I genuinely do not understand why anyone would take the job of Secretary of the Treasury or Chairman of the Federal Reserve at this point.
And I don't mean that as some cheap shot about the people currently occupying those positions. I mean I genuinely do not understand what you are supposed to do if you inherit the fiscal and monetary disaster that America is gradually slipping into.
When Volcker raised rates in the 80s, that strengthened the dollar, which killed foreign economies in Latin America that were heavily indebted in dollars. And he was able to get away with it because the Fed was essentially sucking demand out of the market by destroying the economies that had become overindebted in our currency.
In a way, Mexico essentially paid for us to solve our inflation crisis because Mexicans chose to take on debt in a currency they had no control over.
At the time, this wasn't an issue at home because our debt to GDP was something like 31%. So even though we blew out interest expense, there was so little of it that it didn't really matter. Instead, the slowdown in bank lending had a much bigger effect than the increase in new debt.
Now fast forward to today and bank lending isn't what's driving inflation at all. What's driving it are these huge untouchable Federal deficits that are going almost entirely to Social Security, Medicare, and Medicaid. And these things are either fully or partially indexed to inflation.
So when the Fed looks around and says "We have high inflation and we need to increase interest rates," they can certainly crush huge swaths of the economy and plunge the rest of the world into an economic crisis like the one that befell Latin America in the 80s, but when you have over 100% debt to GDP, you blow out the deficit interest expense by an even bigger amount than whatever you're able to squeeze out of the private sector.
And every time they increase interest rates, the Boomers who are already cash rich essentially get a state-mandated raise in addition to a larger Social Security check, which is precisely the thing driving the deficits in the first place!
So over time, more and more and more money gets sucked up by those who draw the largest checks from the Federal budget. And they take that money and go out and spend more, which ends up defeating the whole purpose of trying to quell inflation with interest rate hikes in the first place.
Meanwhile, working Americans and entire sovereign nations like Japan undergo essentially a depressionary event as they get crushed first by high rates and then by inflation.
JUST IN 🚨: U.S. 10-Year Treasury Yield closes at highest level since 2001 👀