I have one more image of winter’s first snowfall for you today:
This one truly captures the majesty of the Virginia highlands. But now it’s time for a serious discussion…
The Age of Paper Wealth is over.
That’s the conclusion my research led me to last year. And it’s the core theme I’ve presented in these pages over and over again.
It all comes down to the Federal Reserve (the Fed), interest rates, and the US dollar.
The market has been trained to see the Fed as a reactionary institution. When consumer price inflation rises, the Fed is supposed to raise interest rates to get it back down. Then when inflation slows, the Fed is supposed to cut interest rates to stimulate economic growth.
That’s the Keynesian view. It’s been the dominant economic school of thought in academia and American politics ever since the 1960s. President Nixon even went on television in 1971 and proclaimed, “We’re all Keynesians now”.
Keynesian theory created the Age of Paper Wealth. It lasted from 1982 to 2022.
During this time, the Fed consistently cut interest rates and flooded the financial system with cheap money. This kept borrowing costs abnormally low and sent the stock market soaring for forty years.
But low rates and cheap money fueled a debt binge of epic proportions.
The US government is now $34 trillion in debt. And the American private sector has run up its debt burden to nearly $20 trillion.
At the same time, the policy of creating trillions of dollars from nothing year after year has triggered serious consumer price inflation for the first time in decades.
We see this in the form of rising prices for houses, cars, groceries, and other necessities.
But these items aren’t getting more expensive because they cost more to produce. They are getting more expensive because inflation erodes the value of our dollar.
Meanwhile, the BRICS bloc (Brazil, Russia, India, China, South Africa) now represents 42% of the world’s population and 36% of global gross domestic product (GDP). And this bloc is working furiously to build alternative trade networks and settlement systems to operate outside the US dollar.
This reduces demand for US dollars and dollar-denominated assets – especially US Treasuries.
The problem is, Treasury bonds are the bedrock of the US financial system. American banks, financial institutions, and insurance companies own roughly $12 trillion worth of US Treasuries.
So Wall Street and the Fed can’t afford for Treasury demand to plummet rapidly. That would threaten the entire system.
And if that weren’t enough, the western world’s globalist faction is now pushing for what it calls the “Great Reset”. It’s a plot to overthrow the traditional economic order and make globalist institutions the ultimate arbiter of money and credit.
That’s what central bank digital currencies (CBDCs) are about. They are a threat to the private commercial banking system itself.
To make matters even more complex, a portion of the American power structure (government/corporations/academia) is aligned with the globalist faction. They favor the Great Reset – to the detriment of peace, prosperity, and traditional American values.
This is what the Fed’s aggressive rate-hiking campaign last year was all about.
The financial media tells us that Fed Chair Jerome Powell is trying his best to fight off inflation by raising rates. And the implication is that when inflation slows, he will beat rates back down to where they were.
That’s not it.
Powell is fighting to save the legacy financial system and the US dollar.
He’s not a globalist. Powell’s a Wall Street guy. And Wall Street’s wealth, power, and influence depends on a strong America.
By raising rates so aggressively, Powell has made US Treasuries an attractive investment for global capital again. It has been 15 years since that was the case.
That’s what this is about.
The more global capital the Fed can direct into US Treasury bonds, the better it will be able to thwart the globalist plot and deter the BRICS bloc from abandoning the dollar en masse.
This is why there will be no “Fed pivot”.
As we discussed yesterday, if Powell signs off on any rate cuts next year, they will be miniscule. The narrative that the Fed is going to spend the next two years slashing rates aggressively is based on false premises.
And that means the days of perpetually lower rates and an ever-rising stock market are over. The Age of Paper Wealth met its end in 2022. As did Keynesianism.
This presents us with a major challenge.
Our entire approach to financial planning was crafted in the 1980s. That’s when the “retirement” industry was born – giving rise to retirement accounts and a horde of managed funds to put in them… all laced with fees to line the industry’s pockets.
The retirement industry says that we should work hard and pour our savings into funds within these retirement accounts for decades. Then, around age 65, we are to begin selling our funds year after year to create income for ourselves in retirement.
I suppose that approach worked okay during the Age of Paper Wealth. Falling rates and cheap money constantly pushed the stock market higher – taking most funds along for the ride… no fundamental analysis necessary.
My proposition is that those days are over.
What we consider the traditional approach to financial planning is based on the belief that borrowing costs will always be low and stocks will always go up over time.
That was the world from 1982 to 2022… but we’re in a new world now. And this new world has new rules of money that we need to follow.
More on that tomorrow.
-Joe Withrow