This is NOT investment advice.
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In October of 2023, I published the following article:
Yellen Spills The Beans: LLLLOOOOWWWWEEEERRRR For Longer
I was way wrong about one component in this article above. I put out a time frame (big mistake to even toss it out there) of reality setting in by 2025. Well, we're here in January of 2025 and "officially" the Fed has not really entered into a transaction oriented easing cycle - yet. I was wrong.
Stand by everything else in the article. The intent was to attempt to capture an intriguing paradox - the higher the debt goes the LOWER rates will go. Huh????
My senses tell me most still consider the above to be "crazy talk" or "certainly not what my financial advisor told me". Yet - nobody has ever proven it to be wrong. I could be wrong but it still "feels like" the above is still considered a very extreme view (maybe I need permission from Liz Warren for even typing it out, who knows?).
Two options more or less though they can create new acronyms to describe a repetitive action already taken.
Option A: deflationary collapse resulting from a drain of liquidity beyond the point of no return. Bitcoin would decline notably, but less than everything else.
Option B: an attempt to "inflate our way out of this" by using the currency lever to artificially inflate Nominal GDP and Nominal GDP Growth such that the Debt/GDP ratio falls and it "looks like things are getting under control".
That's it that I can see.
Back to October of 2023 - Secretary Yellen came out and basically said to take a chill pill and that the U.S. can handle all of this debt. She was quoted as saying "debt servicing costs" would only be about 1% of GDP. Hmmmmm.
Some math twisting and turning in there. The above jumps ahead and assumes we do in fact get the Nominal GDP Growth (pushed forward nominally via inflation) and then does the math back to try and get to Yellen's 1% debt service number. In a nutshell - Yellen may have leaked a plan that essentially says "don't worry about it, we'll inflate the economy so much we can handle the debt load". That sounds like Option B above.
A potential path forward:
- stack BTC aggressively and prove to the bond market you possess increasing amounts of the world's most pristine and scarce collateral
- shill and pump stablecoins aggressively while creating regulation that enables them to proliferate
- stuff the stablecoins up to their eyeballs with UST at 5yr and shorter, make stablecoins become yield seeking missiles that upgrade MMF to something that serves as a method of payment but also yield generating tool
- crank up the economy relentlessly
- QE
- YCC
As a reminder - a "higher for longer" yield curve (let's say a 5% blended rate) will ultimately cause nearly everything to be crowded out by simply making interest payments on the debt outstanding.
Ahhhh - an intriguing paradox. The higher the debt load goes, the lower rates must go. Only way the entity issuing it (Treasury) and the entity selling/moving/spinning/holding it (Fed) can stay in business and keep the charade going.
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