Are you running towards the hills yet?

There is a famous saying. “You can ignore reality, but you cannot escape the consequences of ignoring reality. “ Few Americans I talk to even realize the impending disaster they are about to be thrown into.

Sorry, No idea how this will affect those in other countries, this will be the first such event in the history of the world, there is not much data on how the cascading effect will affect other shores. But it is hard to imagine they won’t be affected adversely also.

For at least two decades now, there have been bubbles blown in many areas of the US economy. It went from Real estate to stocks and other assets, then to bonds, and finally the US Dollar. The problem started going parabolic during the y2k crisis, when after the dot com bubble in the economy, natural adjustments to market realities were not allowed to happen. Failed businesses were not allowed to close down, and the Fed lowered interest rates to avoid a major crash due to the excesses of the dot com bubble era. That led to a real estate bubble which finally crashed in 2007. The effect of that crash was not allowed to be fully felt (the fed bought up many failed real estate projects). Money printing was resorted to, which led to the transition of the real estate bubble into a bond and a US Dollar bubble. That bubble has grown so big, that it is the mother of all bubbles, and there is no place to hide when it bursts.

The artificial lowering of market interest rates has caused a flood of cheap money, which has also caused a huge bubble in most asset values, including stocks. The economic crash of 1980 was the largest since the great depression of 1929. It saw inflation at 13.5% at its peak in 1980. The inflation today stands at 15%, the HIGHEST ever in US History – by far. The only reason it is not officially listed as 15%, is because of the way the USG changed the definition of how they calculate inflation. By the 1980 method of calculating inflation, it will clock in at 15% TODAY. All kinds of games have been played with the method of calculating inflation, including excluding many items like housing, gasoline, etc., and using financial wizardry like lowering of inflation estimates due to reasons like hedonics, shrinkflation, substitution, etc.

Luckily, the full effect of this financial irresponsibility has been dampened somewhat, by an increase in productivity due to technological improvements, and due to foreign countries absorbing US inflation, in a process called ‘exporting of inflation by the US’. Basically when we print money and cause inflation in the US, other countries that supply to the US, decided to print a similar amount of their own currency, to avoid having their currency rise against the USD, and thus lose exports to the US. This caused inflation within their own countries. Thus the US was not punished for money printing, and was able to ‘export’ their inflation to other countries. Others are pushing limits, and cannot keep up with the US much longer.

The powers to be in the US have realized that the only way to pay off the massive US government federal debt of 29.03 Trillion USD, is by inflating away the USD. How else will they pay off 29.03T when the total revenue of the Federal government is only 4.05T annually.
Governments that are boxed into this scenario, can either default on their debt (US cannot afford to do this right now) or inflate it away by incessant money printing.

The fed is boxed in badly between two extremes. If they try to be aggressive and curb inflation by increasing interest rates, then the interest payments on the federal debt will bankrupt the government. Inflation rates in the neighborhood of the current 15% or any higher, will ruin everyone’s living standard. But then the tools to curb high inflation are ineffective, because the government would not be able to afford to make interest payments if the tools are implemented. Talk about being stuck between a rock and a hard place.

The first recipients of federal government spending – the wealthy – are obviously very aware of all this. And hence you will see them buying up land, buildings, tangible assets (gold), etc. Additionally , foreign central banks who hold a lot of US Dollars, realize what is coming their way, and have started divesting away from the USD, and investing in tangible assets like Gold.

The informed have started running towards the hills, because they see the tsunami coming their way. The informed also realize that we are running out of road to kick the can into. Are you still not seeing the tsunami, do you think there is plenty of road to kick the can into? And are instead frolicking at the beach? Why?

DISCLAIMER: The author is solely responsible for the views expressed in this article. The author carries the responsibility for citing and/or licensing of images utilized within the text.