• Inflation is not over. We all see that in our everyday lives. The next wave will be torturous and will last a long time. The US cannot follow in Japan’s footsteps.
• The Federal Reserve (Fed) is bankrupt, hemorrhaging annual operating losses of $244 billion. It should allow market forces to set fair prices for stocks and bonds.
• The Fed should not pivot back to its Zero Interest Rate Policy (ZIRP). Instead, it should continue unwinding its unprecedented $8 trillion balance sheet.
Please watch our video on this topic and read our early warnings. Things have gotten worse.
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Prepare for Our Perilous 2024 Economy: A Warning
1. We’re Back on Friday January 12!!
Because we have an important message.
Episode 36
2. Published January 2nd
Stay to the end for a discussion of how to protect yourself.
70,000 people have read “Revenge of the Baby Boomers”
22 Reasons to Worry
3. Book and 35 Live Streaming Videos
2/22/22
Baby Boomer Investing in
the Perilous Decade of the 2020s Videos About Protecting Your Savings
4. Agenda
The next wave of inflation
Profligate spending
Too much money supply
Bankrupt economy
Federal Reserve
Arsonist as firefighter
Bankrupt
Expected Pivot
Stock Market Crash
Baby Boomers are in the Retirement Risk Zone
8. Financial Crisis of 2008 was
“Solved” with Quantitative
Easing (QE). 16 Years Later, it’s
Time to Unwind.
• high risk, complex financial products
• undisclosed conflicts of interest
• the failure of regulators, the credit rating
agencies, and the market itself to rein in the
excesses of Wall Street
Gears of the economy were locked
Age in 2008: Baby Boomers were 53, Gen X was 35, and Millennials were 19
9. M2 Money Supply is $3.5 Trillion Above Trend
$15.5
$22
$21
$17.5
actual
$3.5 Trillion Sloshing
Multiplier Effect: $35 Trillion
Helicopter
Money
Low Velocity Until $5 Trillion COVID Money
Example: “Money Supply is Shrinking”
10. National Debt
US is “Cleanest
Dirty Shirt”
US $Dollar is World
Trade Currency
USA 123%
Financial Repression
12. National Debt
Total ($Trillions)
Official Total
$Trillions 33 140
0
20
40
60
80
100
120
140
160
Per person ($Thousands)
Official Total
$Thous 120 510
0
100
200
300
400
500
600
13. Federal
Spending
in 2023
14% of spending at 2% Interest
Becomes
33% of spending at 6% interest
Dwarfing all other expenses
Source: US Treasury
https://fiscaldata.treasury.gov/americ
as-finance-guide/federal-spending/
$6.2 Spending - $4.4 Tax Revenues = $1.8 Deficit
$870 Billion
Interest rates are “Resting”. They will come down.
14. Government Debt Service at Different Interest Rates
% of Spending
Annual Deficit
Increases in Interest Rates Cause
Debt Expense to Dwarf All Other
Spending
Debt Service at 6% Interest is 33%
of spending, & deficit spending
increases to $3 Trillion, almost
doubling the current $1.7 Trillion
Hyperinflation in
Argentina and
Venezuela
17. How the Fed Creates Money
Treasury issues bonds that the Fed buys
Sell
Buy
18. Federal Reserve Assets From 2008-2023
Before Quantitative Easing (QE): Less than $1 Trillion
Add $3 Trillion from 2008-2020 For QE and ZIRP
$4
$9
Add
$5 Trillion
For COVID
2020-2022
$8
2023
Minus $1 Trillion
Source: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm and Target Date Solutions
Quantitative
Tightening
The Fed as an inflation fire arsonist
2008-2020: The Fed’s ZIRP (Zero Interest Rate Policy) manipulated interest
rates by buying bonds at high prices above fair value, loading up its
balance sheet. Balance sheet increased by $3 Trillion in expensive bonds.
2020-2022: The Treasury issued bonds to pay for COVID, & the Fed bought
them – no printing press required for this money printing. Balance sheet
increased by another $5 Trillion. These are long-term bonds.
The Fed as an inflation fire fighter
2022-2023: Bonds mature without replacement.
$1
Worried!!
20. Fed Annual Operating Deficit is $244 Billion
Yield Curve is Inverted
$156 Billion Interest
Earnings on Bonds
$$400 Billion Interest
Payments on Deposits
2%
5%
Liabilities are
bank deposits
1% interest with ZIRP
5% without
Assets are
long-term bonds
Purchased at premium
21. ZIRP
Causes
Inflation
End
ZIRP
Interest
Rates Rise,
so Bond
Prices Fall
Debt
Service
Increases
Stock
Prices
Fall The Fed’s
Dilemma
Massive money printing is required to manipulate
bond prices to Zero Interest Rate Policy (ZIRP). This
causes Cost-push inflation that is added to supply
shortage Demand-pull inflation.
Tapering bond buying reduces
money printing, & inflation.
And allows interest rates to
return toward normal –
without official rate hikes.
The Fed must keep some manipulation
When all manipulation ends, yields
revert to inflation + 3%, or 6% when
inflation is at 3%.
A 5% increase in yields generates a 30%
decrease in bond prices
Interest on $30 trillion of federal debt
increases from 2.5% ($750 billion) per
year to 6% ($1.8 trillion). Total tax
revenues in 2023 were $4.5 trillion.
Government could be forced to
monetize the debt creating a debt spiral
Rising interest rates cause stock
prices to fall because earnings
are discounted at a higher rate
and borrowing costs increase.
Stock market losses put pressure on Fed to lower
interest rates, so they do, as they did in the 2013
Taper Tantrum. The yield curve inverts because
investors expect the Fed to “Pivot.”
A Vicious Cycle: We are HERE now. Will we come full circle again?
23. Venezuela’s stock market soared 114% in 2016 as hyperinflation set in. “Irrational exuberance” is other explanation
Stock Market Heading Higher
24. Recession (Contraction) is Long Overdue by
142 Months (180-38), which is 12 Years
Average Cycle
Expansion Contraction Total Cycle
# Months 38 18 56
0
20
40
60
80
100
120
140
160
180
Current Cycle, so far
Expansion Contraction Total Cycle
# Months 180 0 180
0
20
40
60
80
100
120
140
160
180
2022 Was a head fake
25. Columbia University Prof Tomasz
Piskorski’s paper says implicit office
values have fallen by 50% on
average from their peak, and 45%
of all office loans are currently in
negative equity.
Rarely Mentioned
Fed Rate Cuts Come Too Late to
Avert a Fresh Wave of US Bank
Failures.
January 8, 2024
The next
shoe to drop
Disintermediation
Money moving out of banks .
Interest on
• Bank Accounts: 0.6%
• Money Market funds: 4.8%
26. Hyperinflation
Market Crash
• Wars
• Profligate Spending
• Inflation
• Open Borders
• Fentanyl Onslaught
• Sanctuary City Destruction
• Wealth Divide
• Rampant Crime
• Stock Market Bubble
• Rising Interest Rates
• Dysfunctional Congress
• Retirement Crisis
• Climate Change
• Broke Social Security
• China, Iran, N Korea…
• Broke Medicare
• Cyber Threats
Out on a limb
Deep Pit
Prepare
Look out below – no support
Baby Boomers are in the Retirement Risk Zone
27. When stocks and bonds won’t do:
Protect Yourself
Hedge
Let every man divide his money into three parts,
and invest a third in land, a third in business
and a third let him keep by him in reserve