Velocity of M2 Money Stock

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It means we’re in deflationary spiral. The only reason everything is still sort of ok in the U.S. is because the rest of the world is in the same deflationary spiral, and it is currently driving down the value of the dollar. In a debt crisis, you don’t want to be the country where your currency is rising in value, because it means the servicing costs of your debt rise in real terms.

At some point the EU bond market will break, and it will send capital fleeing back to the United States. I’m thinking sometime in August 2021.

Japan will break after the EU, the only reason they’ve managed to stay afloat is because most of their debt is held domestically. But once foreign rates begin to rise (competition for the BOJ), the domestic demand for Bonds will dry up and the BOJ will have to monetize virtually the entirety of the Japanese government’s debt.

This is basically what happens before governments decide to engage in hyperinflation, politicians are naive and get convinced they can fix interest rates forever without consequences, and get baited into a debt trap by the deflationary spiral. Its sort of like how people run out into the low tide before a Tsunami, thinking it is a great opportunity to collect seafood.

The end result is that governments either start printing massive amounts of money, or the government defaults which means everyone who was dependent on the government is shit out of luck.

The big lie is that there is a third option, to raise taxes. But even putting the moral debate aside, most of Europe has long ago reached the limits of taxation in terms of maximizing revenue, and the United States isn’t far behind. The kind of deficits that governments are in is several orders of magnitude beyond even their theoretically maximum tax base.

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.

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