Quote of the Day
We have a lot of dollars sloshing around the world thanks to years and years of artificially low interest rates and quantitative easing, and more of those dollars are going to be coming home as foreigners get out of U.S. financial asset.
You’re seeing a global exodus out of U.S. stocks, out of U.S. bonds, and all that cash is going to come back home, bidding up prices.
The solution involves much higher interest rates. Now, I understand that’s going to be very painful, given the economy that we’ve created, built on a foundation of cheap money.
It means stock prices come down, real estate prices go down, companies fail. There’s going to be bankruptcies. There’s going to be defaults. There’s going to be a protracted recession, probably a much worse financial crisis than 2008, but all that has to happen because the alternative to that is even worse.
The U.S. is on the path to “runaway inflation” that could become “hyperinflation.”
Peter Schiff
Euro Pacific Asset Management Chief Economist
June 18, 2025
Peter Schiff warns of stagflation for US economy | Fox Business
Is this true? It does resonate with me. Hyperinflation is one of my big concerns in life. And because of this I have socked away $100 Trillion for a rainy day. But I have never even taken a class in economics. Perhaps I should invest/prepare differently.
For me the big wildcard in all this is that economists can’t really accurately model the economy. The math does not exist to account for the emotional reactions of what people do with their money and other assets. It could be a one sentence post on social media by the U.S. President or Elon Musk changes the entire dynamic.
One could argue that short term blips are unpredictable, but the long-term averages adhere to some math model(s). But then, how do you explain economic Nobel Prize winner Paul Krugman having such an uncanny knack for getting nearly everything wrong? Economically blinded by TDS?
If so, then how do we know most other economists are not also economically impaired by the same or similar syndromes?
Oh, by the way, I ran out of Markley’s Law posts. The sources dried up early this year.
Krugman was actually blinded by BDS as hard as that to imagine. Some of his pre-2000 stuff actually makes sense, even in hindsight. TDS should be considered a complication.
Some of the basic assumptions that economists have used for generations have been recently (last decade or so) been shown to be false, and things that “can’t happen” have. Mainstream economists have some seriously huge blind spots, things as fundamental as not properly accounting for the value of having kids because they discount future earning and only look at the current / near future costs, and by their accounting private equity asset-striping profitable businesses is simply “unlocking value.” Krugman is wrong almost as often as Jim Cramer. The better economists like Steve Keen and Michael Hudson are largely ignored by the powers that be, because they don’t give answers that support The Current Program.
That said, Some basic facts are not arguable: the US has been printing and exporting dollars for decades, and as that money comes back home it will be very inflationary. We have way too much debt (public, corporate, individual), and few want to buy it, so barring more Fed money-printing to just buy FedGov debt, interest rates will be going up. But if they do that any more blatantly, that will cause distortions and be even more inflationary… eventually. Right now (and for the last several years), the real rate of inflation is considerably higher than the official number, and that’s screwing some groups (like retirees) hard. Historically, inflation is how governments get out of a debt problem, but with the USD being the world reserve currency and everyone else in the same boat, it’s likely not going to look the same as it has in the past.
I would expect that TPTB will push a CBDC, so they can “manage” your cash flow, and make sure you choose “wisely” with your spending and savings habits, so as to not “cause unnecessary disruptions.” (I.e., centrally managed financial hell that benefits the ruling class and their supporters.) This will lead to serious or hyperinflation as people dump dollars for assets and alternative currencies, so Au, Ag, beans and bullets, real estate, and useful / appreciating items, and likely the stock market as well.
Meanwhile, re-shoring manufacturing jobs and tariffs will tend to help the economy, but AI will be destroying wide swathes of jobs, but it’s too early to tell what those numbers will look like.
(speaking of AI, just remember: it’s only as good as the questions/prompts you give it. Otherwise it might just answer “42”)
Exciting times.
It’s not a bad thing for stock price to go lower when they’re priced in increasing valuable dollars. Conversely, it’s not a great thing for your company’s stock price to go up 40% when gold has gone up 80% in the same time period.
For example, the DJIA has gone up 135% in 10 years, while gold went up 190%. In the same period, however, the NASDAQ went up 245%. In terms of a neutral metric for value rather than price, the DJIA has lost value while the NASDAQ gained value.
Getting ESPP and incentive stock awards, it’s aggravating to me to have to pay taxes on a 40% increase in stock price when the value of the dollar is 71.4% of what it was when I bought it. So, the stock price stayed flat, I didn’t do anything wrong, but my country’s monetary policy devalued what’s in my savings account and now I have to pay tax on that sale? Do the same with a house or other long-term value-holding property as the currency is Weimaring around.
At least as an encouragement for long term investing, I’d like a “virtual gold standard”. That means, if you hold an asset for two years, you’re not only paying capital gains (as you would after one year) rather than individual income tax rates, but you take your purchase price in dollars, divide it by the purchase day’s average dollar price for a gram of gold, then multiple that by the selling day’s average dollar price for a gram of gold, and that’s the cost basis you use for tax-paying purposes.
Naturally, in any system like that, people will try to game it, but it’s hard to game a metric which isn’t finalized until after you’ve completed the deal, and you can’t take advantage of for two years. I suppose someone could posit a “tentative gold price” for the current day, but that’s at best a useful approximation.
It would put a damper on people leveraging existing assets for credit, such as HELOCs or the 0.1%er scheme of buying urban real estate on credit, then leveraging the ‘appreciating value’ (i.e. price in decreasingly valuable dollars) of the property for tax-free money in the way of additional loans. That’s not to say these assets don’t appreciate in value themselves due to scarcity and other drivers of value (improvements in utilities, school district, road building, nearby development, etc), but it would take the currency devaluation out of the pricing.
Here in Washington state, they got around the “no income tax allowed” problem by implementing a 7% tax on long-term capital gains (that’s not income!!!), and of course it’s not adjusted for inflation. Tax avoidance (please note I’m speaking of legal tax avoidance, not illegal tax fraud) at this point is a moral obligation.
Real estate exempted, and doesn’t kick in until $270K (which is adjusted for inflation).
I’m under that cap, but there’s no reason to believe that cap won’t come down to meet me, or that the real estate exemption won’t go “poof!”
The “doesn’t kick in until” number gets adjusted annually for inflation, but not the asset price increase. An asset bought 25 years ago for $500k and sold for $1M today didn’t even break even when adjusted for the real rate of inflation, (and only marginally profitable even according to the official rate) but they want 7% of the increase in the nominal price. They are strongly disincentivizing long-term investing.
I am definitely being encouraged to establish an Idaho primary residency.
As the very affluent family of my daughter’s first and now ex- boyfriend told us: Washington was a great place to earn a legacy; Idaho is where you keep it.
Von Mises showed that Keynesian economics has a “crash point” which cannot be gotten around.
Those crashes have been covered in the past by wars. (Maybe AI came up with a better way to cover the reset?)
But none the less that crash is inevitable. Hyper inflation as Rolf pointed out is one way of paying off debt. (Run the currency down to Zimbabwe 100 trillion notes and pay off the 36 trillion in debt for the price of a cup of coffee. (in todays dollars of course.)
CBDC and digitals seem to be the way they plan to hide the reset. And keep the public from hanging them in the process, as they can zap your account with any amount they want you to have.
But the real point is going to be who pays the price. Who gets screwed.
My guess is just about everybody except the super-rich.
That’s the crux of it: there is no way out that doesn’t cause a lot of pain, the only questions are who gets hurt, and when? The powers that be mainly want to ensure it’s not them, and not now.
So Swiss rock band Krokus had it right all those head banging years ago? “Eat the rich!”? Sounds rather Socialist in a gourmet way.
When five to eight decades of wanton money printing comes flooding home in dedollarization, raising intrest rates to infinity won’t be sufficient to control the hyperinflation.
The fiat dollar is done.
I’m tired of the government failing to deal with their spending problem. They have destroyed the most impressive economy ever created. There isn’t going to be any way around it. I’d pull my money out of the stock market, but why? There is no where to put it that I would trust and with the dollar’s value past the point of destroyed, there isn’t any point in keeping it as cash.
I won’t comment on the dollar/stocks/interest rate stuff, the folks above took care of it. But…
“Oh, by the way, I ran out of Markley’s Law posts. The sources dried up early this year.”
Yay !. Now Mondays can be restored to intelligent discussion instead of brainless anti-gun posts from….well, I’m not really sure exactly what those people are, but we won’t be hearing from them anymore. .That’s a 14.28% potential improvement in blog content value !
Thanks, Joe.