The Spiraling Cost of Order

From the Desk of Don Yocham:        The Spiraling Cost of Order Here we are in yet another debt ceiling debate. And you see the same old arguments cropping up once again – including the Treasury minting a $1 trillion platinum coin and depositing it with the Fed. Of course, the GOP is digging in its heels. But before you put too much stock in partisan positioning, keep this in mind: the debt ceiling has been raised a total of 14 times since 2001. Now, know that both parties share the blame. Nether can claim the high ground. And such an inglorious track record leads me to heavily discount any heel digging on the part of the GOP. But my skepticism doesn't rely entirely on the past. It also relies on incentives. And the primary incentive for either party is to maintain order. Orderly capital markets. Orderly labor markets. Not to mention a continuation of the privileges that the U.S. dollars reserve currency status quo provides. Unfortunately, order costs money. And the price of order is only going up. Doubling Down – Again and Again! During the Great Financial Crises, the cost of order through stimulus packages measured in the $100s of millions. With COVID-19, that cost shot up to trillions. And the latest schemes wending their way through Congress could double the amounts spent once again. And the debt ceiling debate, while a useful tool to cram in other legislative priorities, will do nothing to stave off its inevitable increase. You can witness the flip side of this increase in the monetary base. This is the base supply of U.S. dollars provided by the Federal Reserve. To increase money supply, the Federal Reserve must buy debt – most of which is issued by the U.S. Treasury Department. It works like this... The Treasury issues debt (and they need a higher debt limit to issue more). The Federal Reserve then ultimately buys it and prints new dollars to pay for them. There's a middle step that involves a network of banks called primary dealers, but anymore they just shuttle bonds and dollars between the Treasury and Federal Reserve. In 2008, to stave of the worst effects of the Great Financial Crises, the Federal Reserve doubled the supply of dollars from $800 billion to over $1.6 trillion. Over the next decade, that supply doubled again in spurts to $3.2 trillion. And, since the onset of COVID-19, it has surged to over $6 trillion. And it's this pattern of each successive crisis or government imperative doubling the cost of maintaining order each prior one that creates unavoidable risks, no matter the outcome. Don't issue more debt for the Federal Reserve to buy and we get a deflationary collapse. Do issue more debt and inflation could run out of control. Now, governmental power structures don't survive deflationary collapses. But they can scapegoat their way through runaway inflation. It's a tried-and-true method of maintaining order. And it's from the spiraling cost of that order that you need a hedge. Last week I suggested you buy Pax Gold (PAXG)– a cryptocurrency where each token is backed by one ounce of gold. Today I have another solution for you. And I view it as a cheap way to buy gold in the future. CLICK HERE TO GET TODAY'S TRADE! To your success, Disclaimer & Disclosures The information in this email is intended for informational purposes only and does not guarantee specific results as there is a high degree of risk involved with trading. Also, our traders are real traders and may have financial interests in the companies discussed.  Please see our Terms and Conditions for more information.

 

                                                           

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