Macro Newsletter
What does the Gold and BTC break out mean?
- Alex Roseland
Gold and Bitcoin breaking out to new all time highs probably indicates a vote of no confidence in the US Dollar. Interest rate cuts are becoming more solidified for later this year while inflation has lost its downward momentum and is becoming sticky at 3%. All while massive fiscal deficit spending continues unabated.
Why is the Fed projecting rate cuts while unemployment is still under 4% and we have above trend GDP growth, along with strong jobs growth?
My guess, is that they see that financing the national debt at 5% is unsustainable. Right now, 3 out of every 10 tax dollars are going to servicing the debt, this is set to steadily increase. We need to take out debt just to pay the interest on existing debt, that's not sustainable.
Not to mention we have large swathes of corporate debt that needs to be refinanced in 2024 & 2025 at double or triple the interest rates. This is going to blow up a lot of profit margins and create defaults and layoffs.
Commercial real estate will also cause more bank failures and probably spread out to create damage throughout the system.
The question is: will the Fed let things break before they come back with stimulus and rate cuts, and hope the economic problems will keep inflation down while they provide liquidity. Or do they cut rates preemptively to avoid these problems and risk letting inflation sky rocket again?
No easy choices...