2/04 Update – A response to a reader; How our theories work in the real world

Debt is the deflationary part of QE; income-generating assets help us stay ahead

…The alt financial media seems to fail to ever mention in their analysis that total outstanding debt (public and private) still dwarfs by many magnitudes the number of dollars in existence capable of servicing that debt, which is deflationary. This means there is still a lot more money printing to be done to solve the debt trap dilemma, and perhaps it’s no solution b/c every dollar printed requires a dollar of debt to be created. This is why even more US debt is needed, to create enough dollars to service debts both public and private (i.e., the hamster wheel).

The irony seems to be that the money printing does not actually find its way into the hands of debtors to service that debt, but rather into the hands of speculators to enrich themselves further.

All the money printing (which creates debt as a condition of the money printing, which maintains the deflationary debt overhang) appears to gets channeled into asset price appreciation, which does not improve the velocity of money, which is necessary for a robust economy and any possibility of consumer price inflation.

For some reason, these shills seem obsessed with the magical quality of gold as the sole hedge against money printing, but fail to notice that stocks are also an asset. All the price inflation that could be caused by the money printing is largely being directed into stocks as the appreciating asset that benefits from money printing, not gold etc. It’s the reason why the market rebounded from the 2020 covid sell off and why any further dip will be bought….


It is all very straightforward and logical
This all fits together like the game pieces in Tetris

The alt-finance world seems to think that both the debt and monetary printing are inflationary; they like to have it both ways. The debt, however, is very deflationary. The net result is that we have disinflation.

As the reader points out, the velocity of money continues to decline as aggregate economic potential is further devoted into servicing the ever-rising levels of old and outstanding debt. It doesn’t even matter what the prevailing interest rates are, as long as the principal balance continues to climb, economic potential falls. This means the velocity of money will fall, too. While the velocity in and of itself doesn’t mean much to us, its falling measure is a verification to our theories at work.

I read the stuff coming out of GATA and they seem to think that it’s “heads they win and tails they win.”

The theories we discuss have seemed to work, at least for the past 10 years. Of course, it is incumbent on the elites using their MSM to properly market QE to the masses, and they did a very effective job. If they didn’t, interest rates would have risen while asset prices would have fallen.

I was confident enough with my theories to relay them to my shortwave show listener and the readers of my blog. I was able to make large long-term financial decisions. We’re not talking about short-term trades here, we are talking about redirecting our mindset for large-scale investment decisions to change our lives for the better. Life is hard enough and if we have to concern ourselves with paying monthly bills we will never be able to move forward in this distracting world.

The manufactured 2008 collapse was the catalyst for a new monetary system

The collapses of 2008 presented the world with an existential dilemma. Essentially, the world economy reached its debt limit under the old system as the nation-states lost their ability to continue funding and servicing all of the outstanding debt. As a result of the manufactured catastrophe, the central banks then stepped in and provided the means for the nation-states to continue borrowing with little ostensible ramifications for this prior debt limit.

The elites just needed to scare us first into trying a new system that otherwise would have been rejected. This is why they manufactured the housing bubble.

Once the investor at-large accepted this new mechanism of what is now called quantitative easing (QE), the problem of debt limits was essentially solved. However, the only way it could be maintained was if interest rates dropped over time, because the debt balloon continues to rise and economic potential, by function, is then devoted on an ever-greater scale to servicing old and outstanding debt.

But the actual operations of QE essentially solves the potentially fatal problem of rising interest rates. QE is disinflationary by nature and causes demand in the aggregate to remain below potential. Concomitantly, these low interest rates help to enhance aggregate supply as the firm’s cost of capital falls. Thus, micro-economically speaking; despite the explosive rise in money stock measures, we see muted equilibrium price growth in the supply/demand curve.

Lower interest rates also translate into rising asset prices, and these investment dollars essentially go to the wealthiest and are thus taken out of the consumption equation.

We’ve talked about this on my blog for at least five years now. This is why I have recommended buying income-generating assets. These are the only assets that are guaranteed to keep up with the ballooning debt pile created under QE.

Those who do not own income-generating assets are confronted with this rising debt burden, but have no offsetting income and assets to remain in place or move ahead. While we all have to contend with this higher debt burden, and the worsening quality of life it entails, those with the income-generating assets can stay ahead of it. Essentially, we see a tsunami coming, but instead of running away from the wave on foot, those who own the proper assets have a sports car to drive.

And for anyone who thinks this can’t be maintained, take a look at the past 12 years. You clearly do not know your adversary.

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10 thoughts on “2/04 Update – A response to a reader; How our theories work in the real world

  1. Armstrongs thinks that there will be significant inflation over next couple of years due to many current breaks in the supply chains from covid that will cause shortages and resulting price increases. Do you agree that there would be inflation in the short to medium term because of the supply shortages irrespective of how low a firm’s capital cost becomes?

    1. I was concerned about that at the outset of covid and the next several months, but I think a lot of the gains in commodity prices are speculative and anticipatory in nature.

      Knowing what I know about covid, I am having a difficulty respecting the crisis, per se, since it is all manufactured. It’s real, since the public believes it to be, but it was engineered for a specific purpose… Wealth and power consolidation.

      More likely, if prices rise and supply restricts, I would theorize it will be from a lot of potential supply going offline as firms go out of business due to government imposed covid restrictions. Economic sectors that were once freer become de facto oligopolies.

      I don’t think supply chains will cause inflation. It will be from the structural changes in the economy as we see businesses and wealth consolidate.

      1. My understanding is that eventually when it becomes obvious that the Fed is monetizing the debt, demand for dollars will decline, weakening the dollar, diminishing it’s purchasing power for all the goods we import, which will be the cause of the inflation.

  2. Oh, I almost forgot because it’s hard to understand the phantom reality trade world.
    If fake news, fake currency, fake stocks = real profits
    Where does DOGE fit in?
    It’s a meme stock (bad),but Musk pumped it up 43% (good?)
    True lies?

    1. As the plebes get more desperate and demoralized, they will engage in ever more risky trading and “lotto-ticket” behavior. This is all a result of all this money being generated, while the masses try to figure out how to stay ahead of the debt waves pummeling them. So, seeing DOGECOIN trading like it is just makes perfect sense. Pumps and dumps, etc., and those least able to pull the trigger get crushed.

      I read that a hedge fund cashed out of GME with a $700mm cap gain in their holdings. The small trader got left holding the bag, of course. Just like I warned the reader when it was 350 to cash out, someone has to take the contra. That was the small trader who believed the shilling on YouTube and the message boards. I bet some of that shilling came from that hedge fund.

      Welcome to the new world order. A parasitic economy where traders sit around conjuring up pump and dump schemes to fleece their neighbors.

  3. Another great real world overview Chris, thanks.
    What about the Dragonfly trade? Is it still intact, or are you onto some new prospects?

    1. Oh yeah, DFLYF. It’s okay here. I see how its peer, UAVS, has kind of been on the sideways. There has been some short term problems in these speculative plays as some of the smaller traders got kicked down with wallstreetbets, etc.

      I like it here, but I only have a runner position and am waiting for Nasdaq compliance. That may be longer than we think as reporting and such need usually take longer than expected.

      I was underwhelmed in the stock response to their latest marketing releases. As long as the stock trades OTC, gains will be restrained. I sold most of my position when it initially sailed up to 2.25, but watched as it hit past 3, but it has fallen back to here. If anything, I would take half off the table if you hopefully bought lower and wait for the next move in direction. This consolidation could persist and we assume unnecessary risk by leaving an untrimmed position intact.

    2. And just like that, DFLYF looks to be powered with rocket fuel. Red chip report interview. Top performer on my trading screen.

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