Oops: The Treasury Secretary spilled the beans about the coming inflation
James Hickman

In the aftermath of World War II, with Europe devastated and Japan in ruins after two atomic bombs, the world faced the monumental task of rebuilding the global economy.

It had already been decided at the 1944 Bretton Woods Conference that America and the US dollar would dominate the new international financial system.

But also born from that same conference were the World Bank and International Monetary Fund (IMF)— both of which were created to help resurrect global trade and production.

The World Bank provided crucial loans for rebuilding war-torn countries, including helping to finance European reconstruction projects (including much of France’s modern infrastructure).

Meanwhile, the IMF stabilized global currencies, helping nations avoid economic collapse by offering financial assistance and ensuring currency exchange systems remained functional— all of which was vital to help resuscitate international trade.

These two institutions— the IMF and World Bank— played an incredibly important, almost heroic, role in rebuilding the global economy after World War II. And for decades they remained important pillars of the international financial system.

But that was a long time ago.

Today the IMF and World Bank are sort of like the legacy media (i.e. CNN, MSNBS, etc.)— they haven’t kept up with the times, and their own actions have made them irrelevant and impossible to take seriously.

The IMF, for example, boasts BOTH a Diversity and Inclusion Council AND a Diversity and Inclusion Office, which puts out an annual diversity and inclusion report.

The World Bank has also joined the anti-racism crusade with a formal charter to make cities more inclusive through bizarre urban development projects.

Both are also part of the Climate Change crusade. And, while, again, we are all for a clean and healthy environment, these ignorant institutions deliberately waste billions of dollars pushing counterproductive policies and subsidizing inferior technologies.

The World Bank, for example, has deliberately NOT financed a single nuclear power plant anywhere in the world since 1959— even though nuclear power is THE best solution to improve both the environment and human prosperity.

These two institutions helped save the world and rescue the global economy back in the 1940s and 1950s. Today they’re a complete joke, run by woke fanatics who do far more harm than good.

That’s why I found it strangely appropriate that US Treasury Secretary Janet Yellen showed up to the World Bank and IMF’s annual meeting, which is happening right now.

Just like the World Bank and IMF, American influence in the world is also waning… and the government is similarly run by woke fanatics who do more harm than good.

It’s ironic because, almost at the very same time as the IMF/World Bank meeting, the so-called “BRICS” nations are holding their own summit—a conference of rising powers like Brazil, Russia, India, China, and South Africa.

It’s basically the new guys versus the old guard.

While the IMF’s and World Bank’s relevance fades, BRICS represents the producer nations, i.e. those who are rich in natural resources and/or manufacturing capacity. They export. They create surpluses.

As a bloc, the BRICS nations represent around 35% of global GDP, and roughly 40% of global economic growth.

Yet at the moment they don’t even have a seat at the table. That’s because the international financial system is still controlled by the United States, i.e. the country with a massive trade deficit, a completely dysfunctional government, and a nearly $36 trillion national debt.

The BRICS countries are tired of not having a real say in global finance, especially with US government finances in such a weak state.

Frankly, the US Treasury Secretary should have been at the BRICS summit, if nothing else to make the case for American strength and credibility.

Instead, she chose to attend the IMF/World Bank convention of declining, irrelevant has-beens.

But here’s the best part:

At this meeting, with the BRICS summit in the backdrop, a reporter asked Ms. Yellen how she planned to convince other nations to continue buying US government debt— given the already massive national debt, continuing deficits, and skyrocketing interest bill.

She answered, “By making sure that we stay on a sound fiscal path…”

Come again? STAY on a sound fiscal path? Where is this sound fiscal path, and when was the last time the US was on it?

More importantly, though, the Treasury Secretary added the following: “I believe it’s very important that we remain focused on keeping the real net interest cost of the debt near historic levels and certainly under 2% [of GDP].”

This is where Yellen spilled the beans. She said the quiet part out loud.

In FY 2024 (the fiscal year that just closed a month ago on September 30th), the government spent a total of $1.1 trillion on interest. That’s roughly 3.8% of America’s $29 trillion GDP.

And this number keeps increasing every year. The national debt keeps growing (MUCH faster than GDP). And as a result, interest on the debt keeps growing.

There’s only ONE way, realistically, that the government can reduce its interest bill. And that’s by reducing interest rates. A lot.

Think about it: if interest rates were, say, 1%, then the government’s annual interest will would “only” be $360 billion per year (1.2% of GDP), instead of $1.1 trillion.

There’s only one problem— bringing down interest rates means that the Federal Reserve will have to ‘print’ a boatload of money… literally tens of trillions of dollars. And that’s going to be EXTREMELY inflationary.

Remember during the pandemic— the Fed added $5 trillion to the money supply, and we ended up with 9% inflation. What will happen if they add twenty or thirty trillion dollars to the money supply?

No one knows for sure. But it’s probably not going to be their magical 2% target.

That’s why we keep talking about real assets, i.e. the world’s most critical and valuable resources which cannot be conjured out of thin air by central banks— assets like energy, key minerals, disruptive technology, and the companies which produce them.

Real assets tend to perform extremely well in inflationary environments. And Yellen tipped her hand this week about the inflation that’s coming. They simply have no other option.

And the best part? The producers of these assets—energy, commodities, mining—are ridiculously cheap right now.

It’s a sensible move to consider in a world where central banks are about to crank up the inflation machine once again.

 

 

 

James Hickman (aka Simon Black) is an international investor, entrepreneur, and founder of Sovereign Man. His free daily e-letter Notes from the Field is about using the experiences from his life and travels to help you achieve more freedom, make more money, keep more of it, and protect it all from bankrupt governments.

 

 

 

 

www.schiffsovereign.com