You can see above where Volker broke the back of inflation. Since then every US president , starting with Reagan took advantage of the strong dollar, and low inflation to borrow from future growth through A) Massive Deficit Spending and B) Permanently negative real rates. Japan followed suit, even more aggressively and they were lauded as economic magicians until they sank into a permanent recession. Europe followed suit right after the creation of the Euro. Now they're in a permanent recession. And so are we!
Not that anyone will admit it. Yet.
So what next? Well, we win the ugly contest. Our rates (of growth and interest) though negative in terms of real inflation are still way more attractive than rates in Europe and Japan. So Capital is flowing here. And that is accelerating.
So the Dollar index must go higher. And higher. How high? Well, maybe as high as in the Volker era.
But then what? After borrowing growth from the future for 40 + years, that game has been burnt out.
We just aren't going to grow our way out of it.
So then what?
What happens after all that capital has come here, and we fall into an endless recession?
What then, Mr Wizard?
Nobody knows, but it will be good to own some things with intrinsic value.
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