Nobody is Prepared

Inflation, Nasdaq, Yen, Musk, Thiel and More

Our title for today’s note “Nobody is Prepared” reflects the complacency of the investing world at large, or at least our perception of them. We know that the world has been duped with a deluge of debt which has led to a massive increase in artificial asset price appreciation. What the world doesn’t understand is, that when you take this debt away and you try to reduce central bank balance sheets that this reduction has a multiplier effect. The multiplier works as an exponential however and this is what nobody understands. In a fiat reserve central bank system, reserves are the only real capital, everything else is credit. For instance, the FEDERAL RESERVE (note we do not say US TREASURY) only has $2.25 Trillion in actual currency:

However, the US TREASURY has issued over $29.6 Trillion in financial debt obligations.

This is a 13.1x Reserve is it not? Yes we know the US Treasury cannot default as the Federal Reserve will print whatever the Treasury needs. However…the realization becomes, at what price? At what price will the US Treasury be forced to borrow at? With inflation running double digits in some places, its safe to say we are about to find out. As we noted earlier when you destroy $1 of debt (default, roll-off or other) your eliminate $13 in credit.

Now you and I both know the US Treasury and the Federal Reserve know this full well and they play semantics with the public and use words like “transitory” and buy decades of time with their actions.