Something Bad Is About To Happen

According to the famous astrophysicist Neil DeGrasse Tyson, the origin of the universe stems from an explosion of matter called “The Big Bang” that began 13.85 billion years ago. Since that moment the universe has continued to expand. Today the earth is hurtling through the atmosphere at 67,000 miles per hour. Tyson explains that any time the universe stops expanding it creates what are called black holes.

A black hole is a region of space where gravity is so strong that nothing, not even particles of light can escape.

The dollar, like the universe, must always expand. Any time the dollar stops expanding it creates black holes in the global economy. This is the curse of being the world's reserve currency. When the Federal Reserve raises interest rates and removes assets from the balance sheet, the supply of dollars shrinks in the world. This then makes the dollar stronger.

Much like a black hole in space does with light particles, a strong dollar weighs down every currency that is tied to it.

One of the biggest misconceptions is that a strong dollar is a positive situation. The word “strong” sounds good, but in reality dollar strength is killing the global economy. We believe it's destroying the United States even more.

Our 6th essay in the Return to Real essay series, Something Bad Is About to Happen, seeks to explain the difference between currency strength and economic strength and why we believe the United States needs a much weaker dollar over the long term for our home economy to become stronger. Dollar strength today is the root cause of the inflationary spiral being felt around the world.

Many people hear the words “strong dollar” and are asking the question; How can the dollar be strong with inflation running at over 9%? They are right to ask this question.

In August 2020, the national average for a gallon of gas was $2.12. Today the national average is $4.75. This amounts to inflation of more than 100%. Home prices have seen a dramatic rise in price as well. According to data from the St Louis Federal Reserve, the average sales price of a house in August of 2020 was $397,000. Today the national average is $507,000, a 25% increase in the last two years. The Consumer Price Index for-Urban Consumers - Food away from Home was at 276 in June of ‘21. Today it stands 11% higher at 305.

Clearly the dollar is weaker when measured against these real things. The dollar buys us 50% less gas, 20% less house, and 15% less food than it did two years ago. Inflation has eroded a significant amount of our buying power.

The Great Devaluation published in 2020 predicted this tangible inflation problem before just about anyone believed it was possible. Inflation is what happens when governments expand the money supply at a faster pace than they expand their productivity. The premise of TGD was that the Federal Reserve had no dry powder left to deal with a downturn in the economy. With interest rates at 2% at the time, and every recession calling for a 5% cut in interest rates, it seemed obvious that the Fed had no room to deal with the next crisis.

We predicted a black swan would come, and that when faced with that crisis, the Federal Reserve would need to cut interest rates to 0% and then massively expand the balance sheet. These actions would then lead to dramatic inflation.

COVID-19 hit in earnest as our research was being published. It was a true black swan. The crisis provided the perfect cover for the Federal Reserve. What did they do? Exactly as we anticipated. They lowered interest rates to 0% and then more than doubled the balance sheet. These actions were concurrent with a fiscal stimulus from Congress that witnessed our national debt increase by roughly $9 trillion dollars.

This powerful monetary and fiscal combination amounted to tens of trillions of dollars being added to the system at once. It was akin to a monetary ‘big bang’ that witnessed dollars explode across the globe. The normal speed and pace of the dollar expansion around the world was multiplied. That awesome expansion in dollars, coupled with the simultaneous loss in productivity as workers were forced to stay home around the world, left only one outcome. Inflation.

There is only one tool that central banks can employ to fight inflation. Shrinking the money supply. They do this by raising interest rates and selling assets on their balance sheet.

The Great Devaluation sought to encourage investors to think about the future as a series of chess moves. It’s what comes after inflation that causes black holes and could cause the monetary system to collapse. We are facing this reality right now. We believe it's a “checkmate” for the U.S dollar.

Many people have predicted that due to our unpayable debts that the U.S dollar will ultimately die. Our conclusion however, was not that the dollar would die a death due to weakness, but rather we would ultimately need a monetary reset because the dollar would become too strong. We anticipated that dollar strength would eventually crush the world economy and why a “great” one time “devaluation” of the dollar, similar to 1933 and 1971 would again be necessary to reset the monetary system.

The subtitle of TGD is “How to Embrace, Prepare, and Profit from the Global Monetary Reset.”

We believe that we are in the midst of that reset today.

Pay attention to the state of the world around us. Japan’s currency, the Yen, is crashing. The European currency, the Euro is crashing, China is facing bank runs by their citizens. The economy in Sri Lanka is collapsing, as are the economies of Ecuador, Ghana, Chile, and Egypt. It’s all been exacerbated by the strong dollar.