shame or dispute.

In just 10 years, the US government has more than doubled its debt levels from $17T to over $34T in an almost drunken addiction to buying votes, “policies,” IOUs and even a Nobel Prize for Bernanke with money quite literally created out of nowhere. This, of course, is not a sustainable policy but an open racket which history will one day look upon as madness, assuming, of course, that history is not cancelled.


The current Fed, however, will tell you they are “tightening” and seeking to reduce rather than expand the fake (and inflationary) liquidity. What is more, the current Fed will tell you it is hawkishly raising rates to fight inflation and tame this otherwise liquidity-addicted monster known as the US financial system. But with all candor, the current Fed, like a clever magician, is merely distracting its audience with a basket of lying aces in one hand while tricking you with a basket of hidden jokers in the other.

Data Dependent? Or Data Manipulated?

First, it is now a well-known and open secret that the Fed’s measure of CPI inflation is a complete ruse.

Even former Treasury Secretary, Larry Summers, recently tweeted that if the Bureau of Labor Statistics used the same pre-1983 housing metrics which Volcker’s Fed used to measure inflation, current US inflation would be above 18%, not the reported 3.7% fiction. Such honest reporting, of course, would be far too embarrassing to confess, so like a child with his hand in the cookie jar, Powell has no choice but to pretend. 

Or more bluntly, no choice but to lie despite the cookie crumbs falling off his chin. If not, he’d be forced to admit what most of us already know: That none of the “yields” on an already dangerously inverted yield curve are beating true inflation.

Or stated even more simply, bond investors are instantly losing money to actual inflation the moment they purchase the same.

This, of course, makes Uncle Sam’s IOUs increasingly unloved, which explains why central banks have been net sellers of USTs and net buyers of physical gold since 2014.

Follow the “Money”—Backdoor QE Is Still QE

If one follows the money, the implications of this sickening debt trap are obvious. The need for more QE is not only tragic, but sadly, unavoidable.

But given the embarrassing reality of this inflationary nightmare which Powell once dishonestly declared as “transitory,” Powell is forced to hide truth behind more clever card tricks. For example, despite no official (and embarrassing) direct QE, DC is very busy doing backdoor QE via all kinds of desperate and hidden measures, the net results of which are inherently inflationary.

This backdoor QE takes many forms, from the trillions employed under the BTFP program to “solve” a now media-ignored banking crisis circa 2023 and the trillions more in Treasury General Account flows or reverse repo market trickeries, to the revival of Supplementary Leverage Ratios which quietly allow Fed banks to use unlimited leverage to purchase otherwise unloved USTs.

Each of these clever/hidden tricks to keep bankrupt credit markets on a liquidity respirator, allow DC to produce trillions in inflationary liquidity off the balance sheet (and headlines) of a Fed otherwise too embarrassed to openly commit to direct QE.



But whether the QE is direct or hidden, the end result is the same—namely inherently inflationary. Students of history, of course, see this far better than short-sighted top-chasers. At no time in the history of bankrupt nations, regimes, monarchies, democracies or even banana republics, from ancient Rome or Habsburg Spain to the Ancient Regime of 1789 France or 2024 America, has any nation avoided the sickening temptation to debase its currency as means of “saving” its rotten financial system.

Regardless of Powell’s optic and public “war against inflation,” Powell needs inflation to inflate away otherwise unpayable US debt levels. But like a magician, he will claim to be “winning” this war by simply misreporting actual inflation. That’s the trick. Or more bluntly: That’s the lie.


This means that investors in bonds, real estate, equities and just about everything else under the sun from secondaries, VC and private equity are measuring their “risk adjusted returns” in a currency that is effectively losing its purchasing power like a melting ice cube. Given the honest math and hard history of debt, it soon becomes easier to soberly see that the US in general, and the Fed in particular, is undeniably stuck in a debt trap by which no good scenarios, or rate policies, will save it.


Since January of this year, the world has been hanging on the edge of its seat waiting for evidence of Powell’s promised rate cuts.Many were predicting at least six cuts in 2024, but it’s already May and still no cuts? Some are even worrying that Powell will reverse course and offer no cuts all?

It Doesn’t Matter…

But in our view, it really does not matter what Powell does, for regardless of whether rates remain elevated (“higher for longer”) or dramatically cut, the endgame is grotesquely inflationary. This conclusion is quite easy to see, so let’s take a quick look at the trap.


If Powell continues at the current interest rate levels, the interest expense on Uncle Sam’s sovereign debt obligations will surpass $1.6T in 2024.

The simple reality is that GDP and tax receipts will never cover this expense, which means Powell will have no choice but to mouse-click billions/month at the Eccles Building just to pay his own IOUs. That, by the way, is called Fiscal Dominance, and it is, by its very nature: Inflationary.


Should Powell, however, take the opposite approach and simply confess that his war on inflation is doomed by openly cutting rates despite his failure to reach “target 2% inflation” (whatever that really means…), then the USD weakens and inflation openly rips through our cities, markets and homes like a hidden financial virus. 

Such rate cuts, of course, would be a temporary tailwind to markets, but the destruction of the currency required to “save” that system makes any nominal returns a pyrrhic victory in real (i.e., inflation-adjusted) terms. But again, once interest expenses on sovereign debt surpass military and social expenses, the fiscal reality and rot of a nation, as we currently sit, becomes a matter of fact rather than debate.


Like all cyclical failures of nations broken by failed domestic, military and political policies/spending, the end-game in the USA will be inherently inflationary even if we see an interim dis-inflationary market correction or ignored recession.

More fake liquidity in the face of ignored recessionary indicators (from the Conference Board of Leading Indicators or the M2 declines to record lay-offs and bankruptcies on Main Street etc.) actually suggest a future of stagflation for which there is no immediate cure in sight.

By the way, Biden’s Inflation Protection Act, which is a spending bill, will certainly be of no impact…Given the ignored reality of persistent inflation and a debt-trapped DC, measuring wealth in fiat paper (or veritable melting ice cubes) makes almost no common sense.


As we have warned for years, gold, which has far greater (i.e., infinite) properties than paper money, will significantly outperform for the simple reason that fiat money, regardless of its relative strengths or weaknesses, will continue to get weaker and weaker.

Many, of course, will argue that gold just does nothing but stare at you. This may explain why it only makes up 0.5% of all global financial asset allocations. But being part of a smart minority is no problem for the far-sighted and the prepared. 

Gold, in fact, is very busy retaining its value and preserving your wealth, while the USD is equally busy losing its value and mocking your wealth. Of course, the world will slowly catch on once inflation becomes too felt to be ignored by even dishonest CPI tricks.

In such times, the 40-year mean gold allocation of 2% of global financial assets will return and rise even higher. This 4X demand mean-reversion will be reflected in an equally higher gold price, but that will only be the beginning of gold’s historical price action, an action which has nothing to do with gold getting magically stronger, but simply with fiat money getting realistically weaker.   EG

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