Imminent inflation, rising rates, debt. The system is seriously creaking and safe havens are taking advantage of it. Gold and bitcoin are prancing.
The Empire and the Ponzi fiat
Government spending as a percentage of GDP has never been higher in the United States. They represent 38% of GDP. Public debt exceeds 100% of GDP, a level not reached since the Second World War.
In principle, public revenue should be equal to expenditure. Instead, almost all states are “rolling” their debt. Especially the United States which manages to sell it to the rest of the world thanks to the petrodollar system.
And when we look at the projections from the CBO (Congressional Budget Office), it appears that public spending is not about to be reduced.
Governments did try to reduce spending after the financial crisis of 2008. The result was large demonstrations against austerity on both sides of the Atlantic.
It is easier to turn the printing press. Except that borrowing to repay interest mathematically leads to an exponential headlong rush.
Unless you keep interest close to 0%. Look at Japan, which has a debt representing 263% of GDP. The country still functions. But we still need to keep rates at the floor.
To do this, the central bank of Japan bought back an amount of public debt representing nearly 130% of GDP. For comparison, the public debt held by the Fed represents 20% of GDP.
There is no choice but to print money to keep interest rates at 0%. Unless we force oil exporting countries to recycle part of their surpluses into their debt. #petrodollar.
Worse and worse ?
The rate of economic growth plays a crucial role in debt management. If economic growth exceeds the interest rate on public debt, any debt is manageable.
As the said the chairman of the Fed recently, “the debt is not a problem, it is the budget deficit that is”.
Greece is a prime example of a sovereign debt crisis. In 2009, its growth fell below 0% while interest rates on its debt were around 4%.
Investors then lost confidence in the Greek government’s ability to repay. Athens found itself unable to roll over its debt and sell off its family jewels like entire islands.
The American debt is certainly significant ($33,000 billion). But for now, growth remains higher than the interest rate on the public debt.
However, it is clear that debt is growing faster than GDP. This dynamic goes hand in hand with galloping inflation (which artificially inflates GDP, by the way). Hence the rate hike by the Fed.
Consequence: the budget allocated to debt interest has exploded to 1,000 billion dollars per year. Knowing that government revenue is only $4.4 trillion. In other words, almost 1/4 of tax revenues are used solely to pay interest on the debt!
We will therefore have to not wait too long to bring rates back to 0%. The problem is that the Fed is stuck with inflation which is likely to worsen due to tensions in the Levant.
The advantage of the United States is that it has sufficient energy, unlike the old continent. The European Union imports 95% of its refined oil…
Rage in the Middle East
Arab countries are furious about what is happening in Gaza. The Turkish president has declared this weekend in front of a crowd of a million people:
“The West, do you want to resume the fight between the Cross and the Crescent? »
The Russian president told him:
“There is no way to help the Palestinians except by fighting those who started the conflict, and we are fighting them in Ukraine.”
The new Speaker of the House of Representatives of the Democratic Republican Party Mike Johnson, for his part, added fuel to the fire:
US infantry troops may be needed to support Israel.
Supports a direct Israeli attack on Iran
Russia, China and Iran are the new axis of evil. »
German Defense Minister Pistorus sees “a danger of war in Europe; the army and society must prepare for war.”
Faced with this dialogue of the deaf, one of the possible scenarios for the years to come is an OPEC embargo on oil exports.
Iraqi Prime Minister Mohammed Shia al-Sudani has already warned that the flow of oil to Western markets could be delayed due to Israel’s actions in Gaza.
Iranian Foreign Minister Hossein Amir-Abdollahian officially asked Islamic countries to decree a total embargo on oil and gas against nations that support Israel.
And as if all this wasn’t enough, France, the United States and Russia will launch ballistic missile launches this week…
Less oil = debt + inflation = rise in bitcoin
The Rothschild bank estimates the chances of a regional escalation of the Israeli-Palestinian conflict at 30%. That’s to say :
“The opening of a new front between Israel and the Lebanese Hezbollah, a 100,000-strong militia, heavily armed and well trained. This scenario full of uncertainties could see the price of a barrel oscillate between $85 and $105. »
The World Bank also warns that the war could push global oil prices to between $93 and $102 per barrel. Or even between 109 and 121 dollars.
In this article we talked about the disaster scenario of a blockade in the Strait of Hormuz, through which approximately 20% of the world’s oil production and 18% of liquefied natural gas transit.
The tension is palpable even if the price of a barrel of oil (WTI) remains around $83 for the moment. A price spike would be devastating since inflation is already above 10% in 35 countries, 7% in 55 countries and 5% in more than 90 country.
This inflation coupled with high interest rates would lead to stagflation: inflation and recession (unemployment). This is what safe haven values like gold are shouting, which is on the verge of its all-time high.
Add to this the imminent change in accounting standards in favor of bitcoin, the ETF, Halving and the troubles of the stablecoin Tether with the law. The stage is set for a new record above $100,000 for a bitcoin.
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