As the Fed begins their journey into a deflationary blizzard, they are beginning to break markets across the globe. As the World Reserve Currency, over 60% of all international trade is done in Dollars, and USDs are the largest Foreign Exchange (Forex) holdings by far for global central banks. Now all foreign currencies are crashing against the Dollar as the vicious feedback loops of Triffin’s Dilemma come home to roost. The Dollar Milkshake has begun.
The Fed, knowingly or unknowingly, has walked into this trap- and now they find themselves caught underneath the Sword of Damocles, with no way out…
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Sword Of Damocles
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“The famed “sword of Damocles” dates back to an ancient moral parable popularized by the Roman philosopher Cicero in his 45 B.C. book “Tusculan Disputations.” Cicero’s version of the tale centers on Dionysius II, a tyrannical king who once ruled over the Sicilian city of Syracuse during the fourth and fifth centuries B.C.
Though rich and powerful, Dionysius was supremely unhappy. His iron-fisted rule had made him many enemies, and he was tormented by fears of assassination—so much so that he slept in a bedchamber surrounded by a moat and only trusted his daughters to shave his beard with a razor.
As Cicero tells it, the king’s dissatisfaction came to a head one day after a court flatterer named Damocles showered him with compliments and remarked how blissful his life must be. “Since this life delights you,” an annoyed Dionysius replied, “do you wish to taste it yourself and make a trial of my good fortune?” When Damocles agreed, Dionysius seated him on a golden couch and ordered a host of servants wait on him. He was treated to succulent cuts of meat and lavished with scented perfumes and ointments.
Damocles couldn’t believe his luck, but just as he was starting to enjoy the life of a king, he noticed that Dionysius had also hung a razor-sharp sword from the ceiling. It was positioned over Damocles’ head, suspended only by a single strand of horsehair.
From then on, the courtier’s fear for his life made it impossible for him to savor the opulence of the feast or enjoy the servants. After casting several nervous glances at the blade dangling above him, he asked to be excused, saying he no longer wished to be so fortunate.”
—---------------
Damocles’ story is a cautionary tale of being careful of what you wish for- Those who strive for power often unknowingly create the very systems that lead to their own eventual downfall. The Sword is often used as a metaphor for a looming danger; a hidden trap that can obliterate those unaware of the great risk that hegemony brings.
Heavy lies the head which wears the crown.
​
There are several Swords of Damocles hanging over the world today, but the one least understood and least believed until now is Triffin’s Dilemma, which lays the bedrock for the Dollar Milkshake Theory. I’ve already written extensively about Triffin’s Dilemma around a year ago in Part 1.5 and Part 4.3 of my Dollar Endgame Series, but let’s recap again.
Here’s a great summary- read both sides of the dilemma:
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Triffin's Dilemma Summarized

(Seriously, stop here and go back and read Part 1.5 and Part 4.3 Do it!)

​
Essentially, Triffin noted that there was a fundamental flaw in the system: by virtue of the fact that the United States is a World Reserve Currency holder, the global financial system has built in GLOBAL demand for Dollars. No other fiat currency has this.
How is this demand remedied? With supply of course! The United States thus is forced to run current account deficits - meaning it must send more dollars out into the world than it receives on a net basis. This has several implications, which again, I already outlined- but I will list in summary format below:

1. The United States has to be a net importer, ie it must run trade deficits, in order to supply the world with dollars. Remember, dollars and goods are opposite sides of the same equation, so a greater trade deficits means that more dollars are flowing out to the world.
2. (This will devastate US domestic manufacturing, causing political/social/economic issues at home.)
3. These dollars flow outwards into the global economy, and are picked up by institutions in a variety of ways.
4. First, foreign central banks will have to hold dollars as Foreign Exchange Reserves to defend their currency in case of attack on the Forex markets. This was demonstrated during the Asian Financial Crisis of 1997-98, when the Thai Baht, Malaysian Ringgit, and Philippine Peso (among other East Asian currencies) plunged against the Dollar. Their central banks attempted to defend the pegs but they failed.
5. Second, companies will need Dollars for trade- as the USD makes up over 60% of global trade volume, and has the deepest and most liquid forex market by far, even small firms that need to transact cross border trade will have to acquire USDs in order to operate. When South Africa and Chile trade, they don’t want to use Mexican Pesos or Korean Won- they want Dollars.
6. Foreign governments need dollars. There are several countries already who have adopted the Dollar as a replacement for their own currency- Ecuador and Zimbabwe being prime examples. There’s a full list here.
7. Third world governments that don’t fully adopt dollars as their own currencies will still use them to borrow. Argentina has 70% of it’s debt denominated in dollars and Indonesia has 30%, for example. Dollar-denominated debt will build up overseas.

The example I gave in Part 1.5 was that of Liberia, a small West African Nation looking to enter global trade. Needing to hold dollars as part of their exchange reserves, the Liberian Central Bank begins buying USDs on the open market. The process works in a similar fashion for large Liberian export companies.
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Dollar Recycling
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Essentially, they print their own currency to buy Dollars. Wanting to earn interest on this massive cash hoard when it isn’t being used, they buy Treasuries and other US debt securities to get a yield.
As their domestic economy grows, their need and dependence on the Dollar grows as well. Their Central Bank builds up larger and larger hoards of Treasuries and Dollars. The entire thesis is that during times of crisis, they can sell the Treasuries for USD, and use the USDs to buy back their own currency on the market- supporting its value and therefore defending the peg.
This buying pressure on USDs and Treasuries confers a massive benefit to the United States-
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The Exorbitant Privilege
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This buildup of excess dollars ends up circulating overseas in banks, trade brokers, central banks, governments and companies. These overseas dollars are called the Eurodollar system- a 2016 research paper estimated the size to be around $13.8 Trillion USD. This system is not under official Federal Reserve jurisdiction so it is difficult to get accurate numbers on its size.
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https://preview.redd.it/92wcmhdb0uq91.png?width=691&format=png&auto=webp&s=20dbaf63f75ff6f2e255fff06e6f48c03170b11b
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This means the Dollar is always artificially stronger than it should be- and during financial calamity, the dollar is a safe haven as there are guaranteed bidders.
All this dollar denominated debt paired with the global need for dollars in trade creates strong and persistent dollar demand. Demand that MUST be satisfied.
This creates systemic risk on a worldwide scale- an unforeseen Sword of Damocles that hangs above the global financial system. I’ve been trying to foreshadow this in my Dollar Endgame Series.
Triffin’s Dilemma is the basis for the Dollar Milkshake Theory posited by Brent Johnson.
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The Dollar Milkshake

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Milkshake of Liquidity
In 2021, Brent worked with RealVision to create a short summary of his thesis- the video can be found here. I should note that Brent has had this theory for years, dating back to 2018, when he first came on podcasts and interviews and laid out his theory (like this video, for example).
Here’s the summary below:
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“A giant milkshake of liquidity has been created by global central banks with the dollar as its key ingredient - but if the dollar moves higher this milkshake will be sucked into the US creating a vicious spiral that could quickly destabilize financial markets.
The US dollar is the bedrock of the world's financial system. It greases the wheels of global commerce and exchange- the availability of dollars, cost of dollars, and the level of the dollar itself each can have an outsized impact on economies and investment opportunities.
But more important than the absolute level or availability of dollars is the rate of change in the level of the dollar. If the level of the dollar moves too quickly and particularly if the level rises too fast then problems start popping up all over the place (foreign countries begin defaulting).
Today however many people are convinced that both the role of the Dollar is diminishing and the level of the dollar will only decline. People think that the US is printing so many dollars that the world will be awash with the greenback causing the value of the dollar to fall.
Now it's true that the US is printing a lot of dollars – but other countries are also printing their own currencies in similar amounts so in theory it should even out in terms of value.
But the hidden issue is the difference in demand. Remember the global financial system is built on the US dollar which means even if they don't want them everybody still needs them and if you need something you don't really have much choice. (See DXY Index):
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DXY Index
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Although many countries like China are trying to reduce their reliance on dollar transactions this will be a very slow transition. In the meantime the risks of a currency or sovereign debt crisis continue to rise.
But now countries like China and Japan need dollars to buy copper from Australia so the Chinese and the Japanese owe dollars and Australia is getting paid in dollars.
Europe and Asia currently doing very limited amount of non-dollar transactions for oil so they still need dollars to buy oil from saudi and again dollars get hoovered up on both sides
Asia and Europe need dollars to buy soybeans from Brazil. This pulls in yet more dollars - everybody needs dollars for trade invoices, central bank currency reserves and servicing massive cross-border dollar denominated debts of governments and corporations outside the USA.
And the dollar-denominated debt is key- if they don't service their debts or walk away from their dollar debts their funding costs rise putting great financial pressure on their domestic economies. Not only that, it can lead to a credit contraction and a rapid tightening of dollar supply.
The US is happy with the reliance on the greenback they own the settlement system which benefits the US banks who process all the dollars and act as gatekeepers to the Dollar system they police and control the access to the system which benefits the US military machine where defense spending is in excess of any other country so naturally the US benefits from the massive volumes of dollar usage.
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https://preview.redd.it/yq1f1anq0uq91.png?width=1140&format=png&auto=webp&s=27447e2acec884848a5c70ab3651820e487fc0f3
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Other countries have naturally been grumbling about being held hostage to the situation but the choices are limited. What it does mean is that dollars need to be constantly sucked out of the USA because other countries all over the world need them to do business and of course the more people there are who need and want those dollars the more is the pressure on the price of dollars to go up.
In fact, global demand is so high that the supply of dollars is just not enough to keep up, even with the US continually printing money. This is why we haven't seen consistently rising US inflation despite so many QE and stimulus programs since the global financial crisis in 2008.
But, the real risk comes when other economies start to slow down or when the US starts to grow relative to the other economies. If there is relatively less economic activity elsewhere in the world then there are fewer dollars in global circulation for others to use in their daily business and of course if there are fewer in circulation then the price goes up as people chase that dwindling source of dollars.
Which is terrible for countries that are slowing down because just when they are suffering economically they still need to pay for many goods in dollars and they still need to service their debts which of course are often in dollars too.
​
So the vortex begins or as we like to say the dollar milkshake- As the level of the dollar rises the rest of the world needs to print more and more of its own currency to then convert to dollars to pay for goods and to service its dollar debt this means the dollar just keeps on rising in response many countries will be forced to devalue their own currencies so of course the dollar rises again and this puts a huge strain on the global system.
(see the charts below:)
JPY/USD
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GBP/USD
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EUUSD
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To make matters worse in this environment the US looks like an attractive safe haven so the US ends up sucking in the capital from the rest of the world-the dollar rises again. Pretty soon you have a full-scale sovereign bond and currency crisis.
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https://preview.redd.it/72nlain01uq91.png?width=1141&format=png&auto=webp&s=cbaa411acc88acb3849949d84a36624d75d6cfc4
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We're now into that final napalm run that sees the dollar and dollar assets accelerate even higher and this completely undermines global markets. Central banks try to prevent disorderly moves, but the global markets are bigger and the momentum unstoppable once it takes hold.
And that is the risk that very few people see coming but that everyone should have a hedge against - when the US sucks up the dollar milkshake, bad things are going to happen.
Worst of all there's no alternatives- what are you going to use-- Chinese Yuan? Japanese Yen? the Euro??
Now, like it or not we're stuck with a dollar underpinning the global financial system.”
—-------------
Why is it playing out now, in real time?? It all leads back to a tweet I made in a thread on September 16th.
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Tweet Thread about the Yuan
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The Fed, rushing to avoid a financial crisis in March 2020, printed trillions. This spurred inflation, which they then swore to fight. Thus they began hiking interest rates on March 16th, and began Quantitative Tightening this summer.
QE had stopped- No new dollars were flowing out into a system which has a constant demand for them. Worse yet, they were hiking completely blind-
Although the Fed is very far behind the curve, (meaning they are hiking far too late to really combat inflation)- other countries are even farther behind!
Japan has rates currently at 0.00- 0.25%, and the Eurozone is at 1.25%. These central banks have barely begun hiking, and some even swear to keep them at the zero-bound. By hiking domestic interest rates above foreign ones, the Fed is incentivizing what are called carry trades.
Since there is a spread between the Yen and the Dollar in terms of interest rates, it thus is profitable for traders to borrow in Yen (shorting it essentially) and buy Dollars, which can earn 2.25% interest. The spread would be around 2%.
DXY rises, and the Yen falls, in a vicious feedback loop.
Thus capital flows out of Japan, and into the US. The US sucks up the Dollar Milkshake, draining global liquidity. As I’ve stated before, this has seriously dangerous implications for the global financial system.
For those of you who don’t believe this could be foreseen, check out the ending paragraphs of Dollar Endgame Part 4.3 - “Economic Warfare and the End of Bretton Woods” published February 16, 2022:
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Triffin's Dilemma is the Final Nail
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What I’ve been attempting to do in my work is restate Triffins’ Dilemma, and by extension the Dollar Milkshake, in other terms- to come at the issue from different angles.
Currently the Fed is not printing money. Which is thus causing havoc in global trade (seen in the currency markets) because not enough dollars are flowing out to satisfy demand.
The Fed must therefore restart QE unless it wants to spur a collapse on a global scale. Remember, all these foreign countries NEED to buy, borrow and trade in a currency that THEY CANNOT PRINT!
We do not have enough time here to go in depth on the Yen, Yuan, Pound or the Euro- all these currencies have different macro factors and trade factors which affect their currencies to a large degree. But the largest factor by FAR is Triffin’s Dilemma + the Dollar Milkshake, and their desperate need for dollars. That is why basically every fiat currency is collapsing versus the Dollar.
The Fed, knowingly or not, is basically in charge of the global financial system. They may shout, “We raise rates in the US to fight inflation, global consequences be damned!!” - But that’s a hell of a lot more difficult to follow when large G7 countries are in the early stages of a full blown currency crisis.
The most serious implication is that the Fed is responsible for supplying dollars to everyone. When they raise rates, they trigger a margin call on the entire world. They need to bail them out by supplying them with fresh dollars to stabilize their currencies.
In other words, the Fed has to run the loosest and most accommodative monetary policy worldwide- they must keep rates as low as possible, and print as much as possible, in order to keep the global financial system running. If they don’t do that, sovereigns begin to blow up, like Japan did last week and like England did on Wednesday.
And if the world’s financial system implodes, they must bail out not only the United States, but virtually every global central bank. This is the Sword of Damocles. The money needed for this would be well in the dozens of trillions.
The Dollar Endgame Approaches…
—-------------------------------------------------------------
​

Q&A

(Many of you have been messaging me with questions, rebuttals or comments. I’ll do my best to answer some of the more poignant ones here.)

—-----
Q: I’ve been reading your work, you keep saying the dollar is going to fall in value, and be inflated away. Now you’re switching sides and joining the dollar bull faction. Seems like you don’t know what you’re talking about!
A: You’re mixing up my statements. When I discuss the dollar losing value, I am referring to it falling in ABSOLUTE value, against goods and services produced in the real economy. This is what is called inflation. I made this call in 2021, and so far, it has proven right as inflation has accelerated.
The dollar gaining strength ONLY applies to foreign currency exchange markets (Forex)- remember, DXY, JPYUSD, and other currency pairs are RELATIVE indicators of value. Therefore, both JPY and USD can be falling in real terms (inflation) but if one is falling faster, then that one will lose value relative to the other. Also, Forex markets are correlated with, but not an exact match, for inflation.
I attempted to foreshadow the entire dollar bull thesis in the conclusion of Part 1 of the Dollar Endgame, posted well over a year ago-
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Unraveling of the Currency Markets
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I did not give an estimate on when this would happen, or how long DXY would be whipsawed upwards, because I truly do not know.
I do know that eventually the Fed will likely open up swap lines, flooding the Eurodollar market with fresh greenbacks and easing the dollar short squeeze. Then selling pressure will resume on the dollar. They would only likely do this when things get truly calamitous- and we are on our way towards getting there.
The US bond market is currently in dire straits, which matches the prediction of spiking interest rates. The 2yr Treasury is at 4.1%, it was at 3.9% just a few days ago. Only a matter of time until the selloff gets worse.
—------
Q: Foreign Central banks can find a way out. They can just use their reserves to buy back their own currency.
Sure, they can try that. It’ll work for a while- but what happens once they run out of reserves, which basically always happens? I can’t think of a time in financial history that a country has been able to defend a currency peg against a sustained attack.
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Global Forex Reserves
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They’ll run out of bullets, like they always do, and basically the only option left will be to hike interest rates, to attract capital to flow back into their country. But how will they do that with global debt to GDP at 356%? If all these countries do that, they will cause a global depression on a scale never seen before.
Britain, for example, has a bit over $100B of reserves. That provides maybe a few months of cover in the Forex markets until they’re done.
Furthermore, you are ignoring another vicious feedback loop. When the foreign banks sell US Treasuries, this drives up yields in the US, which makes even more capital flow to the US! This weakens their currency even further.
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FX Feedback Loop
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To add insult to injury, this increases US Treasury borrowing costs, which means even if the Fed completely ignores the global economy imploding, the US will pay much more in interest. We will reach insolvency even faster than anyone believes.
The 2yr Treasury bond is above 4%- with $31T of debt, that means when we refinance we will pay $1.24 Trillion in interest alone. Who's going to buy that debt? The only entity with a balance sheet large enough to absorb that is the Fed. Restarting QE in 3...2…1…
—----
Q: I live in England. With the Pound collapsing, what can I do? What will happen from here? How will the governments respond?
England, and Europe in general, is in serious trouble. You guys are currently facing a severe energy crisis stemming from Russia cutting off Nord Stream 1 in early September and now with Nord Stream 2 offline due to a mysterious leak, energy supplies will be even more tight.
Not to mention, you have a pretty high debt to GDP at 95%. Britain is a net importer, and is still running government deficits of £15.8 billion (recorded in Q1 2022). Basically, you guys are the United States without your own large scale energy and defense sector, and without Empire status and a World Reserve Currency that you once had.
The Pound will almost certainly continue falling against the Dollar. The Bank of England panicked on Wednesday in reaction to a $100M margin call on British pension funds, and now has begun buying long dated (10yr) gilts, or government bonds.
They’re doing this as inflation is spiking there even worse than the US, and the nation faces a currency crisis as the Pound is nearing parity with the Dollar.
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BOE announces bond-buying scheme (9/28/22)
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I will not sugarcoat it, things will get rough. You need to hold cash, make sure your job, business, or investments are secure (ie you have cashflow) and hunker down. Eliminate any unnecessary purchases. If you can, buy USDs as they will likely continue to rise and will hold value better than your own currency.
If Parliament goes through with more tax cuts, that will only make the fiscal situation worse and result in more borrowing, and thus more money printing in the end.
—----
Q: What does this mean for Gamestop? For the domestic US economy?
Gamestop will continue to operate as I am sure they have been- investing in growth and expanding their Web3 platform.
Fiat is fundamentally broken. This much is clear- we need a new financial system not based on flawed 16th fractional banking principles or “trust me bro” financial intermediaries.
My hope is that they are at the forefront of a new financial system which does not require centralized authorities or custodians- one where you truly own your assets, and debasement is impossible.
I haven’t really written about GME extensively because it’s been covered so well by others, and I don’t feel I have that much to add.
As for the US economy, we are still in a deep recession, no matter what the politicians say- and it will get worse. But our economic troubles, at least in the short term (6 months) will not be as severe as the rest of the world due to the aforementioned Dollar Milkshake.
The debt crisis is still looming, midterms are approaching, and the government continues to deficit spend as if there’s no tomorrow.
As the global monetary system unravels, yields will spike, the deleveraging will get worse, and our dollar will get stronger. The fundamental factors continue to deteriorate.
I’ve covered the US enough so I'll leave it there.
—------
Q: Did you know about the Dollar Milkshake Theory before recently? What did you think of it?
Of course I knew about it, I’ve been following Brent Johnson since he appeared on RealVision and Macrovoices. He laid out the entire theory in 2018 in a long form interview here. I listened to it maybe a couple times, and at the time I thought he was right- I just didn’t know how right he was.
Brent and I have followed each other and been chatting a little on Twitter- his handle is SantiagoAuFund, I highly recommend you give him a follow.
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Twitter Chat
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I’ve never met him in person, but from what I can see, his predictions are more accurate than almost anyone else in finance. Again, all credit to him- he truly understands the global monetary system on a fundamental level.
I believed him when he said the dollar would rally- but the speed and strength of the rally has surprised me. I’ve heard him predict DXY could go to 150, mirroring the massive DXY squeeze post the 1970s stagflation. He could very easily be right- and the absolute chaos this would mean for global trade and finance are unfathomable.
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History of DXY
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Q: The Pound and Euro are falling just because of the energy crisis there. That's it!
Why is the Yen falling then? How about the Yuan? Those countries are not currently undergoing an energy crisis. Let’s review the year to date performance of most fiat currencies vs the dollar:
Japanese Yen: -20.31%
Chinese Yuan: -10.79%
South African Rand: -10.95%
English Pound: -18.18%
Euro: -14.01%
Swiss Franc: -6.89%
South Korean Won: -16.73%
Indian Rupee: -8.60%
Turkish Lira: -27.95%
There are only a handful of currencies positive against the dollar, the most notable being the Russian Ruble and the Brazilian Real- two countries which have massive commodity resources and are strong exporters. In an inflationary environment, hard assets do best, so this is no surprise.
—------
Q: What can the average person do to prepare? What are you doing?
Obligatory this is NOT financial advice
This is an extremely difficult question, as there are so many factors. You need to ask yourself, what is your financial situation like? How much disposable income do you have? What things could you cut back on? I can’t give you specific ideas without knowing your situation.
Personally, I am building up savings and cutting down on expenses. I’m getting ready for a severe recession/depression in the US and trying to find ways to increase my income, maybe a side hustle or switching jobs.
I am holding my GME and not selling- I still have some shares in Fidelity that I need to DRS (I know, sorry, I was procrastinating).
For the next few months, I believe there will be accelerating deflation as interest rates spike and the debt cycle begins to unwind. But like I’ve stated before, this will lead us towards a second Great Depression very rapidly, and to avoid the deflationary blizzard the Fed will restart QE on a scale never seen before.
QE Infinity. This will be the impetus for even worse inflation- 25%+ by this time next year.
It’s hard to prepare for this, and easy to feel hopeless. It’s important to know that we have been through monetary crises before, and society did not devolve into a zombie apocalypse. You are not alone, and we will get through this together.
It’s also important to note that we are holding the most lopsided investment opportunity of a generation. Any money you put in there can be grown by orders of magnitude.
We are at the end of the Central Bankers game- and although it will be painful, we will rid the world of them, I believe, and build a new financial system based on blockchains which will disintermediate the institutions. They have everything to lose.
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Q: I want to learn more, where can I do? What can I do to keep up to date with everything?
You can start by reading books, listening to podcasts, and checking the news to stay abreast of developments. I have a book list linked at the end of the Dollar Endgame posts.
I’ll be covering the central bank clown show on Twitter, you can follow me there if you like. I’ll also include links to some of my favorite macro people below:

• Peruvian Bull (my only account)
• Lyn Alden
• Luke Gromen
• Brent Johnson
• Raoul Pal
• Andreas Steno Larsen
• Jeffrey Snider

I’m still finishing up the finale for Dollar Endgame- I should have it out soon. I’m also writing an addendum to the series which is purely Q&A to answer questions and concerns. Sorry for the wait.
—-------------------
Nothing on this Post constitutes investment advice, performance data or any recommendation that any security, portfolio of securities, investment product, transaction or investment strategy is suitable for any specific person.

I am getting increasingly worried about the amount of warning signals that are flashing red for hyperinflation- I believe the process has already begun, as I will lay out in this paper. The first stages of hyperinflation begin slowly, and as this is an exponential process, most people will not grasp the true extent of it until it is too late. I know I’m going to gloss over a lot of stuff going over this, sorry about this but I need to fit it all into four posts without giving everyone a 400 page treatise on macro-economics to read. Counter-DDs and opinions welcome. This is going to be a lot longer than a normal DD, but I promise the pay-off is worth it, knowing the history is key to understanding where we are today.
SERIES (Parts 1-4) TL/DR: We are at the end of a MASSIVE debt supercycle. This 80-100 year pattern always ends in one of two scenarios- default/restructuring (deflation a la Great Depression) or inflation (hyperinflation in severe cases (a la Weimar Republic). The United States has been abusing it’s privilege as the World Reserve Currency holder to enforce its political and economic hegemony onto the Third World, specifically by creating massive artificial demand for treasuries/US Dollars, allowing the US to borrow extraordinary amounts of money at extremely low rates for decades, creating a Sword of Damocles that hangs over the global financial system.
The massive debt loads have been transferred worldwide, and sovereigns are starting to call our bluff. Governments papered over the 2008 financial crisis with debt, but never fixed the underlying issues, ensuring that the crisis would return, but with greater ferocity next time. Systemic risk (from derivatives) within the US financial system has built up to the point that collapse is all but inevitable, and the Federal Reserve has demonstrated it will do whatever it takes to defend legacy finance (banks, brokedealers, etc) and government solvency, even at the expense of everything else (The US Dollar).
I’ll break this down into four parts. ALL of this is interconnected, so please read these in order:

Updated Complete Table of Contents:

• Part 1.0: The Global Monetary System
• Part 1.5: Triffin’s Dilemma and the New Rome
• Part 2.0: Reflexivity and the Shadows of Black Monday
• Part 2.5: Derivatives and the Alchemy of Risk
• Part 3.0: Debt Cycles and Great Depression
• Part 3.5: The Money Illusion
• Part 4.0: The Weimar Republic
• Part 4.1: Nightmare of Hyperinflation
• Part 4.2: Financial Gravity & The Fed’s Dilemma
• Part 4.3: Economic Warfare & The End of Bretton Woods
• Part 5.0: A Story of Fire & Ice: The Finale

“Enter the Dragon”

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The Inflation Dragon
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PART 5.0 “The Monster & the Simulacrum”

“In the 1985 work “Simulacra and Simulation” French philosopher Jean Baudrillard recalls the Borges fable about the cartographers of a great Empire who drew a map of its territories so detailed it was as vast as the Empire itself.
According to Baudrillard as the actual Empire collapses the inhabitants begin to live their lives within the abstraction believing the map to be real (his work inspired the classic film "The Matrix" and the book is prominently displayed in one scene).
The map is accepted as truth and people ignorantly live within a mechanism of their own design and the reality of the Empire is forgotten. This fable is a fitting allegory for our modern financial markets.
Our fiscal well being is now prisoner to financial and monetary engineering of our own design. Central banking strategy does not hide this fact with the goal of creating the optional illusion of economic prosperity through artificially higher asset prices to stimulate the real economy.
While it may be natural to conclude that the real economy is slave to the shadow banking system this is not a correct interpretation of the Baudrillard philosophy-
The higher concept is that our economy IS the shadow banking system… the Empire is gone and we are living ignorantly within the abstraction. The Fed must support the shadow banking oligarchy because without it, the abstraction would fail.” (Artemis Capital)
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The Inflation Serpent

To most citizens living in the West, the concept of a collapsing fiat currency seems alien, unfathomable even. They regard it as an unfortunate event reserved only for those wretched souls unlucky enough to reside in third world countries or under brutal dictatorships.
Monetary mismanagement was seen to be a symptom only of the most corrupt countries like Venezuela- those where the elites gained control of the Treasury and printing press and used this lever to steal unimaginable wealth while impoverishing their constituents.
However, the annals of history spin a different tale- in fact, an eventual collapse of fiat currency is the norm, not the exception.
In a study of 775 fiat currencies created over the last 500 years, researchers found that approximately 599 have failed, leaving only 176 remaining in circulation. Approximately 20% of the 775 fiat currencies examined failed due to hyperinflation, 21% were destroyed in war, and 24% percent were reformed through centralized monetary policy. The remainder were either phased out, converted into another currency, or are still around today.
The average lifespan for a pure fiat currency is only 27 years- significantly shorter than a human life.
Double-digit inflation, once deemed an “impossible” event for the United States, is now within a stone’s throw. Powell, desperate to maintain credibility, has embarked on the most aggressive hiking schedule the Fed has ever undertaken. The cracks are starting to widen in the system.
One has to look no further than a simple graph of the M2 Money Supply, a measure that most economists agree best estimates the total money supply of the United States, to see a worrying trend:
​
M2 Money Supply
The trend is exponential. Through recessions, wars, presidential elections, cultural shifts, and even the Internet age- M2 keeps increasing non-linearly, with a positive second derivative- money supply growth is accelerating.
This hyperbolic growth is indicative of a key underlying feature of the fiat money system: virtually all money is credit. Under a fractional reserve banking system, most money that circulates is loaned into existence, and doesn't exist as real cash- in fact, around 97% of all “money” counted within the banking system is debt, in one form or another. (See Dollar Endgame Part 3)
Debt virtually always has a yield- that yield is called interest, and that interest demands payment. Thus, any fiat money banking system MUST grow money supply at a compounding interest rate, forever, in order to remain stable.
Debt defaulting is thus quite literally the destruction of money- which is why the deflation is widespread, and also why M2 Money Supply shrank by 30% during the Great Depression.
​
Interest in Fractional Reserve Fiat Systems
This process repeats ad infinitum, perpetually compounding loan creation and thus money supply, in order to prevent systemic defaults. The system is BUILT for constant inflation.
In the last 50 years, only about 12 quarters have seen reductions in commercial bank credit. That’s less than 5% of the time. The other 95% has seen increases, per data from the St. Louis Fed.
​
Commercial Bank Credit
Even without accounting for debt crises, wars, and government defaults, money supply must therefore grow exponentially forever- solely in order to keep the wheels on the bus.
The question is where that money supply goes- and herein lies the key to hyperinflation.
​
In the aftermath of 2008, the Fed and Treasury worked together to purchase billions of dollars of troubled assets, mortgage backed securities, and Treasury bonds- all in a bid to halt the vicious deleveraging cycle that had frozen credit markets and already sunk two large investment banks.
These programs were the most widespread and ambitious ever- and resulted in trillions of dollars of new money flowing into the financial system. Libertarian candidates and gold bugs such as Peter Schiff, who had rightly forecasted the Great Financial Crisis, now began to call for hyperinflation.
The trillions of printed money, he claimed, would create massive inflation that the government would not be able to tame. U.S. debt would be downgraded and sold, and with the Fed coming to the rescue with trillions more of QE, extreme money supply increases would ensue. An exponential growth curve in inflation was right around the corner.
Gold prices rallied hard, moving from $855 at the start of 2008 to a record high of $1,970 by the end of 2011. The end of the world was upon us, many decried. Occupy Wall Street came out in force.
However, to his great surprise, nothing happened. Inflation remained incredibly tame, and gold retreated from its euphoric highs. Armageddon was averted, or so it seemed.
The issue that was not understood well at the time was that there existed two economies- the financial and the real. The Fed had pumped trillions into the financial economy, and with a global macroeconomic downturn plus foreign central banks buying Treasuries via dollar recycling, all this new money wasn’t entering the real economy.
​
Financial vs Real Economy
Instead, it was trapped, circulating in the hands of money market funds, equities traders, bond investors and hedge funds. The S&P 500, which had hit a record low in March of 2009, began a steady rally that would prove to be the strongest and most pronounced bull market in history.
The Fed in the end did achieve extreme inflation- but only in assets.
Without the Treasury incurring significant fiscal deficits this money did not flow out into the markets for goods and services but instead almost exclusively into equity and bond markets.
​
QE Stimulus of financial assets
The great inflationary catastrophe touted by the libertarians and the gold bugs alike never came to pass- their doomsday predictions appeared frenetic, neurotic.
Instead of re-evaluating their arguments under this new framework, the neo-Keynesians, who held the key positions of power with Treasury, the Federal Reserve, and most American Universities (including my own) dismissed their ideas as economic drivel.
The Fed had succeeded in averting disaster- or so they claimed. Bernanke, in all his infinite wisdom, had unleashed the “Wealth Effect”- a crucial behavioral economic theory suggesting that people spend more as the value of their assets rise.
An even more extreme school of thought emerged- the Modern Monetary Theorists%20is,Federal%20Reserve%20Bank%20of%20Richmond.)- who claimed that Central Banks had essentially discovered a ‘perpetual motion machine’- a tool for unlimited economic growth as a result of zero bound interest rates and infinite QE.
The government could borrow money indefinitely, and traditional metrics like Debt/GDP no longer mattered. Since each respective government could print money in their own currency- they could never default.
The bill would never be paid.
Or so they thought.
​

The American Reckoning

This theory helped justify massive US government borrowing and spending- from Afghanistan, to the War on Drugs, to Entitlement Programs, the Treasury indulged in fiscal largesse never before seen in our nation’s history.
​
America's Finances
The debt continued to accumulate and compound. With rates pegged at the zero bound, the Treasury could justify rolling the debt continually as the interest costs were minimal.
Politicians now pushed for more and more deficit spending- if it's free to bailout the banks, or start a war- why not build more bridges? What about social programs? New Army bases? Tax cuts for corporations? Subsidies for businesses?
There was no longer any “accepted” economic argument against this- and thus government spending grew and grew, and the deficits continued to expand year after year.
The Treasury would roll the debt by issuing new bonds to pay off maturing ones- a strategy reminiscent of Ponzi schemes.
This debt binge is accelerating- as spending increases, (and tax revenues are constant) the deficit grows, and this deficit is paid by more borrowing. This incurs more interest, and thus more spending to pay that interest, in a deadly feedback loop- what is called a debt spiral.
​
Gross Govt Interest Payments
The shadow threat here that is rarely discussed is Unfunded Liabilities- these are payments the Federal government has promised to make, but has not yet set aside the money for. This includes Social Security, Medicaid, Medicare, Veteran’s benefits, and other funding that is non-discretionary, or in other words, basically non-optional.
Cato Institute estimates that these obligations sum up to $163 Trillion. Other estimates from the Mercatus Center put the figure at between $87T as the lower bound and $222T on the high end.
YES. That is TRILLION with a T.
A Dragon lurks in these shadows.
​
Unfunded Liabilities
What makes it worse is that these figures are from 2012- the problem is significantly worse now. The fact of the matter is, no one knows the exact figure- just that it is so large it defies comprehension.
These payments are what is called non-discretionary, or mandatory spending- each Federal agency is obligated to spend the money. They don’t have a choice.
Approximately 70% of all Federal Spending is mandatory.
And the amount of mandatory spending is increasing each year as the Boomers, the second largest generation in US history, retire. Approximately 10,000 of them retire each day- increasing the deficits by hundreds of billions a year.
Furthermore, the only way to cut these programs (via a bill introduced in the House and passed in the Senate) is basically political suicide. AARP and other senior groups are some of the most powerful and wealthy lobbying groups in the US.
If politicians don’t have the stomach to legalize marijuana- an issue that Pew research finds an overwhelming majority of Americans supporting- then why would they nuke their own careers via cutting funding to seniors right as inflation spikes?
Thus, although these obligations are not technically debt, they act as debt instruments in all other respects. The bill must be paid.
In the Fiscal Report for 2022 released by the White House, they estimated that in 2021 and 2022 the Federal deficits would be $3.669T and $1.837T respectively. This amounts to 16.7% and 7.8% of GDP (pg 42).
​
US Federal Budget
Astonishingly, they project substantially decreasing deficits for the next decade. Meanwhile the U.S. is slowly grinding towards a severe recession (and then likely depression) as the Fed begins their tightening experiment into 132% Federal Debt to GDP.
Deficits have basically never gone down in a recession, only up- unemployment insurance, food stamp programs, government initiatives; all drive the Treasury to pump out more money into the economy in order to stimulate demand and dampen any deflation.
To add insult to injury, tax receipts collapse during recession- so the income side of the equation is negatively impacted as well. The budget will blow out.
The U.S. 1 yr Treasury Bond is already trading at 4.7%- if we have to refinance our current debt loads at that rate (which we WILL since they have to roll the debt over), the Treasury will be paying $1.46 Trillion in INTEREST ALONE YEARLY on the debt.
That is equivalent to 40% of all Federal Tax receipts in 2021!
​
In my post Dollar Endgame 4.2, I have tried to make the case that the United States is headed towards an “event horizon”- a point of no return, where the financial gravity of the supermassive debt is so crushing that nothing they do, short of Infinite QE, will allow us to escape.
The terrifying truth is that we are not headed towards this event horizon.
We’re already past it.
​
True Interest Expense ABOVE Tax Receipts
As brilliant macro analyst Luke Gromen pointed out in several interviews late last year, if you combine Gross Interest Expense and Entitlements, on a base case, we are already at 110% of tax receipts.
True Interest Expense is now more than total Federal Income. The Federal Government is already bankrupt- the market just doesn't know it yet.
​
Luke Gromen Interview Transcript (Oct 2021, Macrovoices)
​
The black hole of debt, financed by the Federal Reserve, has now trapped the largest spending institution in the world- the United States Treasury.
The unholy capture of the Money Printer and the Spender is catastrophic - the final key ingredient for monetary collapse.
This is How Money Dies.
​
The Underwater State
-------

(I had to split this post into two part due to reddit's limits, see the second half of the post HERE)

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Nothing on this Post constitutes investment advice, performance data or any recommendation that any security, portfolio of securities, investment product, transaction or investment strategy is suitable for any specific person. From reading my Post I cannot assess anything about your personal circumstances, your finances, or your goals and objectives, all of which are unique to you, so any opinions or information contained on this Post are just that – an opinion or information. Please consult a financial professional if you seek advice.
*If you would like to learn more, check out my recommended reading list here. This is a dummy google account, so feel free to share with friends- none of my personal information is attached. You can also check out a Google docs version of my Endgame Series here.
~~~~~
I cleared this message with the mods;
IF YOU WOULD LIKE to support me, you can do so my checking out the e-book version of the Dollar Endgame on my twitter profile: https://twitter.com/peruvian_bull/status/1597279560839868417
The paperback version is a work in progress. It's coming.
​
THERE IS NO PRESSURE TO DO SO. THIS IS NOT A MONEY GRAB- the entire series is FREE! The reddit posts start HERE: https://www.reddit.com/Superstonk/comments/o4vzau/hyperinflation_is_coming_the_dollar_endgame_part/
and there is a Google Doc version of the ENTIRE SERIES here: https://docs.google.com/document/d/1552Gu7F2cJV5Bgw93ZGgCONXeenPdjKBbhbUs6shg6s/edit?usp=sharing
Thank you ALL, and POWER TO THE PLAYERS. GME FOREVER
~~~~~

You can follow my Twitter at Peruvian Bull. This is my only account, and I will not ask for financial or personal information. All others are scammers/impersonators.

🟣 $GME shares Direct Registered at Computershare Update! -- As of July 30th💜🚀🚀71.3 MILLION SHARES!🚀🚀

latest 10Q
https://preview.redd.it/3n7lyv3nqcx91.png?width=722&format=png&auto=webp&s=819a98f2fe5590c0e64a108ec8c48e00832fbfcc
NEW HERE? Are you wondering what DRS is? Do you want to know how and why people are Direct Registering their shares? Please ask away in the comments! Try to search the comments first to see if your question has been answered. ✨NO KARMA RESTRICTIONS IN THIS THREAD!!✨
October Megathread
September Megathread
August Megathread
July Megathread
June Megathread
May Megathread
April Megathread
HAVE YOU GONE THROUGH THE PROCESS OR RESEARCHED IT? We have some helpful people already willing to answer questions. If you want to be one of them too, hop in and help where you can. We appreciate every last one of you. This thread will sort by new, to make it easier to find unanswered questions.
WANT TO FIGURE IT OUT ON YOUR OWN? our comprehensive Computershare Guide

✨INFO FOR IRA HODLERS✨

credit to u/Bibic-Jr
There are 2 main forms of custodian when it comes to DRSing SDIRAs: A market participant custodian (that has a connection with a broker), or a non-market participant custodian (that has no connection with brokers).

1. Creating an SDIRA LLC to control your shares, through a non-market participant custodian.
2. Creating an SDIRA through a market participant custodian, that has a broker partner.
3. A mix of 1 and 2 by creating an SDIRA LLC to control your shares, through a market participant custodian that has a broker partner. (It's the convenience of option 2, with the security of option 1)

An alternative to an LLC could be a Business Trust. They have higher set up fees, but no annual fees. pros and cons here
The only way to avoid an IRA custodian is to make an early withdrawal, taking the tax hit.

Early Withdrawal Solution (AKA In Kind Distribution):

*I'm not a tax professional and I'd urge anyone thinking of doing a rollover to contact a tax professional before proceeding to understand any consequences they may encounter.
PROS:

• Removes shares from the DTC.
• Provides truly DRS'd shares in your name, and no other entity has access to them.
• Keeps all your DRS'd shares in one place.

CONS:

• 10% Early withdrawal penalty. This penalty is applied to the pre-taxed amount of your early withdrawal.
• Tax penalties. Any early withdrawal will be added to your income and be taxed as such. The amount can vary depending on your state's tax laws, your IRA contributions, if you have a Roth or traditional IRA, and how much profit you have made.
• You will not be able to use your IRA's value to take out loans (cash margin) in order to invest in non-public traded equities (i.e. real estate) with the benfits an IRA provides.

Calculate how much tax you'd need to pay with this IRS tax calculator.

If you complete a rollover of the in-kind distribution into the name of the IRA with a new custodian within 60 days, there are no tax implications. 60-day rollovers are allowed once every 12 months, not every calendar year. You aren't able to do one in December 2022 and again in January 2023. They have to be more than 12 months apart.

Roth IRA extras:

• With Roth IRAs it's only contribution that is not subject to early-withdrawal tax penalty. Anything above what you added to it is subject to tax.
• If you have had your Roth IRA open for over 5 years, you can withdraw early penalty free. But there may still be taxes to pay.
• Transferred shares from a Roth IRA will receive a new cost basis (based on market close) and the holding period will reset (the timer for long term capital gains starts over). According to Fidelity this is IRS law. (Thank you u/boskle!)

Roth IRA 5-Year Rule - no taxes or penalties
In general, you can withdraw your earnings without owing taxes or penalties if:

• You're at least 59½ years old
• It's been at least five years since you first contributed to any Roth IRA (the five-year rule).

https://www.irs.gov/publications/p590a#en_US_2021_publink1000230975

Custodian Options (AKA In Kind Transfers Or Rollovers):

Learn more about the differences between IRA transfers and Rollovers here.
Here we have 2 different options of SDIRA custodian (Market Participant, and Non-Market Participant. The second one requires an LLC). There is also a 3rd option using a market participant custodian and an LLC.
It's important to research if a market participant, or non-market participant works best for you.
Check Existing-Reference53's post for further reading on the differences between IRA custodians
List of RITA approved IRA custodians.
List of SDIRA custodians
Investopedia's top SDIRA custodians

1. SDIRA LLC through a non-market participant custodian:

PROS

• Removes shares from the DTC.
• Offers Checkbook Control (you don't need the custodian's consent to make investments).

CONS:

• Additional LLC fees.
• Slightly more costly than using a market participant custodian.
• Added complexity from making an IRA LLC (but the direct registration process is quicker).

2. SDIRA through a market participant custodian:

PROS

• Removes shares from the DTC.
• A more affordable solution (aside from some early withdrawal situations).
• While the custodian controls the account, they have no influence over what you're invested in.

CONS:

• Shares are registered in the name of the custodian, "for the benefit of" you as a client.
• Loss of extra layer of protection from brokers without an LLC. (As well as liability protection if you intend to use your IRA to re-invest in real estate etc.)

3. SDIRA LLC through a market participant custodian:

PROS

• Removes shares from the DTC.
• While shares are registered under the name of the LLC, it is your LLC that you control. The custodian has no idea what is in the IRA LLC.
• Offers Checkbook Control (you don't need the custodian's consent to make investments).

CONS:

• Additional LLC fees on top of custodial fees.
• A market participant custodian will have a broker partner, but the broker has no access to the IRA.
• This is the most complex option to have an IRA LLC, as you have to do it yourself without the assitance of the custodian.
• A market participant custodian will have a broker partner, and some of the details of the LLC will be shared with the broker, possibly all of the details. Allowing the broker to potentially reverse transactions or trades.

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https://preview.redd.it/gw1rby2gfuq91.jpg?width=474&format=pjpg&auto=webp&s=4a3c4a5c4b5635c23a2e08ffa5ea738203d864ba
If you are an investor looking for a strategy that cuts down on your investment risk, you might want to consider a dollar-cost averaging strategy. Of course, while this approach helps you better manage risk, you are also less likely to experience outsized returns.
The term dollar-cost averaging refers to the practice of investing a consistent dollar amount in the same investment over a period of time. For instance, you might be interested in buying XYZ stock but don’t want to take the risk of putting in your money all at once.
You could instead invest a steady amount, say $300, every month. If the stock trades at $10 one month, you will buy 30 shares. If it later goes up to $12, you will end up with 25 shares that month. And if the price falls to $8 another month, you will accumulate 37 shares. If you invest in a 401(k) plan, this is actually your approach. If you stick to your asset allocation for a longer term, you are putting in a constant dollar amount every month into a specific allocation of investments.
There are both pros and cons to dollar-cost averaging that can help an investor determine if it is the right investment strategy for them.

KEY TAKEAWAYS

• Dollar-cost averaging refers to the practice of investing a consistent dollar amount in the same investment over a period of time.
• The method of dollar-cost averaging reduces investment risk but is also less likely to result in outsized returns.
• The pros of dollar-cost averaging include the reduction of the emotional component of investing and avoiding bad timings of purchases.
• The cons of dollar-cost averaging include missing out on higher returns over the long term and not being a solution to all other investing risks.

Pros

Reduces Emotional Component

One advantage to dollar-cost averaging is that by investing mechanically, you will take the emotional component out of your decision-making. You will continue on a preset course of buying a certain dollar amount of your preferred investment irrespective of how wildly the price swings. This way, you will not bail out of your investment when the price goes down in a wild swing, but rather see it as an opportunity to acquire more shares at a lower cost.

Avoids Bad Timing

If you invest your money all at once in a particular investment, there is the risk that you will invest just before a big market downturn. Imagine you had jumped into an investment just before the market downturn that began in 2007. You would have ended up losing more money than if you had invested only some of your money before the downturn.
It is almost always impossible to determine a market bottom, which is why dollar-cost averaging can help smooth out market timings.
Of course, the other side of this coin is that you might also miss out on investing at just the right time before the market starts trending upward in a bull market.

Cons

Market Rises Over Time

A disadvantage of dollar-cost averaging is that the market tends to go up over time. This means that if you invest a lump sum earlier, it is likely to do better than smaller amounts invested over a period of time. The lump sum will provide a better return over the long run as a result of the market’s rising tendency.

Not a Substitute for Identifying Good Investments

Dollar-cost averaging is not a solution for all investment risks, however. You will have to take on the task of identifying good investments and do your research even if you opt for a passive dollar-cost averaging approach. If the investment you identify turns out to be a bad pick, you will only be investing steadily into a losing investment.
Also, by adopting a passive approach, you will not be responding to the changing environment. As the investment environment changes, you might get new information about an investment that might want to make you rethink your approach.
For instance, if you hear that XYZ company is making an acquisition that will add to its earnings, you might want to increase your exposure to the company. However, a dollar-cost averaging approach does not allow for that sort of dynamic portfolio management.

The Bottom Line

If you are a less experienced investor and want to follow a preset approach so that you are not exposed to wild market swings, dollar-cost averaging could be a good approach. On the other hand, if you are experienced, you might be able to get better returns by active strategizing rather than going for dollar-cost averaging.
Dollar-Cost Averaging (DCA) Explained With Examples and Considerations
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https://preview.redd.it/of0od8kwiuq91.jpg?width=500&format=pjpg&auto=webp&s=8110b8845750e2552c29f60f3608b2a0302fd99f

What Is Dollar-Cost Averaging?

Investing can be challenging. Even experienced investors who try to time the market to buy at the most opportune moments can come up short.
Dollar-cost averaging is a strategy that can make it easier to deal with uncertain markets by making purchases automatic. It also supports an investor's effort to invest regularly.
Dollar-cost averaging involves investing the same amount of money in a target security at regular intervals over a certain period of time, regardless of price. By using dollar-cost averaging, investors may lower their average cost per share and reduce the impact of volatility on the their portfolios.
In effect, this strategy eliminates the effort required to attempt to time the market to buy at the best prices.
Dollar-cost averaging is also known as the constant dollar plan.

KEY TAKEAWAYS

• Dollar-cost averaging is the practice of systematically investing equal amounts of money at regular intervals, regardless of the price of a security.
• Dollar-cost averaging can reduce the overall impact of price volatility and lower the average cost per share.
• By buying regularly in up and down markets, investors buy more shares at lower prices and fewer shares at higher prices.
• Dollar-cost averaging aims to prevent a poorly timed lump sum investment at a potentially higher price.
• Beginning and long-time investors can both benefit from dollar-cost averaging.

How Dollar-Cost Averaging Works

Dollar-cost averaging is a simple tool that an investor can use to build savings and wealth over the long term. It is also a way for an investor to ignore short-term volatility in the broader markets.
A prime example of long-term dollar-cost averaging is its use in 401(k) plans, in which employees invest regularly regardless of the price of the investment.
With a 401(k) plan, employees can choose the amount they wish to contribute as well as those investments offered by the plan in which to invest. Then, investments are made automatically every pay period. Depending on the markets, employees might see a larger or smaller number securities added to their accounts.
Dollar-cost averaging can also be used outside of 401(k) plans. For instance, investors can use it to make regular purchases of mutual or index funds, whether in another tax-advantaged account such as a traditional IRA or a taxable brokerage account.
Dollar-cost averaging is one of the best strategies for beginning investors looking to trade ETFs. Additionally, many dividend reinvestment plans allow investors to dollar-cost average by making purchases regularly.
https://www.investopedia.com/articles/forex/052815/pros-cons-dollar-cost-averaging.asp#:~:text=Dollar%20Cost%20Averaging%3A%20Pros%20and%20Cons

Hi everyone, bob here.
So I thought it would be fun to write up a series of deep dives into several topics that seem to be taboo in the many echo chambers subreddits for various meme stocks. This is in an effort to open up some conversations, expand our perspectives, wrinkle up, and gain a deeper working knowledge on each topic I will cover.

First on the chopping block is the Direct Registration System (DRS)

I am not going to link to any "DD" on what DRS is that has been previously posted on the great DRS echo chamber superstonk because I want this to be as objective as possible, so apologies in advance if I am covering anything that has been written before over there. Hopefully this time around, we can separate facts from opinions.
Preface: I should also mention that I started writing this DD as I went with no expectations or intentionality for it. It is kind of a living document through the development until posting. I learned some things I did not know about DRS, and formed some new opinions on $GME, and what drives the stock along the way.
DRSclaimer: I set out on this adventure into the deep dark abyss that is discussing DRS objectively because I noticed some trends that were kind of alarming. I'll point these out as we go through this DD, and my intention is to simply foster a two-sided discussion as to the net effects (if any) of the DRS on $GME to date, and speculate on the eventual implications of the DRS effort over at superstonk. Personally, I am neither for, nor against DRS (you do you bro). Content that follows will be educational, data driven, and sprinkled with my opinion. Fair warning to the hive mind: this may unjack some titties, or make you second guess things, so be warned to that fact if you cannot handle reading something that may not confirm your biases. I hope you jump in anyways, and learn something, and better, yet, comment and join the objective discussion I'm seeking to have.
https://preview.redd.it/u4he5sqeg8u91.jpg?width=888&format=pjpg&auto=webp&s=edee7496db03994906fccbe4a82de21fba677d63
It's silly to have to post a disclaimer, but yeah,... here's the meat of the post:

So what is DRS?

• Computershare has this explanation
• The Depository Trust & Clearing Corporation (DTC) has this explanation
• What about pornhub elite members (the Securities and Exchange Commission - SEC)? They say this about DRS

Here's what bob says, because fuck those other guys, amiright?
DRS essentially is a book entry (clarification in comments) that links your shares to your name, and it seems like a good idea if you have a long hold that you want directly tied to your name for various reasons. It has pros and cons.

• Pros
  • You are "registered" on the books of the company, and will receive communications directly from the company, including but not limited to:
    • Reports, dividends, proxies, notices
  • You don't have to worry about losing your physical stock certificates (lol) 🙄
  • Potential Voting security? (i've not verified this as an actual pro, but was in the comments with proper sources, so adding here)
• ConsClarification on this in the comments
  • selling is more complicated (and limited) than securities held in street name at your broker.
    • Selling take more time
    • Higher fees
    • More limitations.
    • Some orders need to be submitted in writing and will not execute the same day.
  • direct registered shares are not protected by SIPC insurance
  • higher fees to buy or sell the stock and transfer fees associated with direct registration in the first place

What is the possible impacts on the stock and company as a result of the "DRS Movement" at Superstonk?

I figured I should preface this with some transparency: I personally have not DRS'd one single share of my holdings of GME, mostly due to tax implications of doing so, as well as the costs associated with the process....
So why do I care about DRS enough to dig into this information and write the DD you are reading now? Because it has become a factor I must consider for my investment, due to the movement.
So, what are the possible impacts of a stock where the entire float is accounted for in DRS? Fuck that, we're talking about $GME, so let's not split hairs. What are possible implications if the "DRS movement" is successful?
Stock Liquidity
When a stock is illiquid, it simply means there's not much trading on it, and the trading that does occur can have a larger impact on the price of the stock by volume than when the stock is very liquid. This can drive volatility in the price action and other interesting things such as cyclical movements that have been observed over the past couple years on $GME.
As the giant purple donut gobbles up more and more shares, liquidity will continue to decrease, creating a more and more illiquid trading environment for $GME. This has already been happening and can be observed in the intraday price action on the stock.
Also, there was somewhere a question that presumed the stock would be delisted if it became too illiquid. I think this not to be the case, as there are no NYSE requirements that would feasibly lead to GME getting delisted as a result of DRS.

• The initial listing requirements for the NYSE should not be an issue for $GME
• The NYSE standards for continued listing should not be an issue either.

$GME will be fine
Costs to $GME
I've dug and dug and dug into this area and cannot find the fee schedule for GME that pertains to computershare and DRS. If anyone has this, please let me know and I'll add it to this writeup. That said, I would presume the fees associated with more shares and accounts at computershare would be negligible in light of the cash reserves that Gamestop has on hand today. I believe this to be a non-issue.

From: u/Impressive-Peach-408One can only guess what GameStops fees are, but a good starting point would be https://www.sec.gov/Archives/edgadata/1515671/000119312511173848/dex99k2.htm .

​
Jury is out
Data Availability
When you DRS your shares, you are making your information available to the DTCC, Computershare, and Gamestop directly. This information can be used to gain insights such as:

• How many folks own GME in DRS format (account count)
• How many shares do they own (individually, in aggregate, and on average)
• How many shares are they adding over time (done by taking above data snapshots for comparison)

With this information available, one could use it to advise on the investment and even project outcomes based on buying pressures on the illiquid stock. This can also be used by both long and short positions. the fact that this information is widely available now has me curious how this data is being used to enhance the effectiveness of the short position on $GME.
I (Might be) watching you

So this leads me to wonder what's happened to $GME since DRS took hold on the stock....

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A picture's worth a thousand words...
So the observation here is one that's been bugging me a bit, and was the reason I got into this deep dive in the first place. You can pinpoint a break of the up trend to the very moment where DRS effort on superstonk really took hold . The stonk just goes up before then, and it just goes down after. Sure we still have spikes here and there, but the trend is obvious.
SPY same time frame. OCT2020-Oct2022 monthly
I wanted to compare that to the macro environment, and it looks like the market just going down, but not until 3 months after GME started to drop, so that's not a direct correlation; however, I should note here that since January, the market trend does seem to jive with GME's price action, with SPY being down 21% YTD and GME being down about 45% YTD at the time of this DD (October 2022)
I found this trend alarming, especially with the state of the purple circlejerk sub supersonk. I should clarify here that this is in no way an attack on that sub - they are welcome to jerk eachother off to their computershare circles and DRS effort every day of the week. I have no problem with that, but I did want to highlight the DRS effort began there, and has been heavily promoted in various ways in that echo chamber sub. Yes, i'm being blunt here, but sometimes you need to be.
https://preview.redd.it/cq9x6d4si8u91.png?width=736&format=png&auto=webp&s=68dee8c5cfb966d725acfbe8d756a287b3d4b791
Ok ok ok, I know... Shill! FUD! DRS is ThE Wai AnD thE onLY WaY!.... So let's apply some benefit of the doubt.
So what else could be happening here?
Just observing price action in relation to a start date for DRS is a weak correlation at best, so being the data crunching ape I am, I dug up some numbers to look at.
source data is here if you want to review | LMK your thoughts!
I ran some data for DRS effort and compared the following metrics:

• Volume
• FTDs
• Options
• Volatility

Volume
The 50d moving average for volume is showing a decline into the DRS effort and a slight incline afterwards. There are several factors that weigh into volume, so this isn't a huge tell of anything. I just wanted to point out what the data says here FWIW. It doesnt seem like much changed materially that jumped out at me.
Volume Vs DRS
FTDs
These are rather interesting. The trend shows that FTDs seem to be picking up ever so slightly after the DRS movement took hold. This could indicate an increased issue when locating shares for making markets.
Raw Daily FTDs vs DRS
FTDs and ETF FTDs as a % of daily $GME volume
Options
I find this one the most interesting. It doesn't necessarily have much to do with the DRS movement, but the correlation to the DRS movement taking off (alongside pervasive oPtIonS aRe bAd sentiment) on superstonk to the data I'm seeing is intriguing to say the least. What you will see here is that the relative (normalized for the split) volume of options and OI is at an all time low since tracking this saga. Options usage trends down as DRS trends up, while the stock enters a continued downtrend that's been going on for over a year now.
Options continuing down trend and holding lows after DRS effort.
In this chart, you can clearly see the dissipating OI and volume on the options chain for $GME. Bear in mind as you dig into this section that options and swaps have been the largest correlative movers of the stock since after Feb 2021. Prior to that, it was a game of FTDs and settlement, as u/gafgarian originally pointed out. Those stairsteps down that you can see are resultant from large expirations of what has been theorized to be a variance swap or part of one.... DOOMPs anyone?
$GME put to call ratio over time vs DRS
It looks like the put call ratio has been chunking down steadily as a result of the DOOMPs that were opened up during the sneeze expiring worthless. The interesting thing here is that the options were not rolled, but u/leenixus' swap theory might have something to say about that. I'm not 100% privy to this data, so I cannot speak to IF these were rolled into swaps or some other derivative, or if they simply didnt need them anymore because of whatever reason.
Final thoughts on options: There seems to be something to be said for the correlation (not statistical - yet) of options activity dropping off as price of the stock... more on this in the conclusion section.
Volatility
While the stock still trades in a range over the long haul (volatility neutral), the intraday and weekly volatility looks to have gone up a bit since before the DRS effort. This would be expected if the stock is becoming more illiquid.
$GME volatility, Absolute volatility over time vs DRS

Conclusion & Addressing MoASS Theory

OK so, let me reiterate here plainly: what follows in the entire conclusion section is my own opinion based on the data and research I've done into various topics herein.
After reviewing everything above, I have come to some new conclusions regarding DRS and MoASS. Ok, time to put on your big boy pants everyone, and let me know your opinions here and please feel free to run a counter-DD on this analysis if you'd like to. I would love to have some real discussion on these points:

• DRS effort correlates with a significant shift in the trend of $GME, in a negative way. EDIT: Since some of you are too smooth to realize the numerous times I've alluded to this in the post (hint, control-f type correlation)... CORRELATION <> CAUSATION. Simply an observational thing we are looking at here and was the reason for digging deeper into the data above.
• The OpTiOns aRe FuD campaign seems to be working, as less options are being traded over time. Per the research, this also has a correlation of stock price decline. I.E. As options are traded less, the stock is finding lower lows.

Why do I think this?
Well, you can plainly see a turning point in the price action, and though DRS increase and options decline are not the only pieces to this puzzle (such as the macroeconomic environment), they seem to be significant to the price action. After all, the options that have been falling off were large indicators that defined cyclical movements to the upside for $GME. That, combined with a strong support of buy and hold 💎👐 🦍 investors, meant higher highs. Something changed to this dynamic right at the point where DRS really started taking hold. That, in tandem with the OpTiOnS r BaD mkAy mentalitly on superstonk, seems to have killed the upward momentum on the stock, and locked ape investors into buying, reporting (DRS), and holding the stock in hopes of another black swan event. I believe this black swan event that many people invested in $GME would love to see happen (myself included - I'd be filthy fuckin' rich) will not come to pass unless something changes. What needs to change you ask? Well that's next in the series of inpolite conversations we will have. Here's a hint at what that conversation is about.
This is not a call to action, it's a call to education. Look deeper in the data and tell me what you think. I'd love to hear your well formulated, data-driven, opinion on the subject at hand.
https://preview.redd.it/38k3l2bmk8u91.png?width=508&format=png&auto=webp&s=dcc5a131ec75e0b814b7a885cdc823fbea123c97

(this is a second half of Pt 1 of the endgame series, find the first half of Pt 1 here)

Updated Complete Table of Contents:

• Part 1.0: The Global Monetary System
• Part 1.5: Triffin’s Dilemma and the New Rome (YOU ARE HERE)
• Part 2.0: Reflexivity and the Shadows of Black Monday
• Part 2.5: Derivatives and the Alchemy of Risk
• Part 3.0: Debt Cycles and Great Depression
• Part 3.5: The Money Illusion
• Part 4.0: The Weimar Republic
• Part 4.1: Nightmare of Hyperinflation
• Part 4.2: Financial Gravity & The Fed’s Dilemma
• Part 4.3: Economic Warfare & The End of Bretton Woods

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Dollar Hegemony

Ok, let’s go over this for a second. Let us say you are the President of a country like Liberia, a small West African nation, looking to enter global trade. You go talk to the International Monetary Fund, whose economists tell you in order to be a modern economy you need to have your own currency. Thus, you need a Central Bank to print your own currency (LD), which will be used as legal tender, enforced by your government. Your Central bank will act as a lender of last resort for all the commercial and investment banks in your country, and will be responsible for stabilizing monetary policy.
But, there’s an issue-the economists tell you that you CANNOT have your Central Bank store up your own currency as the majority of its foreign exchange reserves. Why? Well, if your currency comes under attack in the global Forex markets, you will have to defend it. If your currency trade value is too high, it’s easy to fight- you just print your own currency and buy Euros (EU) or Dollars (USD), flooding the market with your currency and taking other currencies out of the market- “devaluing your currency” .
However, if the inverse is true, and your currency is losing value in the market, printing more to flood the market will only make it worse. You need a stable currency, like bullets in the chamber, to utilize to buy your currency at the market rate, to support its value and drive it back up. This form of currency defense is called “defending the peg” (Post-1971, the peg is floating, so it’s more of a range, but it's still referred to loosely as a peg).
This exact phenomenon played out during the Asian Financial Crisis of 1997, a classic case study in global monetary crises. Thailand had grown rapidly as world trade boomed in the 1980s and 90s, and its corporate and real estate sectors took on massive amounts of debt. A massive real estate and financial bubble formed (does this sound familiar)? Soon, the bubble started to pop:
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Thai Financial Crisis
Thailand’s hand was forced, and the Thai Central Bank decided to devalue its currency relative to the US dollar. This development, which followed months of speculative downward pressures on their currency that had substantially depleted Thailand’s official foreign exchange reserves, marked the beginning of a deep financial crisis across much of East Asia.
In subsequent months, Thailand’s currency, equity, and property markets weakened further as its difficulties evolved into a twin balance-of-payments and banking crisis. Malaysia, the Philippines, and Indonesia also allowed their currencies to weaken substantially in the face of market pressures, with Indonesia gradually falling into a multifaceted financial and political crisis.
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Asian Financial Crisis
As the president of Liberia, you see what can happen when a country, especially a small third-world country, doesn't have enough dollar reserves to defend its own currency. Rippling currency devaluations, inflation, social and political unrest, widening economic inequality- the beginning of a death spiral of a country if you aren’t careful.
So, you tell the IMF that you agree to their terms. They impress upon you that you need to get your bank to buy up some other stable currency to hold as reserves, to defend against this very scenario. As the US dollar is the World Reserve Currency, you’re going to hold it as the majority of your reserve position.
We’ve established the need for a small country to hold another currency on their balance sheet. If ONE small country does this, there is little impact on the US Dollar. However, under the current system, virtually EVERY country has a central bank, and they all use the Dollar as their main reserve currency. This creates MASSIVE buying pressure on Treasuries and USDs. Using Liberia as an example, the process works like this:
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Dollar Recycling
THIS is what French Finance Minister Valéry Giscard d’Estaing meant when during the 1960’s he had contemptuously called this benefit the US enjoyed le privilège exorbitant, or the “Exorbitant privilege”. He understood that the United States would never face a Balance of Payments (currency) crisis (*AS LONG AS THE USD IS THE WORLD RESERVE CURRENCY*) due to forced buying of Treasuries (from Central Banks) and Dollars (from Petrodollar system).
The US could borrow cheaply, spend lavishly, and not pay for it immediately. Instead, the payment for this privilege would build up in the form of debt and dollars overseas, held by foreigners all around the world. One day, the Piper HAS to be paid- but as long as the music is playing, and the punchbowl is out, everyone gets to party, dance & drink to their hearts’ content, and the US can remain the belle of the ball.
Effectively, the US can print money, and get real goods. This means we can import consumer products for cheap, and the inflation we create gets exported to other countries. (ONE of the reasons why developing countries tend to have higher inflation). Another way to explain it:
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Exporting Inflation, importing goods
As it is the WRC, other countries' Central Banks NEED to have US dollars on their balance sheet. Thus, the US has to run persistent current account deficits in order to send out more dollars to the global system, on net, than it receives back. A major byproduct is constant large and increasing trade deficits for the WRC holder (in a fiat money system).
This is what is known as Triffin’s dilemma: the WRC is HAS to run constant trade deficits. There are no immediate negative impacts, but in the long run this process is unsustainable, as the WRC country becomes unproductive (ever wonder why US manufacturing left) because the system forces the WRC holder to be a net importer.
As world trade grows, the current account deficit/trade deficit grows, and the benefits (more goods to the US) and drawbacks (more dollars build up overseas) increase over time. Eventually the imbalance becomes so great that something snaps, just like it did for the Pound post WWI, where policymakers chose the route of deflation in 1921, creating a Great depression for the UK long before the US ever experienced it.
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US Trade Deficit broken down by Goods/Services
This is why I laughed out loud when I heard Trump rail against our trade deficits in one of the 2016 presidential debates. He clearly did not understand how our system works, and that this issue was beneficial in the short term, but detrimental in the long term. Our trade deficits were symptoms of our system working exactly as intended.
In fact, a large part of the reason why he was elected was the de-industrialization of the American heartland, where loss of economic vitality from manufacturing jobs was leading to rampant drug abuse, depression, and societal decay. I knew this process of deindustrialization would only get worse with time, and nothing he did (short of taking us off the WRC status) would change that. (Not political, other politicians say the same shit. They just don't understand the very system in which we operate).
Fast forward to today- After decades of this process playing out, Foreign Central Banks collectively hold huge amounts of Forex reserves, as you can see below where countries are sized depending on their reserves of foreign currency exchange assets:
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Central Banks FX Reserves
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The majority of these reserves are held in dollars, mainly in the form of Treasuries, T-bills, and other US government debt. Furthermore, the US Dollar continues to dominate global trade through the SWIFT network (Society for Worldwide Interbank Financial Telecommunication). SWIFT is a payments system used by multinational banks, institutions, and corporations to settle trade worldwide.
USD is the preferred payment method within the system, thus forcing other countries to adopt the dollar in international trade. This is one of the results of the petrodollar system we described earlier. Petrodollars originally were exclusively used to refer to oil contracts priced in USD from Saudi Arabia, but over time the name grew to mean any oil contract, transacted by non-US countries, using the US Dollar as the denomination.
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Most FX Reserves in Dollars
When Chile and South Africa trade copper, for example, they have to transact in dollars, because a SWIFT member bank in South Africa will not accept Chilean Pesos as payment, as there is a smaller, less liquid market for it and it doesn't want to take a trading loss when converting to a more usable currency. The contract itself is priced in USD, so if that merchant bank wants to sell it, they can quickly find a buyer. In fact, SWIFT itself published a report in 2014, and found that the USD accounts for almost 80% of all world trade! (see top left)
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Currencies as a % of Trade
This process is called dollarization, whereby the dollar is used as the medium of exchange for a contract, in place of some other currency, even between non-US trading partners (Iran and China for example). Dollarization (capital D) of a country occurs when a government switches from managing their own currency to just using the US dollar for trade settlement and tax revenue- like Ecuador, El Salvador, and Panama have done.
The US Dollar reserves from the petro-dollar system show up on the balance sheets of these overseas financial institutions; they are called Euro-Dollars, and these USD denominated deposits are not under the jurisdiction of the Treasury or Federal Reserve. If you want to read a brief history of the Euro-dollar market, check out this paper from the Federal Reserve bank of St. Louis here. In 2016, the total value of the Eurodollar Market was estimated to be around 13.83 Trillion.
Through this process, the United States was able to become the largest and most dominant military force in the history of man, able to fight simultaneous two-theater wars with overseas supply lines. The Treasury could borrow and spend, unimpeded by the normal constraints of market discipline that were hoisted on other countries. Despite not declaring war since 1941, the US has been in a state of near-continuous warfare.
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American Military Budget
At every turn, the US defended this system at all costs, even going so far as to directly invade and occupy the Middle East in the Gulf War in 1991 and the Iraq/Afghanistan War (2001-Present). As a result there are over 800 US military bases around the world, in locales ranging from Turkey to Japan. American institutions like the Senate, Presidency, and Courts were modeled after their Roman antecedents, to the point that the American symbol, the Eagle, is the spitting image of the Roman Aquila) adorned on the Standard of the centurions.
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Rome
Most scholars tout the story of Rome as a tale of triumphalism; of valiant centurions battling in the steppes of Asia, of brilliant generals laying traps for enemy armies, of scheming senators fighting battles of political intrigue, and of a sophisticated and well-functioning empire that harnessed engineering to create marvels such as the Colosseum and the Roman Aqueducts. More sober historians, however, point out that the story of Rome is one that also echoes a warning through the annals of history.
A complex society, with mighty political, legal, and financial institutions, supported by a massive military, fell not to a crushing enemy invasion, but to collapse and decay from within. An elite ruling class, detached from the realities of daily life of the citizens, oversaw an empire with growing income inequality, environmental degradation, political corruption, social deterioration, and economic despair, and did nothing to stop it.
The Roman Treasury, facing insurmountable debts from years of fruitless war, started “clipping coins” an early form of currency debasement that led to the Roman denarii losing 25% of it’s value every year. This eventually led to uprisings in Roman provinces and the Sacking of Rome)- the coup de grace, the final nail in the coffin for what had become the decadent Western Roman empire.
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Smooth Brain Overview:

• Petrodollars: Oil contracts priced in dollars means foreign companies need to have dollars to buy oil. This creates artificial demand for dollars as companies sell their local currency to buy USD.
• Triffin Dillema: As the US is WRC, other countries' Central banks need USDs. US thus runs deficits to push more $ out to the world to satisfy demand. This means cheap goods in the short term, but debt/dollar buildup overseas long term. Because of this, no country can remain WRC holder forever.
• Eurodollars: Due to the petrodollar system, USDs build up in overseas bank accounts. These dollars are used by SWIFT for most international payments, and are called Eurodollars (due to the fact that most US dollars after WW2 ended up in Europe). The size of this market is roughly $14T.
• Foreign Exchange Reserves: Due to the Triffin Dilemma & structure of WRC system, dollars build up in reserve accounts of foreign central banks. Wanting to earn interest on this cash, CBs invest in treasuries, effectively lending to the US Govt at low interest rate. $4T of these treasuries are held by these CBs, and $2T of these treasuries are held by private institutions.

Conclusion:
If the US loses World Reserve Currency status, two things happen. 1) Foreign central banks start massively dumping their huge Treasury/Dollar debt positions and 2) SWIFT member banks who hold USDs for cross-border payments (EuroDollars) decide to dump them as they see the writing on the wall and see the value of their assets decreasing by the day. This is the one of the many Swords of Damocles hanging over the global financial system.
The unraveling of these massive currency positions would truly be catastrophic. Interest rates could effectively jump to +30% or more overnight, creating an immediate solvency crisis for the US Government and most banks, corporations, and state governments who rely on low interest rate borrowing. DXY would be whipsawed violently upwards for a period of time before being forced downwards by massive selling pressure from the Eurodollar market. Other currencies would be pulled higher and then lower in volatile moves matching the worst days of the early Nixon crisis. But, this is only part of the story. We will come back to this later.
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Epilogue:
We’ve gone over a brief history of the Bretton Woods system, and it’s transformation to a complete fiat money system starting in 1971. The US as a World Reserve Currency holder is allowed to borrow almost indefinitely without immediate consequence, but this creates massive amounts of US dollar debts overseas. The last time global creditors started to lose faith in the US dollar, we saw massive inflation, unemployment, and stagnation in the US, in a period of rapid demographic and economic growth in the rest of the world. If creditors become worried again, and signs are showing up that they are (more on this in PT4) the results could be catastrophic.

BUY, HODL, BUCKLE UP.

>>>>>TO BE CONTINUED >>>>> PART TWO

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(Adding this to clear up FUD- My argument is for hyperinflation to begin in a few years- this is a years- long PROCESS, and will take a long time to play out. It won't happen tomorrow, but we are in the same situation as Germany after WW1. Hyperinflation is GOOD FOR GME--- DEBT VALUE COLLAPSES, MONEY CHASES ASSETS (EQUITIES) pushing the price UP, so shorts will have to cover) BUY AND HOLD.
Nothing on this Post constitutes investment advice, performance data or any recommendation that any security, portfolio of securities, investment product, transaction or investment strategy is suitable for any specific person. From reading my Post I cannot assess anything about your personal circumstances, your finances, or your goals and objectives, all of which are unique to you, so any opinions or information contained on this Post are just that – an opinion or information. Please consult a financial professional if you seek advice.
*If you would like to learn more, check out my recommended reading list here

(Apes, this is a continuation of Part 3, please find the first half of Part 3 here)

The Money Illusion

In 2008, we were at the end of a major debt supercycle. The frenzied mortgage lending and securitization in the financial sector, along with massive consumer credit borrowing, had set the U.S. up for a major crisis. In relative terms, we were at a 27% HIGHER total debt to GDP ratio than the Great Depression.
These massive debt loads were coming home to roost, manifesting first as a crisis in subprime but then quickly moving to prime mortgages, corporate debt markets, money markets, and even the consumer credit markets. As discussed in Part 2, NY Fed Pres Tim Geitner stated that during the darkest days of 2008 the inter-bank lending market was freezing up, and we were “days away from the ATMs not working”.
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Total US (Public+Private) Debt to GDP
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But, this didn’t happen. Ben Bernanke, the Chairman of the Federal Reserve, was a self avowed student of the Great Depression- and was determined not to let it happen again. He, along with Treasury Secretary Hank Paulson (Former CEO of Goldman Sachs) and Tim Geitner, created new lending facilities and MBS purchase programs in order to swallow the massive amounts of toxic assets the system had created.
Paulson and Bernanke technically had no legal authority to create these programs, but in a crisis, all caution goes out the window. TARP and other programs authorized by the Treasury bought billions of dollars of MBS, funded by T-bond issuances. This chart shows US Govt Debt as a % of GDP through today: (notice the spike in debt during and after 2008)
US Government Debt To GDP
The US borrowed heavily- TARP alone was authorized for $700 billion. The Treasury did not have the funds to support this so it issued billions of dollars of T-Bonds. Banks, hedge funds, other governments, and the Fed all bought these bonds en masse.
Remember, only the Treasury has the ability to SPEND, and only the Fed has the ability to LEND/PRINT. The Fed was created as a private institution to “protect” the government from reckless money-printing. The Primary Dealers (banks approved to trade directly with the Govt) buy Govt bonds from the US Treasury, and turn around and sell these bonds to the Fed or other third parties. If you’re confused about how the system works, I recommend watching this video on how the financial system functions.
In the equity markets, as we started bottoming in the first quarter of 2009, hedge funds, banks, and family offices began loading up on margin debt again. This renewed confidence in the banking system and overall lending capacity began pushing equity markets back up.
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Margin Debt and Stock Market Rally
Further stabilizing the markets was the Federal Reserve with their massive Quantitative Easing program. In 2008, the Federal Reserve’s Balance Sheet ballooned- assets (Treasuries and MBS) grew from $880 Billion pre-crisis, to $2 Trillion immediately after, and eventually over $4T by 2014. Many economists, particularly those with a libertarian bent, such as Peter Schiff, immediately decried this reckless behavior and predicted immediate hyper-inflation as early as 2011.
Federal Reserve Balance Sheet
When the Fed buys assets, it is completely different from any other institution buying. Pension plans or mutual funds use the savings of the investors of the fund. Because that money came either from working, or from other investments, it represents NO net increase in money supply. The money they received HAD to come from someone else, for a good/product/service/asset they created or provided.
However, the Fed has no taxing authority, no savings, no funds to speak of at all- EVERYTHING the Fed buys it purchases through money it PRINTS. Thus, Fed Balance Sheet expansion=money printing. The Fed printed $2T in the two years following 2008.
This rampant money printing rightly worried experts and pundits in the media- but the inflation they feared never came. They were flat out WRONG. Why?
Most of the new money that was printed went directly into the banking system. Lyn Alden describes it brilliantly-
“Leading into the financial crisis, only about 13% of bank reserve assets consisted of cash (3%) and Treasury securities (10%). The rest of their assets were invested in loans and riskier securities. This was also at a time when household debt to GDP reached a record high, as consumers were caught up in the housing bubble.
That over-leveraged bank situation hit a climax into the 2008/2009 crisis, coinciding with record high debt-to-GDP among households, and was the apex of the long-term private (non-federal) debt cycle. When banks are that leveraged with very little cash reserves, even a 3% loss in assets results in insolvency. And that’s what happened; the banking system as a whole hit a peak total loan charge-off rate of over 3%, and it resulted in a widespread banking crisis” (I can't link source, it keeps getting the post taken down- I will post it in comments).
Bank Recapitalization
Thus, the new money went to recapitalize banks and shore up their balance sheets to defend them from bankruptcy- it stayed in untouchable bank reserves, and never entered circulation.
The money that didn’t go to repair bank balance sheets flowed directly into the markets - Let’s walk through it.
There are two different economies- the real economy, and the financial economy. The tidal wave of new money the Fed was creating did not cause inflation (in the traditional sense), because the money did not flow into the real economy- the goods, products and services that everyone consumes on a daily basis. The money instead flowed into the Financial economy- bond markets, stock markets, private equity funds, commodities, Forex markets, etc.
Financial Economy vs Real Economy
When you give a bank $100M, it doesn't go out and buy $100M worth of Big Macs and Kleenex- the bank puts these funds into investments, generally either in the form of loans or in the form of equities or equity derivatives. Thus, the funds that flowed into the banks are stored up almost exclusively in the financial system, or get pushed into loans to consumers.
“Wait a second!”- you say. “The Fed printed money to buy T-Bonds- The Treasury usually spends funds that go into the real economy-- so THAT should have caused inflation, right?”
Yes, this is typically what happens. But, during and after the 2008 financial crisis the majority of Treasury expenditures went to programs that were stabilizing the financial system (TARP+ TAF+ TLGP+ Others). So, the money that would have been spent by govt agencies in the real economy instead just flowed back to banks and financial institutions.
Typically in a recession the Treasury will increase spending to cushion the blow to workers- and in 2009 they did extend a few unemployment benefits. But, by and large, Congress authorized few benefit programs for workers, and the average time on the benefit decreased after a slight bump in 2009.
Average Time on Benefit
Thus, the amount of freshly-printed money that reached the real economy was minimal, and whatever money did reach it largely acted to counteract deflationary forces- it wasn’t enough to actually induce inflation. The government did little to stop foreclosures, or provide aid to small businesses. Unemployment spiked, and due to the Phillips Curve Principle (covered in Pt 1), this put a dampening effect on inflation.
Unemployment Rates
The funds the Federal Reserve had created, therefore, created no inflation in the real economy- instead they flowed to the financial economy and inflated financial assets. This started off the largest and longest bull market run in U.S. Stock market history- easily beating emerging and other developed countries’ equity markets.
Massive US Stock Market Rally
Keynesian economists lauded this as an accomplishment- they believed they were creating what is called a “Wealth Effect” - a theory that stated that as people’s financial wealth increased, they would be induced to do more spending and investment- thus, by propping up the stock market, they would stimulate the real economy. This is awfully convenient for the rich- the top 10% own 85% of the equity markets, and thus have seen their wealth balloon by over 186% while growth for everyone else stagnated.
Ironically this theory has it exactly backwards- real economic growth should drive the stock market, not the other way around. But, convinced of their theories, economic policymakers continued to pump ever increasing sums into the financial system.
When you divide stock market performance by the Fed’s Balance sheet, you see that there has been basically NO real growth since 2008.
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The Rally is an Illusion
The entire “rally” we have experienced for the past 12 years has been nothing but an illusion- it is simply the result of vast money inflows into the financial system. Banks and financial institutions will do everything they can to convince you that the high stock market valuations are justified by fundamental growth.
This is wrong- these valuations are NOT justified. Insane levels of money printing and debt leverage have created extremely dislocated equity markets. For example, Square (SQ) has a forward PE ratio of 499.87- it currently doesn't pay a dividend, but let’s assume it paid a 3% dividend payout ratio (which is rare for tech stocks) - if that were the case, it would take 14,996 YEARS for the dividends to pay pack the price of ONE SHARE. (449.87/0.03).
To summarize, see this image from a post I made a month back- all the warning lights are blinking red. The markets are at the extreme end of the range by almost every valuation metric- and no one seems to care.
Summary of Recent Warnings
The markets are slowly being “walked up” every day. Today, the ultimate price insensitive buyer (the Fed) is now plowing $120B a month into Treasuries and MBS, and the Primary Dealers now have to turn around and put their money somewhere. The bond market is already a trap with 2% yields, and 5% inflation. There’s no more profit potential there, so these institutions are forced to buy equities if they want any returns. The Fed is killing whatever is left of price discovery.
SPX grinding higher daily
Four billion dollars or so a day is being pumped into the system- and going straight to the stock markets.
Further, to stimulate growth in the real economy, policymakers dropped interest rates to near 0% in late 2008 to induce bank lending to get consumers to borrow and spend again. (70% of our economy is consumption due to the factors discussed in Part 1).
This did create massive loan demand- basically every sector of the US economy began borrowing en masse. The Fed was able to “reflate” the bubble and allow the economy to survive on debt financing to “re-invigorate the economy”. Fast-forward to today, and a decade of pinning rates to the zero-bound has us breaking records in terms of debt loads:
Student Loan Debt:
Student Loan Debt
Corporate Debt:
Corporate Debt to GDP
Consumer Credit Card Debt:
Consumer Credit as % of GDP
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Auto Loan Debt.
Auto Loans
I could go on and on, but you get the point. Now, the entire system is overleveraged- the cancer has spread, and it has infected virtually every single sector of the economy.
People keep saying that we “kicked the can” of 2008 down the road. This is WRONG. We kicked the can UP THE STAIRS- meaning, we not only delayed the problem, but made sure it would get WORSE, since we borrowed MORE to paper over the old debts and worthless securities the system had created.
A fascinating aspect of our recent financial history is that the bailouts are exponentially growing- this is due to the simple fact that the entity giving the bailout has to have a balance sheet multiples larger than the firm receiving the bailout, and government guarantees of banks induce reckless speculation. For example, to bailout a bank with $10B in mark-to-market losses, you need a bank with a $20 or $30B capital surplus, to absorb the loss and keep the depositors and creditors satisfied that the bank giving the bailout won’t go under.
In 1998, a hedge fund called LTCM was near collapse- it had leveraged itself over 25-1, using complex algorithms made by Nobel Prize winning economists to predict bond prices. They had made massive derivative bets buying Russian bonds (among other things) - and when the Russian government defaulted in August 1998, their positions began to unravel.
The massive debt and derivative exposure they had created was threatening to pull several large banks down with it. The Fed stepped in during September to organize a $3.5 Billion bailout, funded by 12 large banks. According to James Rickards, General Counsel of the LTCM Bailout- the US equity and bond markets were “close to being completely shut down” during the worst of that crisis. (start at 16:30)
In 2008, the entire US financial system was nearing collapse and desperately needed a bailout. A massive bank run had begun. Congress stepped up and provided- in the end spending over $498 Billion of taxpayer funds. However, the Fed also provided a bailout (though QE), eventually buying over $1.7 Trillion of MBS.
Since the Great Financial Crisis, the banking system debt crisis has now become a government debt crisis, and indeed an economic debt crisis- and this debt has spread worldwide. Equity and bond markets have continued to march up, despite fundamentals. This new financial paradigm was rightly termed “The Everything Bubble”
Total World Debt
Total (Govt+Private) Global Debt now stands at staggering $281 Trillion, or 356% of GDP. We’ve never been here before- we are now navigating uncharted waters. The next bailout will have to be bigger- a LOT bigger.

Avalanches

Avalanche
Imagine a snowfield on an alpine slope, above a small town. A few inches of snow falls. Everything is fine. More snow falls. Still nothing happens. A blizzard moves in. A day later, the snowfield reaches critical mass. Then, a disturbance happens- it could be a deer foraging for food, or a hapless skier exploring the backcountry. The snow starts sliding, pushing the snow below it. Positive feedback loops start to engage. The field begins to slide- now an avalanche has begun. The town is wiped out.
The financial crisis was the beginning of a debt avalanche- it’s likely that over 70% of the major banks, mortgage brokers, and other financial institutions would have gone bankrupt, superseding the Great Depression-era record of 30%. Thousands of private and public companies would have gone bankrupt. Real estate and equity markets would have entered a freefall lasting for years, and unemployment would likely have spiked past 30%, bringing back the soup lines not seen since 1936.
Instead, policymakers kicked the can up the stairs- they issued massive amounts of government debt to paper over the 2008 crisis, and incentivized excessive borrowing in the private sector. The fundamental factors that caused the crisis (unregulated derivatives, bank combinations, excessive leverage, lack of oversight) were never resolved. As u/Criand so elegantly puts it, 2008 never ended. Now, with US Government Debt standing at over $28 Trillion, there are only tough choices ahead. We will soon reach a point where the interest payments alone on the debt supersede all US Tax Revenues- when that happens, we will have traveled beyond the event horizon- there will be no coming back. The debt will be IMPOSSIBLE to pay off. (This is according to the governments own projections!)📷
US Government Debt Projection
The US Government continues to borrow- running a staggering $2.1 Trillion deficits for just the first half of 2021. There is no end in sight. The Biden Administration is pushing for another $1.2 Trillion in infrastructure spending this year ON TOP of the already massive deficits. Some politicians are demanding that it be more.
Day by day, we are adding snow to the mountains above our village. When will end is anyone’s guess, but borrowing more will only make the end worse.

Smoothbrain Overview:

• Through the magic of Fractional Reserve banking, institutions can loan out much more debt than cash that actually exists. This increases systemic risk.
• As a result, over 90% of all capital created is in the form of debt. This supercharges debt cycles and can cause massive bank failures.
• When debt super-cycles crest, and begin the march downwards, massive deleveraging and defaults begin. If the banking system is weak, bank runs begin. (1930s)
• We were hitting another end of the 80 yr debt cycle in 2008 (1929-2008 (79yrs)). We never de-leveraged the system. Instead, we re-leveraged EVERYTHING even MORE.
• The Government and the Fed swept in and bailed out the banks. Now the Federal Government is deeply in debt to the tune of $28 Trillion.
• The trillions printed by the Fed were almost exclusively routed to the financial system- creating a new bubble in every single asset class, larger and even more widespread than the 2008 bubble.
• We never resolved 2008. We only kicked the can up the stairs. The Derivatives monster from Pt 2, along with a massive debt avalanche, will come back with a vengeance.
• Almost every sector of the US economy, and indeed the world economy, is now greatly overleveraged. Global Total Debt to GDP broke past 350% during Covid.
• Options are running out for policymakers. Debt borrowing and money-printing cannot continue forever.

Conclusion:

The debt crisis will return, but this time, it will be the financial system, US government, and indeed the ENTIRE world economy that needs a bailout- and who has a big enough balance sheet to absorb that? The only answer is the ones with an infinite balance sheet- the Central Banks.
The idea that anyone can borrow forever, or print money forever, with no consequences, defies basic financial logic. Impossible Objects cannot exist forever. History shows deadly consequences for the nations that venture down either path. The United States is no exception.
The Fed has already tried to escape this trap in 2018. It failed. Sovereign creditors are losing faith in the US Treasury, and have been since 2015. The walls are closing in, and the ultimate decision must be made. (More on this in Pt 4)
The avalanche is coming either way- and we only have two choices. Either we allow ourselves to be buried under a mountain of hyper-deflation, creating a new Great Depression, frozen credit and equity markets, and massive bank failures- or, we burn our way out, using the inferno of money-printing and hyper-inflation.
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BUY, HODL, BUCKLE UP.

>>>>>TO BE CONTINUED >>>>> PART FOUR (SERIES FINALE) “AT WORLD’S END”

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(Adding this to clear up FUD- My argument is for hyperinflation to begin in a few years- this is a years- long PROCESS, and will take a long time to play out. It won't happen tomorrow, but we are in the same situation as Germany after WW1. Hyperinflation is GOOD FOR GME--- DEBT VALUE COLLAPSES, MONEY CHASES ASSETS (EQUITIES) pushing the price UP, so shorts will have to cover) BUY AND HOLD.
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Nothing on this Post constitutes investment advice, performance data or any recommendation that any security, portfolio of securities, investment product, transaction or investment strategy is suitable for any specific person. From reading my Post I cannot assess anything about your personal circumstances, your finances, or your goals and objectives, all of which are unique to you, so any opinions or information contained on this Post are just that – an opinion or information. Please consult a financial professional if you seek advice.
*If you would like to learn more, check out my recommended reading list here. This is a dummy google account, so feel free to share with friends- none of my personal information is attached. You can also check out a Google docs version of my Endgame Series here. (ALL THESE LINKS ARE GOOGLE DRIVE LINKS, FROM A DUMMY ACCT!)
(Side note: I’ve been accused of being a shill/FUD spreader for the first two posts- please know this is NOT my intention! I cleared this series with Mods, (PROOF) (THIS IS A GOOGLE DRIVE LINK, I WASNT SURE HOW ELSE TO SHARE IT) but if you think this is FUD/SHILLY then downvote/comment and I can discuss further.)