The Great Reorganization – Part 6

Time waits for no man.

We find some variation of this proverb in literature scattered across the centuries. The earliest variation is attributed to St. Marher in 1225. “And te tide and te time þat tu iboren were, schal beon iblescet“, he wrote.

And it’s unquestioningly true.

We celebrated my daughter’s tenth birthday over the weekend. Here she is crafting decorations for her party:

Two of her friends came over to celebrate with her. Madison called it a “sleepover’. But I think that’s a misnomer. I’m not sure those girls did much sleeping. I think they sat up talking about 10-year old girl stuff into the wee hours of the night.

To her, that’s just what you do when you turn 10 years old. But to her father… it’s not so normal.

Because I remember when this young lady first arrived. Indeed, I delivered her myself in the room adjacent to where she is sitting in the image above.

Alas, time waits for no man.

But like a DEI-approved hire, I suppose time doesn’t discriminate. In just the same way, it waits for no economic era. And that brings us back to our running thesis: America’s Great Reorganization…

The thesis is simple. The cheap money era that reshaped our society over the past five decades is coming to an end.

That which was sustained by cheap money and artificially low interest rates will come to an end with it. And this will lead to a comprehensive reorganization – one that will fundamentally alter the landscape of our society.

SOFR replacing LIBOR as the benchmark interest rate for dollar-denominated debt is the catalyst driving this reorganization. For those who missed our discussion on this esoteric dynamic, you can catch up right here: https://www.zenconomics.com/the-great-reorganization-part-2

To summarize it succinctly, SOFR liberated US monetary policy from European influences. It’s what allowed Federal Reserve (Fed) Chairman Jerome Powell to normalize interest rates – breaking ranks with the global central bank cartel in the process.

History may paint that move to normalize rates as the second American Revolution. That’s how significant it was. 

To illustrate why, let’s peer into the future and examine how normalized interest rates could force change across various sectors of our economy.

It all starts with Congress and fiscal policy…

For decades, the U.S. Congress has operated under the assumption that it could spend without consequence. Low interest rates enabled by cheap money policies allowed for ever-increasing deficits with no immediate repercussions.

As it stands, Congress is set to add over $2 trillion to the national debt each year going forward. But as interest rates normalize, this fiscal recklessness will become unmanageable. Because normalized rates will dramatically increase the cost of servicing the national debt. 

The Congressional Budget Office (CBO) projects that total interest payments on the national debt will exceed $1 trillion next year. As interest payments consume a larger portion of the federal budget, Congress will face mounting pressure from the financial sector to cut spending and implement fiscal reforms. The days of kicking the can down the road will come to an abrupt end. 

We’ll see this pressure come from the bond market. As America’s debt balloons, at some point the biggest buyers of Treasury bonds will say “no mas”. That would force fiscal discipline on federal spending. 

Of course, such a scenario would be quite chaotic… if it gets to that point. The fact that Elon Musk is floating the idea of a “government efficiency commission” suggests that some powerful influences already recognize the need to cut federal spending aggressively now – so that dislocations in the Treasury market might be avoided.

Regardless of how it plays out, fiscal discipline is coming back to the federal budget. And that will force discipline throughout the rest of the economy. 

Zombie companies will face a reckoning… private investment capital will contract – which will limit startup funding to only the best companies… and consumer credit will dry up.

At that point American households will be forced to value financial stability, self-reliance, and long-term planning once again. The “keeping up with the Joneses” mentality that has driven so much wasteful consumption will give way to a more sustainable and fulfilling approach to personal finance.

Perhaps ironically, such a mentality will be a boon for self-directed investors. We’ll talk about what it all looks like tomorrow…

-Joe Withrow

P.S. Ready to put this analysis to work and unlock the secrets of true financial freedom? Join me this Friday, October 25^th for our live webinar: The 4.5 Things You Need for Financial Freedom: How to Create True Financial Security in Today’s Economic Climate

We’ll get started at 3:00 PM Eastern on the dot. The core presentation will run for about an hour or so. Then we’ll open it up to Q&A. And I’m an open book – no question is off limits.

You can secure your spot by going to: https://phoenician-league.lpages.co/webinar-oct24-int/.

See you Friday!