The government saved the banks from bankruptcy in 2008, and installed itself as a lender of last resort: now that it has accumulated historic debts, who will come to its aid to prevent it from ending up in the straw?
In 1998, Wall Street saved a hedge fund from bankruptcy.
In 2008-2009, the government saved Wall Street from bankruptcy.
In 2020-2021, who will save the government from bankruptcy?
This is the easiest way to understand what is happening …
In 1998, a large hedge fund called LTCM collapsed. He had borrowed considerable sums from a multitude of banks, so much so that he threatened to drag the entire banking system into its fall.
Several Wall Street banks have therefore joined together to bail out LTCM. This is how we succeed in avoiding the crisis.
When their bets on credits subprime gone bad, Bear Stearns, Lehman Brothers and a myriad of other big banks went bankrupt, threatening to drag the entire banking system with them as well.
The government therefore intervened. Acting in concert with the Federal Reserve, the authorities saved Wall Street as a whole. This put an end to the crisis.
Debt today …
At the start of 2020, the debt accumulated by the US government reached $ 23,000 billion and the annual budget deficit was close to $ 1,000 billion. In addition, the government already had a mountain of bills it was going to have to pay in the future (off-balance sheet commitments in the form of retirement pensions and other social benefits) estimated at $ 100,000 billion.
A recession struck (triggered by the Covid-19 pandemic), weakening tax revenues while triggering a series of new bailouts whose overall cost has run into the trillions of dollars …
The US Treasury now finds itself in the most precarious financial position ever experienced by any other institution in history … and the exponentially accelerating phase of the bankruptcy process, when the servicing of already existing debt can only be assured. by borrowing even more, is about to snap.
So who will save the US Treasury from bankruptcy?
The only possible way out
There is only one way to save the US government: a devaluation of the dollar.
Devaluation is a means of reducing the real value of public debt (as well as the debts of all economic agents). This is the only solution left to save the system from bankruptcy.
Devaluation or death.
I know that currency devaluations normally only occur in economically underdeveloped countries and no one believes such a thing can happen here.
I know that interest rates on US Treasuries are still near their historic lows, and no one is seriously considering the idea that the US federal government may be strapped for cash.
I know everyone is currently focused on containment measures, the explosion in the number of small businesses filing for bankruptcy and the deteriorating labor market situation.
So I know this might sound crazy. But I’m sure …
Devaluation is the ONLY solution left to save the government from bankruptcy. And the authorities have already chosen to follow this path …
You can see this in the evolution of the US dollar exchange rate over the past nine months.
We can also already see the first warning signs in the stock market, the commodities market, the real estate market and the cryptocurrency market, with prices “exploding” like popcorn.
Protect your wealth against devaluation
This is just the beginning.
When the market fully integrates what is unfolding, I predict a massive flight of capital out of the currency and bond market, into the stock markets and other real assets.
The next indicator that will start to flash will be on the side of rising consumer prices. It isn’t blinking yet, but it will soon …
We are going through a period of stagflation as currency devaluation will not produce real economic growth. The only consequence of this will be to reduce the value of the dollar, other currencies, and foreign currency debt securities (debts) relative to anything backed by real assets.
What to do in this situation?
The US dollar and bonds are the worst assets you can have. They are sure to lose purchasing power.
The evolution of stocks is more difficult to predict. Some stocks should hold up well, as they represent title deeds to real, tangible assets.
I prefer industrial companies or in the commodities sector and I like international equities. They tend to be much cheaper than US stocks and pay a higher dividend yield. I stay away from US stocks… especially the more popular ones.
Finally, I also appreciate holding gold and silver to protect the purchasing power of our savings during this devaluation …
For more information and advice like this, it’s here and it’s free