WEST RIVER, MARYLAND – Lock your doors. Send your wives and daughters to safety in Paraguayan convents. And sell!
The Barbarians are at the gates… No, they’ve crashed through!
The forces of law and order seemed to take a holiday yesterday, allowing clownish “protesters” to run riot in the Capitol.
But while the nation’s eyes were fixed on the mob scenes, more important news was coming in – from Georgia… and Wall Street.
In Georgia, Republicans lost control of the Senate. When they are in control, Republicans have proven to be just as bad – or worse than – Democrats. Ronald Reagan, George Bush II, and Donald Trump were the biggest spenders of recent history.
But when they are out of power, Republicans go back to the ol’ time religion of small government, tight money, and balanced budgets. It was the Tea Party conservatives, for example, who were largely responsible for the spell of budget surpluses under Bill Clinton; they stopped him from spending money.
So the best outcome from the 2016 election may have been a Biden victory, along with solid Republican control of the Senate. The Democrats’ big-spending/big-taxing plans might have been blocked.
But now, losing two Georgia Republicans could cost the nation dearly.
Yesterday, the bond market began to make out the handwriting scrawled on the walls of the Capitol: “As you sow; so shall ye reap,” it said.
Treasuries Breaching 1% on Democratic Win May Just Be the Start
U.S. Treasury yields broke above 1% for the first time since the pandemic-driven turmoil in March, and the selloff may only have just begun should the Democrats secure control of the U.S. Senate.
U.S. Treasury bonds are the backbone of the whole global financial system. Rising yields could mean a greater appetite for borrowing money (signaling an expanding economy).
More likely, in this context, they tell us that the world is losing faith in the U.S. dollar.
And here’s more from Bloomberg earlier this week, which backs up our “inflate or die” theory:
Traders see U.S. inflation averaging at least 2% per year over the coming decade, the first time expectations have climbed that high since 2018.
Could it be? Are we really at a major turning point… when Treasury bond prices go down and yields go up? Was yesterday the key day… when everything we took for granted for the last 40 years – declining inflation, low-and-falling interest rates, and rising stock prices – suddenly turned around?
And for the U.S. empire… resting on a foundation of dollar strength – is this the beginning of the end? Will the Chinese, Iranians, Russians, etc. soon come up with a competing currency… perhaps more solidly tied to the real world?
For 224 years, America’s power and wealth grew. By our reckoning, it peaked around the turn of the century, 20 years ago.
Since then, it’s been on a gentle downhill slide. But now, the slope has suddenly gotten much steeper and more slippery.
Everything Is Cyclical
The credit cycle, from top to bottom and back, lasts about 70 years. That’s long enough for one generation to learn and the next to forget.
The last bottom in Treasury yields came after World War II. Whether yesterday marked another historic bottom in yields, we won’t know for sure for several years.
The stock market, too, moves in big, long cycles… from boom to bust and back to boom again… over many decades. We see it most clearly when we filter out the noise caused by an unreliable U.S. dollar.
In 1980, stocks hit an all-time low. Then, you could get the entire Dow – all 30 stocks in the index – for barely more than a single ounce of gold.
From there, stocks rose until 2000, peaking 42 times higher (it took 42 ounces of gold to buy the Dow stocks in January 2000).
Since then, stocks have been working their way down again, in terms of gold… with the Dow currently worth about 16 ounces of gold.
(Just a guess: We expect stock prices to rise in the future – floating on the Federal Reserve’s paper money flood. But in terms of gold, they are likely to continue their downward trend.)
And neither is “paper” money itself immune to cycles. It goes from creation to cremation… never surviving a complete credit cycle. Like a delicate flower, it blooms bright… but fades fast.
Because, when money gets “tight” – with rising real interest rates – the authorities can’t resist the temptation to print more.
Reap What Ye Sow
What was sown in 2020 was financial, political, and social chaos…
And now, 2021 promises a fulsome harvest… of bitterness… financial losses… and economic disruption.
Democrats will blame Republicans. Conservatives will blame liberals.
But who really is to blame for a setting sun?
More to come…
Like what you’re reading? Send your thoughts to [email protected].