It’s game over for the Fed. Expect a monetary rug pull soon.

International Man/Nick Giambruno/8-11-2022

cartoon showing bicycle with silver dollar wheels and no wheels bike at standstill“The amount of federal debt is so extreme that even a return of interest rates to their historical average would mean paying an interest expense that would consume more than half of tax revenues. Interest expense would eclipse Social Security and defense spending and become the largest item in the federal budget. Further, with price increases soaring to 40-year highs, a return to the historical average interest rate will not be enough to reign in inflation—not even close. A drastic rise in interest rates is needed—perhaps to 10% or higher. If that happened, it would mean that the US government is paying more for the interest expense than it takes in from taxes. In short, the Federal Reserve is trapped.”

USAGOLD note: Giambruno explores the limits of Fed interest rate policy…… He says the current monetary system is on its way out, but not, we would add, without considerable economic dislocation before we get there. As we have said in the past, the key for the ordinary citizen-investor is to get from here to there with assets reasonably intact. Those looking for a primer (or refresher course) on the Fed’s limitations will find Giambruno’s effort worth the time – particularly when one takes into account the already rapid rise in interest rates.

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