https://www.youtube.com/watch?v=2ISKbYFaqnk
Our Currency Is ALWAYS Sacrificed When Crisis Hits, Without Exception | Matt Piepenburg
5:47 You can't get around the fact that liquidity is what drives a nation and drives a market.
When you hit debt levels that are unsustainable, when you cross 120% GDP growth becomes mathematically impossible. This is not discussed enough. So liquidity has to come from somewhere and unfortunately in our situation now because of our debt levels that liquidity will eventually come from a mouse clicker at the Eccles building the home of the world reserve currency where it's created and mass produced and ultimately debased.
Monetary policy can be used to support bonds that can be through QE, the dovish QE policy in lower rates or monetary policy can be used to support currencies that's hawkish with higher rates in QT, but monetary policy can't support both the bond market and the dollar at the same time or the currency at the same time.
Because of our debt situation now there will have to be a choice made, we either save the bond market which means save the system because that's tied to the equity markets, the financial markets and everything else, or we let the currency fall on its sword and we sacrifice the currency to save the system and that as Luke Gromen said is inevitable.
7:07 I see that as inevitable. I see that as an inflationary end game which is highly destructive to all of your viewers whatever their economic class, whatever their sophistication level, it's an invisible tax on all of us. It will affect the middle class the hardest, but I don't see any way around the monetization of our otherwise unsustainable debt. And I think that is incredibly mathematical and historical and it's not debatable. I think that is the hard end game that we're looking at and to my other point I think the soft landing, hard landing debate is distorted because we're very, very much in a hard landing already.
8:31 So you're not you're not predicting like a hyperinflation of the currency immediately?
No I don't know I don't think anyone can say that. I think Luke Gromen put it best, I can't say 12 months out but you can see the clouds on the horizon and you can see the rain. I just don't know if it's at noon 3 30 or 4 P.M.
10:10 Again by the way a five and a half percent Fed funds rate which everyone thinks is so painful is really in in the grand scheme of things a normal Fed funds rate. It just seems higher because we've gotten used to zero bound for so many years that was highly distortive.
If we keep rates at five and a half or six or six and a half percent, if we continue to push rates up of course we'll keep the dollar stronger, not just relatively but inherently it'll be stronger. Rising rates will keep the dollar stronger. But rising rates also increases the cost of our debt.
10:34 We've just crossed 33 trillion in public debt. We've added another 1.9 trillion to the back end of this year. We have doubled the annual debt service cost on the national debt within just the past two years alone, it's extraordinary. And we're averaging about 500 billion a month and so we're not going to get that from GDP. And we'll talk about GDP growing, but debt is growing faster in the higher pace. But you're not mathematically going to get growth naturally, you're not going to get it from revenues or tax receipts, so it's got to come from somewhere, so you're gonna have to monetize that debt, and then I think that's why inevitably this concept of fiscal dominance is inevitable.
11:20 As you as you raise the cost of debt and as you raise debt and you don't have the funds to pay for it you're going to have to manufacture synthetic liquidity through a central bank policy to cover the debt interest expense. The interest expense on Uncle Sam's bar tab is now over a trillion a year. That is not payable unless we monetize it at some point. Now people could say well we haven't had to pivot yet, but frankly last September a year ago at this time the Department of Treasury pivoted for us. We emptied the TGA The Treasury General account to create backdoor liquidity. So that was a one-trick pony in a sense. Janet Yellen kind of trumped Jerome Powell by creating liquidity indirectly. Then we had the BTFP program that created another backdoor QE, another backdoor dose of liquidity.
12:04 People don't realize the BTFP program cost more than TARP ultimately. So we had to spend more money than we did in 2008 to bail out the too big to fail banks. So we have created some pivots off the balance sheet so to speak, outside of Powell's purview indirectly through the TGA account and in this bank funding program. So we bought some time but as we keep extending our debt levels and increasing our fiscal policy like drunken sailors we have to monetize that. We have to pay for that somewhere. Again my argument is empirically that's not coming from tax receipts or GDP. That's going to have to be paid at some point.
12:44 We're never gonna default on our treasuries, on our Sovereign bonds and if we don't support them then bonds get weaker and weaker, and yields get higher and higher. As yields get higher and higher interest rate gets higher and higher so we're in this vicious cycle where we're damned if we do, damned if we don't. We have to do something to keep those yields controlled. We have to do something to keep those bonds from falling too far in price. Right now Powell's policies are putting tremendous downward pressure on bond prices which puts upward pressure on yields because they're inversely related right and when we're adding another 1.9 trillion to the back end of this year.