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December
05
2022

Here’s Why Stagflation Will be the Dominant Theme of the Decade…
Doug Casey

Why stagflation — and not inflation or deflation — will prevail as the dominant theme for the decade?

This period is analogous to the 1930-40 period with an exception. The countries going into this particular crisis are debt laden as we’re at the tail end of the long-term debt cycle. Not only that but the largest reserve currency economic blocks (US, Europe, UK, and Japan) are now moving into the contraction/restructuring stage of the cycle.

Consider where we are now. In every major economic bloc with a currency system that is used as reserves (most notably the US, UK, EU, and Japan) we have reached levels where growth has stalled. This growth stall was prior to the 2020 lockdowns, by the way. Debt had already begun to be unsustainable in so far as debt laden assets had reached insane levels with simultaneous levels of accompanying debt. The ROI provided was in many instances negative. Remember those negative yielding sovereign bonds in Europe? Remember loss making (high tech whizz bang “growth”) such as the ARK Innovation Fund.

The premise, of course, was that increasing levels of debt would continue to bring marginal real growth. We always said it was nonsense and now it’s proving to be. I guess we got lucky.

The issue is that the rise we saw in assets has been directly related to the rise in debt. Reducing one reduces the other and vice versa. Now we’re faced with real rates of inflation which are structural and cannot be “fixed” by tampering with fiscal or monetary policy since this time it is the public sector that is carrying the debt burden. Central banks are having to choose between inflation that grinds the economy down or “attacking inflation,” which will wipe out government spending by taking the piggy bank away. This is why central banks are about to become politicized. You just can’t have them acting in their own self interest where that threatens the government. That right there is a conflict, and I suspect it is going to be “resolved” within the next few years — one way or another.

If central banks raise rates sufficient to incentivize creditors to hold cash or debt instruments, they are simultaneously creating unmanageably high servicing costs for all those holding debt-based assets. Those holding those debt based assets will be forced to default because their ROI goes negative with higher carrying costs. There are two reasons why assets will be dumped in this environment:

• Servicing costs are too high to provide any acceptable ROI and
• The asset values themselves will be falling as market participants dump them (just look at bonds over the last 18 months).

The only way this doesn’t happen is if wage growth accelerates to keep up with those higher servicing costs, and in a stagflationary environment this never happens. Real wage growth is always lower than real inflation. This is why they have to lie about real inflation numbers.

As such the central banks are in the proverbial rock and hard place.

Here is where I believe Klaus and his gang of thieves intend to step in. They’ll print up a lot of money causing rapid inflation and Blackrock will buy up the assets. It will destroy the value of money right at a time when the broad market (middle class especially) is being forced to dump those assets in order to make ends meet and stave off bankruptcy and/or make ends meet. They may even throw in another pandemic or climate lockdowns — who knows. That’ll really seal the fate of the enslaved.

“You’ll own nothing and be happy” was never meant to be a choice.

This is all taking place rather rapidly now and problems are becoming insurmountable. Consider these indebted governments who have to keep funding operations. This funding requires issuing debt. A lot of debt. In the US, for example, they’re selling debt equivalent to 5% of GDP. That’s fine at a different part of the cycle, when interest rates are falling and growth is accelerating. Neither of these things are taking place today. And that means that the appetite for this debt will fall short, pushing down bond prices and sending yields higher. You see, bond investors have two problems to consider now. They’re waking to what we’ve been saying was coming — an environment of persistently higher interest rates.

Why buy a bond today when you believe it’s going to be cheaper tomorrow? And why buy a bond today which fails to compensate you for the annual rate of inflation (currency devaluation)?

For governments this turns from a problem into a collapse rather quickly (though the rest of the world is likely to get it before the US). Their costs of borrowing rise and their currencies debase.

In the private sector the availability of credit will contract, which means less purchase of goods and services. Basically a stagnant shitty economy, coupled with a loss of purchasing power via inflation/currency debasement.

Oh, and I’ve not mentioned taxes.

They’re going up because the pointy shoes who got us into this mess will NEVER self reflect or reduce their own living standards/cutting the size of government.

So what to do?

Well, this is where we look at the service sector economy and the “stuff” or raw materials component of the economy. It is worth noting that no matter how fancy your hair dryer is or how many settings it has, it doesn’t work without being plugged into the wall, which is to say plugged into an electrical grid run on fossil fuels. Take away the fossil fuels or indeed the components required to build, maintain and operate the electrical grid (copper, steel, etc.) and the hair dryer is as useful as a politician. Not so much.

Editor’s Note: Disturbing economic, political, and social trends are already in motion and now accelerating at breathtaking speed. Most troubling of all, they cannot be stopped.

The risks that lie ahead are too big and dangerous to ignore. That’s why contrarian money manager Chris Macintosh just released the most critical report on these trends, What Happens Next. This free special report explains precisely what’s coming down the pike and what it means for your wealth and well-being. Click here to access it now.

 

As the impetus behind the International Man project, Doug Casey is an American-born free market economist, best-selling financial author, and international investor and entrepreneur. He is the founder and chairman of Casey Research, a provider of subscription financial analysis about specific market verticals that he has focused his investing career around, including natural resources/metals/mining, energy, commodities, and technology.

Since 1979, he has written, and later co-written, the monthly metals and mining focused investment newsletter, The International Speculator. He also contributes to other newsletters, including The Casey Report, a geopolitically oriented publication.

Doug Casey is a highly respected author, publisher and professional investor who graduated from Georgetown University in 1968.

Doug literally wrote the book on profiting from periods of economic turmoil: his book, Crisis Investing, spent multiple weeks as #1 on the New York Times bestseller list and became the best-selling financial book of 1980 with 438,640 copies sold; surpassing big-caliber names, like Free to Choose by Milton Friedman, The Real War by Richard Nixon, and Cosmos by Carl Sagan.

Then Doug broke the record with his next book, Strategic Investing, by receiving the largest advance ever paid for a financial book at the time. Interestingly enough, Doug’s book, The International Man, was the most sold book in the history of Rhodesia.

He has been a featured guest on hundreds of radio and TV shows, including David Letterman, Merv Griffin, Charlie Rose, Phil Donahue, Regis Philbin, Maury Povich, NBC News and CNN; and has been the topic of numerous features in periodicals such as Time, Forbes, People, and the Washington Post.

Doug, who divides his time between homes in Aspen, Colorado; Auckland, New Zealand; and Salta, Argentina, has written newsletters and alert services for sophisticated investors for over 28 years. Doug has lived in 10 countries and visited over 175.

In addition to having served as a trustee on the Board of Governors of Washington College and Northwoods University, Doug has been a director and advisor to nine different financial corporations.

Doug is widely respected as one of the preeminent authorities on “rational speculation,” especially in the high-potential natural resource sector.

www.internationalman.com