The American Economy Is Like An Airplane And The Pilots Are Insane

Why buying U.S. Bonds might actually be the best way to protect against the lunacy that is steering the American economy towards a horrific?crash.

Imagine a large airplane that is climbing steeply and accelerating rapidly while one engine is on fire and the other one is beginning to lose thrust. It is not a good situation to be in, but if there is any hope for recovery, then the smart thing to do would be to level the plane, stop fuel from pumping into the flames, and stabilize the other engine that is actually still working.

After that, it would be time to land the plane safely to perform desperately needed repairs.

Unfortunately for the passengers of this plane, the pilots are arguing violently about what to do, and both of them have very horrible ideas.

The co-pilot is screaming at the captain to stop being a sissy and keep climbing, and he’s also blaming the fire on the passengers who were given discounts on the price of their tickets. On the other side of the cockpit is the captain, who is rightfully dismissing his crazy co-pilot, however, he unfortunately is attempting to point the nose of the plane straight toward the ground to counter the steep climb, while at the same time trying to force everyone in first-class to pay for the repairs of the engine.

Neither one of these two has any ideas about how to actually land.

Does this sound crazy? Well if you live in America, your money and financial future are on that flight right now.

It is true that global bond markets have suffered as a result of both The Fed and Europe saying that they will increase rates. How much have they suffered? Well, they’ve suffered trillions.

Yes,?trillions of dollars have literally disappeared from the global economy.

High-yield funds have experienced nearly three full months of outflows, which is bad. Meanwhile, new high yield issuance is at a pace of about one-third that of 2021—also bad. The pace of M&A has slowed, which isn’t necessarily bad, but it is when it precedes a recession and at the same time that banks are getting hung with underwritten debt.

So what happens now?

This chart shows an inverted yield curve, which means that there is an unusual drop in yields on longer-term debt below that of yields on short-term debt of the same credit quality. Also called a negative yield curve, the inverted curve has proven in the past to be a reliable indicator of a recession to come.

Many interested firms on Wall Street are saying that it doesn’t matter, and they are issuing press releases trying to calm the investment community. One guy named Jeffery Gundlach disagrees and says they are lying.

Who is Jeffery Gundlach? A guy that dropped out of the Ph.D. program in math at Yale because it wasn’t challenging enough, and a guy that has literally been called “The King Of Bonds.”

But no, Wall Street Public Relations says, “don’t believe this guy, he’s just paranoid.”

As interest rates collapsed during the pandemic, the price of stocks and other securities with long-term pay-offs have soared, meaning that most people can no longer afford them. If you wanted stability and security, well, sorry, it’s a seller's market right now, so put your name on the list and maybe we’ll give you a call.

But don’t stay up waiting for it.

Wait, there’s more.

Shares of attractive technology firms like Zoom and Netflix, which were already sent higher by the Covid-19 pandemic, increased even more as the return on bonds all but vanished.

Lately, however, long-term interest rates have surged in anticipation of monetary tightening, causing these stocks to suddenly plummet. The turnaround has been dramatic for the most speculative stocks and wacko instruments such as cryptocurrencies.

In other words, Central Banks are trying to end the party of free money, and it’s costing those who tried to get rich quickly. Meanwhile, Foreign currencies like the USD and EUR have been restricted from exchanging with Russia, or with their currency, and energy imports have been almost fully restricted. In America, entirely so. This situation will exasperate the money supply situation further and likely lead to a long-term increase in oil prices in Europe.

Is there any good news?

Maybe, but there is definitely more bad news.

Prices on everything are going up and will continue to climb until many people can’t afford to pay their rent, drive to work, or feed their families. Those benefiting from this situation in the short-term will try to keep the train going, right up until it goes off of a cliff with them, and all us other passengers inside.

If you think the unprecedented isn’t possible, then you haven’t been paying attention to the past ten years.

Perhaps it seems that the only way to safely land your money on the ground is to get out of the markets entirely and put it into either undeveloped property, gold, or just good old-fashioned cash.

However, perhaps the best way to land the plane is to purchase U.S. Treasury Bonds.

Okay, see? There is some good news.

Allow me to explain.

It’s worse than you?think in Washington

The agendas of both the Democrats and the Republicans in America are guaranteed to exasperate an already treacherous economic situation and crash the financial system yet again. The Democrats have proposed a new minimum tax of 20% upon households worth more than $100 million because they say that the tax will reduce federal budget deficits by a whopping $1 trillion over just a single decade. This sounds peachy to many voters, and to sweeten the deal, the tax would only apply to the extremely wealthy, with roughly half of all proceeds coming from just 704 billionaire households in the USA.

Yes, seven-hundred-four.

If you aren’t rich, which the vast majority of people are not, then this might sound like a good idea. After all, just 704 insanely wealthy families pay $500 billion to promote the public good. This has become especially tasty for many voters since everyone knows that these wealthy scoundrels pay a lower tax percentage than most middle-class earners, the very same who have actually increased their overall wealth by a staggering $1.7 trillion since the start of the pandemic in February 2020.

Meanwhile, most Americans struggled just to pay basic bills and keep up their health insurance during a global health emergency.

These 704 fat cat billionaires could have afforded to pay medical coverage for every single person and still come out just as wealthy as they were before the start of 2020.

As an example, Elon Musk alone gained enough money to pay for all of the costs of over 5 million community college students while feeding all 29 million low-income public-school kids every single day, for an entire year. This was a problem even before 2020; Jeff Bezos, the supposed richest man in America, reportedly paid no federal income taxes in 2007 and 2011, Elon Musk paid none in 2018, and Warren Buffett paid a tax rate of 0.1 percent between 2014 and 2018.

So let’s force them to pay their fair share right? What could possibly be wrong with that?

Money doesn’t grow on trees, it’s fabricated by billionaires

Billionaires typically require taking huge loans from banks in order to finance their activities. The way it works is that these ultra-rich people take massive loans from financial institutions at near-zero interest rates, which they typically pay back rather quickly. The reason that billionaires are able to take these loans is that they have a tremendous amount of valuable assets that they can use as collateral for those loans.

The general public calls these assets, “stocks.”

While this may sound like elitist privilege, it has actually become essential for the supply of money in the American economy, as well as for much of the world.

Why?

The U.S. Dollar (USD) is born when a bank issues a new loan to an individual or an organization, and the reason that banks are able to issue these loans is since the Central Bank (The Fed in the U.S.) guarantees the integrity of loans that banks provide. If something goes wrong, the Central Bank steps in and regulates.

Simply put, banks literally create new money when they issue new loans, thus increasing the money supply in the overall economy. The reality of American money is that it depends upon these billionaires because, without them, much of the money in the economy never would exist in the first place.

When billionaires use their assets (aka portions of ownership of companies) as a guarantee for cash loans that they take from large financial institutions, it works for the banks because they profit from fees and whatever small amount of interest that is gained, while at the same time they are able to increase their overall valuation by writing on the Balance Sheet that they have a receivable in the amount that they loaned to the billionaire, or their company. Once that loan is paid back, that receiveable turns into cash, which a bank can then use to make other investments.

Oftentimes, these investments are the very same that allow large corporations to continue operating, or to bankroll new mergers and acquisitions.

In other words, banks today need billionaires to rationalize their issuance of new money that not only raises the value of the banks but also injects enormous amounts of cash into the economy. Without this supply of money, large corporations would not be able to pay the millions of workers employed by them.

Regardless of how crazy all of this may sound, it is, in fact, how the U.S. economy functions, and also one of the reasons why the U.S. dollar is not insanely expensive for the rest of. Without billionaires and their companies, the demand for the USD would far surpass supply, and thus, none of us little ordinary people would be able to afford it.

Given that the USD supply is already challenged, the result of a heavy tax on billionaires could be the catalyst that leads to a major crash in the American economy, as well as way fewer varieties of potato chip flavors.

This is what Biden proposes we do.

On the other red?hand

While the GOP is not directly threatening to undermine the very fabric of the global economy, they are actively trying to derail the federal government and basically any form of regulation whatsoever. The Republicans are behaving like anarchists who believe that they can better serve the public good by doing cocaine and going to the occasional orgy.

This is really bad since history has shown us that having no governance whatsoever leads to crime and chaos. When it comes to finance and economy, this obscenely stupid approach entirely dismisses the well-documented history that led to the creation of the Federal Reserve in the first place. Prior to the Fed, billionaires such as John Pierpont Morgan, Andrew Carnegie, and John Rockefeller had to bail out the American government on more than one occasion; this is to make no mention of the wars that were partially caused by having a commodity backed financial system.

Simply put, not having a central banking authority is a terrible idea, because it would essentially render the USD uncontrollable and result in it being as volatile as unregulated cryptocurrency, but without the hack-proof blockchain technology.

The other issue with the GOP is that they would love to weaponize the USD and hold it over the head of anyone who dares challenge America. This is bad because it would make many governments around the world skittish, thus causing them to seek alternatives for a reserve currency. The result would be lower demand for the USD.

In other words, the GOP’s monetary plan is to keep the plane climbing sharply even though it’s on fire — this will lead to engine failure and thus greatly diminish the power and value of the dollar globally, and ultimately crash the economy.

How any Republicans think that this is a good idea is way beyond me, but then again, I don’t do cocaine.

Don’t climb and don’t dive, buy and sell bonds?instead

All previous efforts to tax America’s super-rich have failed because Republican senators and moderate Democrats won’t go for it, which is probably a good thing. Most sane experts agree that nose-diving the economy in an effort to make it more equitable is a really bad idea, even if we are in an unsustainable climb that is doomed to stall.

Yes, the more we climb, the more momentum there will be behind the crash, so in the end, the current status quo approach will perhaps eventually lead to a worse disaster than simply shredding the money supply.

Simply put, the choice Americans have is between a terrible option offered by Democrats, or a really terrible option from the GOP.

In other words, it’s business as usual in Washington D.C.

So what can people do to prevent an all-out crash and soften what is certain to be a rough landing?

As we said, central banks in America and Europe have signaled that more interest rate hikes are coming — this will slow money supply coming from private banks and will lead to a further increase in the price of the USD. However, because the central banks will also take in more cash from selling more bonds, they can use those proceeds to repurchase the low-interest rate Brexit-Trump-Pandemic era bonds, thus injecting that money back into the economy. This type of open-market-operations (OMO) could actually work very well.

In other words, The Fed could take loans from the public that will offer buyers healthy returns. Afterward, The Fed could pay back some of the older debt that doesn’t provide good returns to existing bondholders.

The result of this would be a better future outlook for bondholders who would have healthier yields to look forward to in the months and years to come, meanwhile, it would not jeopardize the money supply and risk placing the dollar into a position where U.S. exports become too expensive for foreign buyers.

This is how we can stop fuel from flowing into the flaming engine and instead divert it to the other one so that we can land.

To do all this, we need a sane and able pilot.

The good news is that The Fed is raising interest rates, which means that someone is actually paying attention.

Putting it all?together

Remember, the market is driven by either confidence or fear, nothing more, and the economy today is in deeply uncharted territories that defy all traditional modes of measurement and logic — people are often afraid of the unknown, so panic is coming.

At some point very soon the airplane will need to level out and find an airport, so the U.S. economy needs someone to get into the cockpit fast and start piloting because every single traditional measurement for gauging the health of the economy is screaming at us to land immediately. When passengers start panicking, the situation will be far worse.

According to all historical wisdom, the economy is already dead, it’s just that the grim reaper hasn’t gotten the memo yet.

He will soon.

Meanwhile, Republicans and Democrats are shouting insane ideas at each other about how to fix a problem that neither seems to understand. Some of these blue Washington wingnuts are arguing that soaring inflation was caused by pandemic-induced imbalances in supply chains, while the reds are shouting that it was welfare-oriented stimulus checks that caused prices to sky-rocket.

Both of these arguments are so loaded with lies that each time someone on Capitol Hill utters them, three innocent angels suffocate and die.

The only thing that these two sides can seem to agree on is that America should weaponize the dollar to punish those who would dare defy its will — this is a terrible idea that will cause other governments to turn to other reserve currencies.

The bottom line is that the supply of U.S. dollars is perhaps the most important factor in the global financial system right now, and this is especially true since the onset of war-time sanctions against Russia. This is one of the reasons why the dollar is now gaining so much strength against every single other legitimate currency out there.

While a rising dollar has its advantages, too much, and the American economy goes into an irrecoverable stall.

America needs an effective emergency monetary policy now, and it must stop trying to weaponize the dollar to penalize foreign governments.

Purchasing bonds is a great way to not only protect your money from being on a nightmarish flight to hell, but it also is a great way to send the message that you’ve had enough with the crazy policy decisions in Washington.