Many times, I have pointed out that since we have gone down the “printing and buying” path that there aren’t too many good options. This is particularly true when you get near the end of a fiat experiment as it appears we are nearing- if we are not already there.

I have said that the two options are to continue “printing and buying” and history says that the currency gets debased and ultimately becomes virtually worthless. The other option is to try and balance the budget and ultimately pay off the debts that have built up over time.

History also shows that those “in charge” have always taken the most expedient way out. That would be to keep “printing and buying” to mask all of the underlying problems that they themselves created and to say that they met the promises that they made even though the VALUE that you imagined while “investing” has only a fraction of the imagined purchasing power.

In the case of the USA, we have a new administration that is promising lower prices, lower interest rates and is starting a new program to reduce government waste (DOGE).

While I have to commend the new folks for their intentions, I can tell you that if they get lower prices, we could have the worst economic collapse we have ever seen- Bar None.

First of all, if we were to get lower interest rates that would mean that the Fed would have to conjure up trillions of dollars to buy the bonds to lower the interest rates. This has been made far harder since we have weaponized the US dollar and now our previous buyers have turned into sellers of dollars and buyers of GOLD. This would be MASSIVELY INFLATIONARY and would lead to higher prices across the board.

While this may seem to suggest that Mr. Trump is talking out of both sides of his mouth there may be a method to his madness.

To begin with virtually all of the “growth” in GDP can be directly linked to our increasing- and increasingly unsustainable debt. Zerohedge reported that it took $5.80 in new US government debt in the 4th quarter of 2024 to get $1.00 of GDP “growth”. While this was a bit of an outlier, the annual number was $3.60 to get $1.00 of GDP “growth”. Basically, without the massive deficit spending our “growth” would be DEEPLY negative- and it would have been for many years.

If the Department of Government Efficiency were to curb spending and reduce our reliance on creating more and more debt it could create a situation where prices COULD actually fall. How?

The debt that is created is not only a one-time thing. A lot of the debt we create goes for healthcare, food stamps, etc. This means that the debt created gives many purchasing power that actually would not exist without the conjuring up of cash. It also means that this unit of debt may allow a person who buys a product to pay a business owner. The business owner can then pay his suppliers, employees, and utilities. This shows that the “money” actually should create more economic activity as it is spent numerous times into the economy. This makes the idea that for 2024 we needed $3.60 to create $1.00 of GDP growth EXTREMELY concerning. This illustrates a tremendous amount of waste- or worse. Spending over $1 TRILLION just on interest does not help either.

So, what could possibly go wrong if DOGE actually drastically reduces spending?

My opinion is that in the long run reducing spending is a great idea. In the short run – LOOK OUT.

If they were to reduce Federal government spending by 15% the (admitted to- actually FAR higher) US government deficit would fall from $2.2 TRILLION to $1.87 TRILLION. In the scheme of things that will not change our long-term trajectory towards collapse. Actually, it may just speed it up.

The reason I say this is that many government employees will likely be losing their jobs. This would also lead to suppliers and those that cater to those people to have their businesses reduced or destroyed. This would lead to higher unemployment in both the public and private sectors.

As I wrote a few weeks ago tax receipts for individuals are already running 18% below the 15- year average which does NOT indicate the economy is healthy now. It only makes sense that to make up for even fewer taxes coming in the Fed would have to conjure up the difference leading to even higher interest expenses going forward. This could lead to prices being so high for necessities because of the “printing” that many US consumers stop discretionary spending that would lead to even more corporate bankruptcies, even more commercial real estate collapses and bank failures. In other words, this could cascade into a collapse that would likely be historic.

There are a lot of people out there smarter than me, and I would like to hear any ideas of how this could actually work to our advantage because it appears that this could cause the calamity that will allow those “in charge” to unleash their new system on the public.

As a matter of fact- that may just be the plan.

Jerome Powell actually admitted in one of his press conferences that in order to have met the inflation targets unemployment would have had to have been much higher.

At the end of the day the “printing” is highly inflationary UNLESS you and I have far less purchasing power and prices cannot rise because people can’t afford to buy what they previously could.

In my opinion the only way for our new “leaders” to make good on the promise of lower prices is to collapse our economy. It appears we are on our way as since I am writing this on Monday morning new tariff wars are starting and that is also an inflationary tailwind.

The economy has been collapsing for years but the “printing” has a lot of people confused. When debt is counted as growth it is no surprise that many will be shocked to see the true state of the economy when the music stops.

I have said many times that I do not care for most bonds because all they are is a promise to repay in the future that will likely be repaid in drastically reduced currency- if it gets paid back at all. I only like stocks that have strong balance sheets, and I am wary of most stocks at this time because of the fragility of the economy and the unprecedented level of debt in most companies- even the best ones.

I have often said that in inflation you want to own hard assets- anything real. That would include stocks. In deflation you would want to hold cash and possibly some bonds.

The one asset that wins in either case is GOLD.

In an inflation the currency is weakened leading to higher prices for EVERYTHING. Gold is part of EVERYTHING so by definition- GOLD WINS.

In a deflation -because of the massive debts and deficits the first thing to go will likely be the faith in the “promise to repay” by first- individuals, then companies, then states and municipalities and finally the Sovereign governments themselves. Because of this- and the Central Banks are WAY ahead on this- people will demand real payment for real goods- not a promise of future payment leading to a situation where GOLD wins.

This is not to say that in a massive downdraft of all asset prices gold would not fall too. In my opinion it won’t take long to recover when people realize it is the best place to be because of no counterparty risk and no chance of total collapse like with a security that is someone else’s promise likely backed by many other’s promises to repay.

The warning signs are everywhere if we only look to see.

Be Prepared!

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