Yes. It’s a balance sheet problem. How impaired is the US balance sheet today? Powell isn’t waiting around to find out. That’s what has everyone so angry both the rent-seekers AND the sound money guys
— Tom Luongo (Head Sneetch) (@TFL1728) December 2, 2023
When someone is everyone’s enemy he’s likely doing the right thing https://t.co/p4ImoSmFHK
Why hasn't the dollar collapsed yet? The Austrians will scream, and they did at the time, the moment the dollar went off the gold standard, "Dollar collapse! Dollar collapse! Dollar collapse!" and it hasn't happened. Why? Because we were bequeathed a tremendous balance sheet by our ancestors, and we had an equity-financed economy up until 1968 in the United States, and frankly most of the rest of the world, because most of the rest of the world follows the U.S. dollar and the U.S. standard whether explicitly or implicitly. And so it used to be that your grandfather gifted you a series [double] EE savings bond in the 1950s, now your grandparents are cosigning on your credit card . . . when you come of age. So we went from being gifted assets to being gifted debt. And that's what is happening and is now part of everybody's capital structure but the erosion of real wealth that is coming from that is staggering, but it's been subtle and it's been happening over 50 years. Literally, I was born in 1969, and the U.S. flipped from an equity-based economy to a debt-financed economy in 1968. So my entire life has been "eating the seed corn" so to speak. We've been drawing down the equity of the United States. But that's why those who called for a collapse of the dollar when the U.S. went off the gold standard in 1971 were wrong because we actually had a lot of equity capital that we could just draw down, and we've been drawing it down by borrowing borrowing borrowing borrowing and we will hit insolvency in the US at some point. So James Lavish is right, there's going to be a debt tsunami that is going to hit the insolvency at some point but we're nowhere near where the naysayers think we are.
Remember:
— James Lavish (@jameslavish) November 14, 2023
higher UST rates → creates larger deficits → leads to more debt → then long duration yields spiking → even larger deficits → eventually a debt tsunami
Now that said, it could happen tomorrow because the financial system is that unstable and so we could have another 2008 and have a systemic issue that requires tens of trillions of dollars of printing by the Fed just to backfill for the default of private sector credit creation at that time. I think we all know intuitively that it's coming, it's just that it's not as close as most people think . . .
