I’ve already written about the USD and in general fiat debasement in the “gold” post, but I want to expand here.
USD debasement is happening at a very accelerated rate, probably faster than I previously thought.
Hyperinflation I thought would be impossible with USD, but now I am not so sure.
Why the US debt IS a problem
There was the debate whether the US debt is actually a problem or not.
With rising interest payment, the debt balloon at an accelerating rate and it used to take years to add 1 trillion to the debt. Now it takes months.
Soon it will take weeks, or even days.
And I heard that people were already saying it was a problem 30, 40 years ago. And it hasn’t been a problem yet.
They can just print away the debt and keep increasing the ceiling. So no problem, right?
Now I am thinking, not so fast.
They need to print at an exponential rate, so the problem that the printing create, will be exponential in the recent years to come.
The textbook logic goes – if a country prints its fiat, supply increase and price goes down … so inflation and devaluation of the currency right?
But you might say, inflation has been pretty tamed, while the USD has been strong in recent years – so afterall, no problem right?
Why the printing hasn’t looked like it’s been a problem
Well first the inflation – their CPI data just seems inaccurate regarding the actual increase in prices of everyday life.
Especially housing – let’s just take HK in recent 20 years. It has come back down in the last 2-3 years but in the past 20 years it just shot up like 300-400% in a span of 20 years. Everything else at least 100%+.
Then the devaluation.
Yes USD is strong – but compared to what? Yen? Euro?
The DXY is strong because other fiat are ALSO devaluing. It’s a global phenomenon.
If we see gold as “real money”, we can see how much the USD already devalued.
Some conspiracy saying even go as far as saying, US is “twisting” their friendly countries arms, to keep up with the printing the US is doing.
I am not sure about that, but in any case, ALL fiat are devaluing pretty much. some faster, some slower.
The USD has been slower than most others but moving forward, it’s hard to say.
In any case, massive devaluation will bring massive inflation, there is no way around that.
So the Fed’s target of 2% inflation? or even 3%?
There is probably no way that will be happening.
Why the politicians won’t solve the debt problem
If it is a problem, why is no one fixing it?
because they CANNOT.
To reduce the debt, there are 2 ways:
- increase revenue (more tax income)
- decrease costs (cut spending)
To achieve #1, the best way would be to increase GDP and productivity, hence increasing profit and tax income.
But that’s hard to manufacture and the GDP growth is definitely NOT catching up to the rising debt.
Or you might think you can increase tax. But that has little to no effect since people would just either make less or move their profit elsewhere in the world.
Onto #2 – the main expenses now are, social security, interest payment on debt, military, and medicare.
Interest payments has just exceed the military spending, which is nuts. Anyway they cannot default, and the Fed is trying their best to cut interest rate, but they need excuses to cut, and it’s taking some time. Rate cuts will probably bring inflation higher and they will need to raise again anyways, so it’s just putting a bandaid on.
They social security, military, medicare – those can be reduced, but how popular would a politician be if he does that?
It would be political suicide.
And here is the pitfall of democracy + capitalism – the general population has little to no understanding of macroeconomics and money.
So the spending will in fact just increase from here – more military spending, more programs and benefits.
Not to mention the geopolitical tension – more custom taxes, less exports, higher oil prices – everything is pushing the problem in the “worse” direction.
My counter plan
From everything I’ve learned and heard so far, the first main conclusion is – fiat currencies cannot be trusted anymore.
Since the 2008 financial crisis, things have gone nuts and at an accelerating rate. the 2020 pandemic pushed it to another new height.
So I cannot hold any cash or cash equivalent.
Everything in gold, stocks, or real estate.
Also I will try to use as much leverage as possible. Borrow fiat and let my debt devalue. (because the govt is devaluing their own debt for sure)
Buy properties with debt. Just make sure I’m not over-extended into a liquidity crisis and I’ll be fine.
First probably with an HK property for mother to live in. Then our own property to live in in Tokyo. Maybe another property later and rent out our first property eventually.
Also buy gold with debt. Use my margin account to borrow yen (or maybe USD as well?) to buy more gold so as they devalue I am earning the devaluation.
Things will get more and more expensive but my increase in wealth should catch up or exceed the inflation rate.