Friday Recap (6/21/2024)

AU: $2320 ($2332 - Last Week Spot)
AG: $29.54 (29.53)
HUI: 267 (262)
DXY: 105 (105)
S&P: 5464 (5431)
10-Yr: 4.2% (4.2%)
Oil: $80 ($78)

Looking at the numbers above, nothing changed. The stock market remained strong, and everything else spun in place. Basically, a very quiet week. So, instead of talking about what happened this week, we can focus more on what's coming next: a recession. Actually, it will be much worse than a recession. What's coming is the end of an era, a paradigm change. The economic slowdown that's coming won't be a normal business cycle, where we have a recession followed by a recovery. Instead, America won't recover. It's over. There is no coming back from this.

Is this a far-fetched thesis, or is the probability quite high? Let's review. From 1945 until 1970, the US dominated international trade. We were a mercantilist country that generated wealth, with an expanding middle class. That stopped in the early 1970s. That's when the problems we are facing today started. In the 1970s, we didn't know what to do. We were rudderless. In the late 1970s, it was called malaise. Then, in the 1980s, the Reagan Administration decided the answer was globalism, and we sent our manufacturing jobs overseas. Concurrently, we started using finance (easy credit) and services to grow the economy. However, that wasn't enough to generate positive GDP. We were forced to rely on debt to grow our standard of living.

In 1980, our national debt was less than $1T. Prior to 1980, the US Govt budget deficit was well below $100B. Reagan pumped those numbers up to $300B when the economy was growing at 3%. He showed that deficit spending could be used to grow the economy and not cause inflation. We became addicted to debt. In 2024, the budget deficit will be $2T. We have become so addicted to debt that no one is complaining about the debt explosion. The last time either party was concerned about the deficit was in the 1990s. Check the chart of the national debt; its been going straight up. Why? Because if it didn't, we would have a recession.

We have been able to expand debt to $34T (and growing at a voracious rate) because of the Eurodollar and international trade transacted mostly in dollars. Countries need dollars to pay off their Eurodollar loans and for international trade. So, we have been able to export dollars (using US Treasury auctions). However, that game is ending. The BRICS+ are tired of us exporting inflation, which is what happens when they have to exchange their weaker currency for a strong dollar. So, here's the trap: the Fed can't avoid the coming recession, and once it arrives, our bonds will become risky because of ongoing inflation. Then, the Fed won't be able to print enough to revive the economy because that will create a doom loop: more inflation = weaker bonds. This doom loop will then blow up all of the leverage in the US financial system, which is considerable. Got Gold?