Our Debt Is The Real Existential Threat | Matthew Piepenburg

The Fed has put itself in a corner with only two choices: raise rates and destroy equity and credit markets and banks, or keep rates low and fail to fight inflation, either way achieving a pyrrhic victory while markets burn

“the FED has put itself in a corner they can either raise rates and Destroy markets banks credit markets Equity markets Equity markets follow the debt markets because Equity markets depend on rolling over cheap debt and buying their own stocks and at low rates those games are over in a rising rate environment Powell has ended that that charade but at the same time as he's trying to fight inflation he's going to get a peric victory looking over the rubble of credit markets Equity markets and economies”

The US has 31 trillion in public debt, plus 90+ trillion in combined household, public, and corporate debt, which cannot be serviced from current GDP or tax receipts and requires debt monetization through money printing to sustain

“31 trillion in public debt 90 plus trillion in Combined household public and corporate debt that's become an aberration and I said in that article it's like Hannah rent's book The banality of evil talking about the Holocaust when you're talking about millions of lives it almost becomes a banalized abstract and even for the people at the time they kind of turn their head or or even in history it's hard to kind of conceive of those kind of numbers is the joke if if I owe you a million dollars it's my problem if I owe you a billion it's nobody's problem it's your problem no one's going to pay it these numbers become abstract when you're talking about 31 trillion and by the end of this year probably 34 trillion in public debt which we don't have the GDP or the tax receipts to pay for”

Three sigma moves in US two-year Treasury yields (events that should occur once every 50 million years according to MIT scholars) have already occurred recently, indicating extreme market stress and breakdown of pricing mechanisms

“three sigma moves that we saw in U.S treasury and two-year treasuries a three sigma move according to MIT Scholars should happen once every 50 million years yeah isn't that crazy it's crazy you know and that that just came out by a Bloomberg Dan Ingalls and then the the spikes in the validating the two-year and the two-year treasury we haven't seen that since it was worse than 2008 it was worse than 9 11. it was worse than 1987.”

Treasury markets will not see natural price discovery or supply-and-demand pricing; instead they require continuous central bank liquidity support through mouse-click money creation because there is no natural demand for US government debt at current yields

“there is no natural demand for uncle Sam's unloved ious and so regardless what Powell does this quarter or last quarter regardless what the fomc meetings or the bookings Institute or even what they say in Jackson Hole then that result is if no one else is buying our debt who's going to buy it and it's simple but it's going to have to be a Central Bank near you”

Bitcoin has existential threats to central bank power and may come under pressure from Central Bank Digital Currency competition and politics, presenting risk for Bitcoin investors despite its merits as alternative currency

“Bitcoin has is a major existential threat to the powers that be for a lot of good reasons and that's why I think there's risk in it but there's certainly arguments be made that Bitcoin is another alternative currency to an openly dying Fiat world I think Bitcoin is coming under a lot of pressure from Central Bank digital currencies power politics Etc I have no interest or desire to see Bitcoin and investors get hurt I'd love to see them make more money I'm jealous of that I wish I had bought it at ten dollars like everyone else but I I worry about the volatility and the long-term uh use of it but I would be thrilled to see Bitcoin succeed I worry that they are a real threat though uh to the powers that be”

The Federal Reserve's ability to use quantitative easing to support government spending and markets indicates the existence of 'deficits without tears'—the illusion that government can spend without limit through central bank monetization.

“you could have have a market That Never Dies deficits without tears but you can't avoid the inflation”

All financial risks—inflation, recession, quantitative easing, disinflation, currency risk, bond risk, asset risk, and equity risk—flow down from debt, and debt flows down from policy decisions made by the Fed, ECB, Bank of England, and Bank of Japan

“all these things from inflation to recession to quantitative easing quantitative tightening disinflation currency risk Bond risk risk asset Market risk Equity risk at all flows down from debt and debt all flows down from our policy makers not just at the FED but globally but in particular at the ECB the fed the bank of England the bank of Japan”

The solution to debt crises is always currency debasement, money printing, and inflation; a real solution would require governments to live within their means via austerity, which is politically impossible

“the solution it's a doom loop it's a doom Loop the solution is always going to be synthetic money on demand which is inherently inflationary so he's trying to fight inflation can't do it can't do it if you really wanted to do it to be like any family I say this all the time you and your wife sit down honey we can't put our kids to show it's too expensive can't buy the Porsche too expensive we have to tighten our belts we can't live on a Visa Mastercard and an Amex in your mother's help”

People's lack of understanding of economics and inflation is not due to stupidity but to deliberate absence of financial literacy education in schools and society

“you don't need to be an economist or a pundit or a former hedge fund guy or an executive in Switzerland in real assets to to know that when when your purchasing power is disintegrated when inflation is hitting you especially at the middle class level something's wrong something feels off and then frustration stress anxiety employment concerns all those things snowball”

The average person trusts leaders and central bankers too much and does not think critically enough about what is happening in financial markets and monetary policy, making them vulnerable

“be critical thinking take a little time and your viewers already do that that's why they're here but I think the sad part is the vast majority of Americans trust too much or don't look enough at what's going on trust their leaders and that that doesn't make them stupid they're trusting people but sadly they're not critically thinking enough or they're not cynical enough as they could be when it comes to their portfolios”

Central bankers never take accountability for policy failures, instead blaming extraneous events like war, viruses, or supply disruptions, when the actual cause is their monetary policy and currency debasement

“I had a long conversation with Grant Williams about this the lack of responsibility and accountability the FED will always blame you know War viruses extraneous events when the when the mirror is right in front of them it's very simple who's to blame for this there's no accountability I find that uh criminal almost if not super super uh unethical but again they're politicians they need spin they won't take accountability when was the last time we any of us saw a central Banker say maybe that extra 8 trillion on the FED balance sheet was a bad idea”

Hemingway identified three consequences of currency debasement: inflation, currency debasement, and war, all of which are currently playing out in real time and already here rather than down the road

“Hemingway you can go from Thomas Jefferson Ernest Hemingway every time you destroy the currency system you buy short-term prosperity and ultimate ruin and part of that ruin he said three things this is Hemingway not a Fed chair not a politician fairly bright guy fairly Brave guy fairly troubled guy who spent a couple times in two world wars he said it you have you haven't you have inflation you have currency debasement you have War we're seeing that play out in real time right now”

Passive risk parity portfolios where individual investors have no control often perform disastrously in downturns, and investors should either actively manage their portfolios or work with advisors who prioritize downside risk management first.

“I'm very cynical about the standard rias I've seen too many I've seen too many hedge fund managers I've invested in that were full of whatever but I think I would really really start to question the risk parity portfolio”

The best way to become wealthy is not to make money but to not lose money, requiring defensive thinking focused on risk first, not reward, and selecting advisors who prioritize downside protection

“one thing I've learned having made and lost money in my life and I've done both brilliantly I've lost more than I made many times the way to get or the way to be rich is not to lose money it is not to lose your wealth wealth preservation Egon says it over and over it's not just a phrase it's a it's a way of life you make money by not losing money every time I invest in a hedge fund manager I didn't invest in the ones who told me all I was going to make what the prognosis was what the projections were I always listen to the manager who said these are the risks I'm worried about first”

Investors should buy low and sell high, exiting overpriced assets and investing in commodity cycles which are trending upward, requiring no specialized knowledge but only patience and discipline

“for investors who don't have time to learn everything it is about being a professional Trader just buy low and sell High get out of assets that are overpriced get out of risky assets get into solid boring things that preserve purchasing power and get into at least have some portion of your portfolio in the commodity cycle that's going to be maybe painful in the short term but it's trending clearly up into the north that's my advice”

Gold is not a speculation or investment but currency insurance against the inevitable debasement of fiat currencies, and should be owned outside the banking system in private vaults.

“gold is not sexy it's not a speculation asset I don't think it's the sexiest thing that every client or every person listening should be buying I just see it as currency insurance for uh occur currencies that are already dying”

Volatility in two-year treasury in past weeks was worse than 2008, 9/11 (2001), or 1987 crash—yet not making headlines while Gwyneth Paltrow ski accident does, showing media misdirection from real economic signals

“the volatility in the last couple weeks in the treasury market were since 2000 um uh since 9 11 2001 September 11th 911 that was a pretty big headline 9 11 but the markets were volatile then Marcus Revival in 2008 Market cervaldo on the in the flash crash of 87”

Bond traders couldn't get bids or asks in treasuries because prices moving so fast (50-70 basis point moves per trade) the market became too volatile to trade—real illiquidity worse than 2008, 9/11, or 1987

“you couldn't get a bid or an ass because the prices were moving so quickly 60 50 70 bits when you're talking about moving millions in their 70-bit moves that makes the market too volatile to trade you're looking at moments of real illiquidity which again we haven't seen since 2008 911 1987”

Treasury Secretary Janet Yellen was unprepared and lacking basic understanding of deficit and debt figures during Senate testimony, indicating that even top economic officials do not grasp the magnitude of the problems they manage.

“if you saw yellin recently in front of the Senate it was embarrassing I was almost embarrassed for you Alan how little she understood about the extension of the deficit the rising of the deficit this year she didn't have the numbers in front of her and she's the treasury secretary and a former Fed chair”

The Fed has hijacked the markets by actively managing the economy like a portfolio, they are a bad portfolio manager, they have bought time through leverage and lofty language but this will be remembered as one of the most epic monetary policy failures since 1913

“the markets have been hijacked by a central bank years ago and that's just what it is the Fed actively manages our economy like a portfolio but they're a bad portfolio manager and they've bought they've bought time through leverage they've bought time through lofty words and fancy diplomas and high position but you know if history isn't canceled in 20 years our kids or grandkids will read about the most epic failure monetary policy since 1971 really and certainly since 1913 when the Fed was in unimaculately conceived and brought into law”

The increase in the M2 money supply by 14 trillion over the last decade is the primary cause of inflation, not supply chains, COVID, or war, and this is mathematically simple and provable

“let's just keep it simple stupid we raise the M2 money supply by 14 trillion over the last decade plus that's why we have inflation it's very simple if I hand you a glass of good Bordeaux wine and we put a swimming pool of money into that glass of wine you know the the wine loses its flavor just like our currency has lost its punch”

Volcker was able to raise rates in the late 1970s when national debt was 800-900 billion, but Powell cannot do the same today with 31 trillion in debt, making the comparison to Volcker disingenuous and mathematically impossible

“remember volcker raised rates in the 80s or late 70s when our national debt was less than a trillion it was 800 billion 900 billion at the hot we're 31 trillion so we can't afford to raise the cost of that debt when our debt is infinitely higher than it was in the volcker era so for Powell to pretend to be volkers is frankly disingenuous right”

Modern Monetary Theory is an absolute fairy tale that any 10-year-old would recognize as wrong if explained simply: you cannot solve problems by creating money from nowhere with no actual value backing it

“modern monetary Theory which was a fringe concept when you and I were in college or grad school is now mainstream it's an absolute fairy tale anyone knows it's a 10 year old would know if you explained it that you can solve a problem by creating money out of nowhere and paying for it with no actual value”

The moral hazard in the system affects all participants—central banks, commercial banks, depositors, and retail investors—each becoming addicted to easy money and low rates, making it impossible to exit the system gracefully

“moral hazard is not just on small Banks like you know or depositors like svb or big Banks like the central bank or the bis the moral hazard affects investors across the board sophisticated unsophisticated we get used to this keg party we don't want it to end so give us more uh we can make fun of Powell but we've all profited from them as well right to some extent”

The bond market is more honest than central bankers or politicians and is telling us what we need to know, but people ignore it because it's boring and prefer entertainment like celebrity trials instead of studying economic signals

“the bond market is far more honest than a central Banker or a politician left right or Center or a governor of California or a mayor of Philadelphia or Chicago the bond market is telling us what we want to hear unfortunately the bond market is very boring you know looking at the implied volatility in the two-year futures or the yield on the two-year or the four-week treasury or the 10-year long duration no one wants to see this I understand it's complicated it's boring it's actually fascinating when you look under it without too comp too much complexity I mean a lot of people would rather watch Gwyneth Paltrow's trial about an ambulance Chaser”

The Federal Reserve will inevitably pivot to rate cuts and money printing when the next major market crash occurs, because Ponzi schemes cannot taper, and this cycle of crash-then-stimulus is the only way to sustain the system

“it's not a question of Q2 Q3 or Q4 the FED will pivot when we have another 08 or another March of 2020. remember 2012 we printed more money in a period of 12 months than we did in the prior eight years that was not a market recovery that was a counterfeit solution to to a real problem”

Powell reduced the Fed balance sheet by only 300 billion after aggressive quantitative tightening in 2022, and this modest reduction caused massive market disruption, while the tightened money has already returned to the system through bank lending programs

“what did Powell achieve he reduced the balance sheet by 300 billion after all that talk last year all this QT that so shocked the Marcus the s p the NASDAQ the credit Mark has got shellac last year s p down 15 the tech NASDAQ down 30 percent and just in the last few weeks we've already lost that 300 billion in loans to these Regional Banks and FDIC extensions so all the work that we got for QT last year”

Euro dollar futures are pricing in a major pivot (rate cuts) by end of year and showing no confidence in Fed policy, Treasury markets, or currency, indicating market participants expect forced Fed action

“the market jocks the bond jocks are already they're already pricing this in Powell won't talk about it but they know what we all know is it's not sustainable there's going to need to be magical money to support Uncle Sam's ious and therefore you're seeing this massive spike in the contract price of Euro euro dollar Futures again very boring stuff but what it really just says is there's no confidence in our bond market there's no confidence in our fed policy there's no confidence in our currency ultimately”

Genie recommends people prepare 'financially, psychologically, and cynically' for coming economic crisis, and Matterhorn's gold storage in Swiss Alps represents 'insurance' against currency and banking risk outside national jurisdiction

“we only deal exclusively and uh physical precious metals gold and silver primarily stored in the safest fault in the world it's like a James Bond movie you got to see it's hidden deep in the Swiss Alps”