The Debt Spiral Crosses the Point of No Return
There was once a mathematician who supposedly invented the game of chess and presented it to his king. The king, impressed by the game, asked the mathematician to name his reward. The mathematician asked for grains of wheat, using the chessboard to calculate the amount. He requested that a single grain of wheat be placed on the first square and doubled for every subsequent square. This means two grains on the second square, four on the third, eight on the fourth, and so on, for all 64 squares on the chessboard. Initially, the request seemed modest to the king, who agreed. However, the reality of exponential growth became apparent as the process unfolded. By the time the board was half-covered (at the 32nd square), the number of grains was already enormous, reaching over four billion. As the squares continued to be filled, the numbers grew astronomically larger. By the 64th square, the total wheat needed for the entire board reached 18,446,744,073,709,551,615 grains—about 18.4 quintillion. To put this into context, let’s convert this to a more understandable measure, such as metric tons. The average weight of a grain of wheat is about 50 milligrams or 0.00005 kilograms. 18,446,744,073,709,551,615 grains * 0.00005 kilograms/grain = 922 trillion kilograms. Since there are 1,000 kilograms in a metric ton, this equals about 922 billion metric tons. To compare this with global wheat production, let’s consider recent figures. According to the Food and Agriculture Organization of the United Nations, the world’s wheat production in a recent year was about 761 million metric tons. The 922 billion metric tons required for the chessboard is about 1,211 TIMES the entire global wheat production. This example illustrates the astonishingly large number that results from exponential growth, even when starting with something as small as a single grain of wheat.
Trying to quantify a general increase in prices as a single number for over 334 million people—as the CPI claims to do—is an impossible task. It’s even more ridiculous than using a national average weather temperature to indicate what clothes you should wear for the day.
The reality is that inflation is 100% a political phenomenon. Neither the local grocery store, the pharmacy, the restaurant owner, nor foreign scapegoats are responsible for inflation. The government—with its monopoly control over the currency—is.
Since its founding in 1828, Webster’s Dictionary had defined inflation as “an increase in the money supply.” Then in 2003, it changed the definition to “a rise in the general price level.” The difference might seem subtle, but it’s not. It’s a deliberate deception. Redefining inflation this way confuses cause and effect, which is exactly why they did it. Price increases are not inflation. Instead, they are an effect of inflation—an increase in the money supply. When inflation is redefined as “a rise in the general price level,” many people are confused about what is happening and who is causing it. Inflation seems to come out of nowhere. It would be like redefining robbery to mean “a mysterious property loss,” as if there was no robber.
Though he was wrong on just about everything, John Maynard Keynes was on target when he said: “Lenin was certainly right, there is no subtler, no surer means of overturning the basis of existing society than to debauch the currency. This process engages all the hidden forces of economic law on the side of destruction, and does it in a manner not one man in a million is able to diagnose.”
Like a carton of spoiled milk left out on the kitchen counter, the fiat currency system is long past the end of its shelf-life.
Shutting down Hormuz visualized and put into perspective... During the first oil shock in 1973, about 5 million barrels were removed from the global oil market. Daily global oil production was approximately 56 million barrels per day at the time, which means about 9% of the supply vanished. Oil prices roughly quadrupled. During the second oil shock in 1979, about 4 million barrels were removed from the global oil market. Daily global oil production was approximately 67 million barrels per day at the time, which means about 6% of the supply vanished. Oil prices nearly tripled. During the third oil shock in 1990, about 4.3 million barrels were removed from the global oil market. Daily global oil production was approximately 66 million barrels per day at the time, which means about 7% of the supply vanished. Oil prices more than doubled. If Iran were to shut down the Strait of Hormuz, it would remove a whopping 21 million barrels of oil from the global market. Today, global oil production is approximately 94 million barrels per day, which means about 22% of the worldwide oil supply could disappear. As we can see in the chart below, it would be the largest oil supply shock the world has ever seen… by far. image
Whoever prevails in this battle will win WW3 and get to shape the new world order.
Changes to the world order are historical events with enormous implications—investment and otherwise. We’re living through one of these rare times right now.