Us Bond and currency tanking

[namelus]

This is  from Simon black at sovereignman.com
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<p class=”bard-text-block style-scope”>March 29, 2021
Sovereign Valley Farm, Chile</p>
<p class=”bard-text-block style-scope”>Ray Dalio is the founder of one of the largest investment firms in the world and has amassed a personal fortune nearing $20 billion from his business and investment acumen.</p>
<p class=”bard-text-block style-scope”>In short, he understands money and finance in a way that most people never will. And it’s for this reason that his latest insights are so noteworthy.</p>
<p class=”bard-text-block style-scope”>In a recent, self-published article entitled “Why in the World Would You Own Bonds When. . .”, Dalio makes some blunt assertions about the alarming US national debt, the decline of the dollar, and other negative trends in the Land of the Free.</p>
<p class=”bard-text-block style-scope”>Here’s a summary of the major points:</p>
<p class=”bard-text-block style-scope”>1) Interest rates are now so low that <b class=”bard-text-block style-scope”>“investing in bonds (and most financial assets) has become stupid.”</b></p>
<p class=”bard-text-block style-scope”>Dalio points out that bond yields are so low today that <b class=”bard-text-block style-scope”>investors would essentially have to wait more than 500 years to break even</b> on their bond investments after adjusting for inflation.</p>
<p class=”bard-text-block style-scope”>That’s why sensible people are already ditching the bond market.</p>
<p class=”bard-text-block style-scope”>JP Morgan’s CEO Jamie Dimon recently said he wouldn’t touch a US government 10-year Treasury Note “with a ten foot pole.” Neither would Dalio, as he told Bloomberg this month.</p>
<p class=”bard-text-block style-scope”>2) This is a big problem for Uncle Sam. Investors are ditching US government bonds at a time when the US is <b class=”bard-text-block style-scope”>“overspending and overborrowing”</b>.</p>
<p class=”bard-text-block style-scope”>They just passed a $1.9 trillion stimulus, and they have another $3 trillion spending package ready to go, plus plenty of momentum for Universal Basic Income, health care, Green New Deal, and just about everything else.</p>
<p class=”bard-text-block style-scope”>In short, the government is going to have to sell a LOT of bonds (i.e. increase the debt) at a time when investing in bonds has become stupid.</p>
<p class=”bard-text-block style-scope”>3) This creates a huge problem for the US dollar.</p>
<p class=”bard-text-block style-scope”>“<b class=”bard-text-block style-scope”>The frightening thing about this</b>,” Dalio says, is that many investors have already come to the conclusion that bonds are terrible investments.</p>
<p class=”bard-text-block style-scope”>So these <b class=”bard-text-block style-scope”>investors could decide to dump the bonds they already own “at the same time as the [US] government has to sell a lot bonds.”</b></p>
<p class=”bard-text-block style-scope”>Just imagine– the US government could easily have to sell another $4 trillion worth of bonds over the next 12-months to cover its massive budget deficit, plus all these wild spending programs.</p>
<p class=”bard-text-block style-scope”>But then on top of that, investors who currently own US government bonds may decide to dump another $3 trillion worth of the bonds in their portfolios.</p>
<p class=”bard-text-block style-scope”>This would mean that $7 trillion worth of bonds flood the market at a time when few people want to buy them.</p>
<p class=”bard-text-block style-scope”>4) As Dalio explains, this would cause one of two things to happen:</p>
<p class=”bard-text-block style-scope”><b class=”bard-text-block style-scope”>“Either interest rates will rise,”</b> in order to entice investors to buy bonds, or<b class=”bard-text-block style-scope”> the Federal Reserve “will have to print substantial amounts of money</b> to buy [the bonds] that the free-market buyer won’t buy.”</p>
<p class=”bard-text-block style-scope”>And it’s pretty clear they’re going with option B.</p>
<p class=”bard-text-block style-scope”>Last year, the Fed was by far the single largest buyer of all the newly issued US government bonds. Yet as Dalio writes, “when they print money and buy those bonds. . . that lowers real rates and it accelerates a depreciation in the value of the dollar, and it also raises inflation pressures.”</p>
<p class=”bard-text-block style-scope”>5) So what are the potential consequences?</p>
<p class=”bard-text-block style-scope”><b class=”bard-text-block style-scope”>“The real risk, the big risk,”</b> Dalio told Bloomberg, “is of a monetary inflation . . . and that monetary inflation means that even when the <b class=”bard-text-block style-scope”>economy weakens, inflation rates rise.”</b></p>
<p class=”bard-text-block style-scope”>This is essentially <b class=”bard-text-block style-scope”>stagflation</b>, i.e. rising inflation coupled with a sluggish economy.</p>
<p class=”bard-text-block style-scope”>6) When does Dalio see these consequences starting to arise? <b class=”bard-text-block style-scope”>“Late this year.”</b></p>
<p class=”bard-text-block style-scope”>7) There are plenty of bigger picture issues too. Dalio acknowledges that the US government is going to need a LOT of money to finance all this spending, so taxes will likely rise. A lot.</p>
<p class=”bard-text-block style-scope”>As Dalio writes, <b class=”bard-text-block style-scope”>tax increases “could be more shocking than expected.”</b></p>
<p class=”bard-text-block style-scope”>He also believes that “the chances of a sizable wealth tax bill passing over the next few years are significant.”</p>
<p class=”bard-text-block style-scope”>8) Dalio writes that, as a result of such tax policy and other destructive rules, <b class=”bard-text-block style-scope”>“the United States could be perceived as a place that is inhospitable to capitalism and capitalists.”</b></p>
<p class=”bard-text-block style-scope”>And the combination of high taxes, high inflation, and hostility towards capitalism may compel many investors and businesses to shift their capital and operations overseas and “run from less hospitable places to more hospitable places.”</p>
<p class=”bard-text-block style-scope”>9) But don’t expect the US government to sit idly by while capital leaves the country. Dalio believes there is <b class=”bard-text-block style-scope”>“the possibility of capital controls”</b> to prevent money from exiting the United States, as well as “<b class=”bard-text-block style-scope”>prohibitions against capital movements</b> to other assets” outside of the US dollar like “<b class=”bard-text-block style-scope”>gold, Bitcoin</b>, etc.”</p>
<p class=”bard-text-block style-scope”>So, in short: too much debt and money printing leads to a declining value of the US dollar, and potentially stagflation.</p>
<p class=”bard-text-block style-scope”>As a result, the government is likely to drastically raise taxes and chase business and capital away from the United States, leading to capital controls and prohibitions on alternative investments.</p>
<p class=”bard-text-block style-scope”>This is not some wild conspiracy theory or crazy conjecture. This is <b class=”bard-text-block style-scope”>one of the wealthiest, most successful fund managers in human history bluntly calling the end of the US-dollar debt supercycle.</b></p>
<p class=”bard-text-block style-scope”>We’ve been writing about this theme for more than a decade, so our readers will not be surprised by either Dalio’s comments, or the solutions he proposes.</p>
<p class=”bard-text-block style-scope”>His top recommendation, for example, is “a well-diversified portfolio of non-debt and non-dollar assets.”</p>
<p class=”bard-text-block style-scope”>And in Dalio’s view, diversification means “currency diversification, country diversification, as well as asset class diversification.”</p>
<p class=”bard-text-block style-scope”>In other words, don’t keep all of your eggs in one basket, one country, or one currency.</p>
<p class=”bard-text-block style-scope”>You can read the entirety of this article here, or watch his interview with Bloomberg.</p>
<p class=”bard-text-block style-scope”>To your freedom,</p>

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<p class=”bard-text-block style-scope”>Simon Black,
Founder, SovereignMan.com</p>
<p class=”bard-text-block style-scope”>P.S. Join the Official Sovereign Man Telegram Channel: https://www.sovereignman.com/tg</p>

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Las Condes
Santiago, Región Metropolitana de Santiago 755009
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[Anonymous]

The amount of spending has to hit a correction. It’s inevitable. They gambled so now they’ll have to see where the wheel stops.

[eric miles]

Thanks for this information. Very interesting and useful.

[Author]

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