Why @DOGE doing what Milei did in Argentina in the US will NOT lead to a decline in US deficit/GDP, but a catastrophic BLOWOUT in US deficit/GDP unless US debt/GDP (USD) is significantly devalued 1st (b/c US receipts follow stocks, & deficits rise fast w/rates at 125% of GDP):

@elonmusk 2/ If we want to cut Entitlements + Defense to reduce the deficit/GDP, only to end up with higher deficit/GDP by the end of 2025 as stocks fall hard & rates spike on strong USD (see Wed's post-Fed market action), then we should do what Milei did in Argentina before devaluing USD

10y UST ylds (candles) v. 10y CGB ylds (red), 2007-present

When the highly-indebted consumer of the world & the highly-indebted factory of the world get economically divorced, the consumer sees secular inflation & the factory base, secular deflation

10y UST now 280bps > CGB

1/ 2/ Complicating this is that US debt/GDP is so high that the US & global system has empirically shown it goes into a debt spiral at ~5% on 10y USTs...

...& "too strong" a DXY will quickly drive 10y USTs to 5% (see the nearly 20-bp rise in 10y ylds in just 48 hours this wk)👇

A🧵on "DOGE":

1/ The problem with "DOGE" is NOT that there is not a lot of waste & even fraud in US govt spending.

The problem is govt waste & fraud adds to GDP in our system, just like fraudulent subprime mortgage & housing activity added to GDP 2003-07. 👇 2/ So "DOGE" will cut US GDP immediately, while efficiency gains occur on a lag...& if GDP falls w/US at 125% debt/GDP, 7% deficit/GDP, it is a mathematical identity US will go into a debt spiral (rates up, USD up, stocks down, economy down, rates up, USD up, stocks down, W/R/R)

This chart is not Argentine stocks in peso terms v. in USD terms.

It is SPX Total Return in USD terms v. in gold terms, January 1999-present. 🤯 1/ 2/ SPX Index alone (not Total Return) is even worse - up 392% in USD terms since January 1999, but down 49% in gold terms.

Good news is SPX has recovered from down 86% in 2011 to down 49% now.

The macro & "Great Power Competition" equivalent of blaming Harris/Walz's loss on "America being racist", "Biden", etc., is calling people who points out the trends below "anti-American."

"Dollar dominance" is downstream of "Patent dominance", on a lag.

A very brief🧵 1/ 2/ Former INTC CEO Andy Grove warned about this 14 years ago in @EdwardGLuce's excellent book, "Time to Start Thinking: America in the Age of Descent."

"Mid- to long-term Western sovereign bonds are now uninvestable, at least on a real basis" -FFTT

Here's LT USTs (ZB) v. gold, since global Central Banks stopped growing holdings of USTs on net in 3q14. 1/ 2/ Here's LT USTs v. SPX, since global Central Banks stopped growing holdings of USTs on net in 3q14:

Calls that Biden has "broken OPEC" via the SPR are premature as 3 of the 4 biggest US shale basins are now well below 2019 peak production levels (Bakken, Eagle Ford, Niobrara), & production at the "Big Kahuna" (Permian) has been flat for 12+ mths. Charts below 1/ 2/ Bakken? Below 2019 production levels:

RE: Buffett selling a portion of his AAPL holdings:

What if China starts doing to US "tech champions" what China did to US Rust Belt "industrial champions", US unions, & the US working class 2001-10?

US Rust Belt "industrial champions" initially found it "inconceivable" too 1/ 2/ The next few quotes are from @EdwardGLuce's excellent & prescient 2012 book, "Time to Start Thinking: America in the Age of Descent"

Fed screwed up by not letting inflation run "Higher 4 Longer" in 2022 to get debt/GDP back to 70-80% before hiking, b/c rate hikes on debt/GDP of 120% eventually start adding to inflation👇

1/ 🧵...

https://twitter.com/EpsilonTheory/status/1767531098655858731

2/ To stop inflation at this point, the Fed would need to cut rates to 0% & balance the Federal budget, which would trigger a 7% of GDP decline.

This would be a bigger GDP drop than the GFC, except with no bailouts for anyone this time...just stand aside & watch it burn.

This ceases to be an intellectual exercise once you realize:

a) US min. wage was 5 silver quarters ($1.25) in 1963

b) Those 5 silver qtrs are worth $25 now

c) US CPI calculations say that $1.25 is only worth $10.81 now

d) The $14.19 difference☝️has gone to the US top 10%

e) Labor share of corporate profits is near multi-decade lows

f) US political dysfunction is at multi-generational highs, driven in no small part by the highest income inequality in nearly 100 years.

h/t @truflation 2/ This is why I always crack up when people say "Gold isn't used for anything productive", or more recently, "BTC isn't used for anything."

They're used to prevent the state from stealing your finite time, your finite lifetime, from you.

"For 10+ years...Ivy League economists, former US secretaries of treasury, transportation, & labor, Congress...argued US factories were 2x as efficient today as they were 3 decades ago..."

"It turns out that Trump was much closer to being right than Wash DC, NYC, & Cambridge" 1/ 2/ US policymakers could have cross-checked their analysis that it was all "automation" by watching inbound container volumes at US ports, but chose to ignore the inconvenient message (to "free trade" dogma) contained in record inbound container volumes.
qz.com/1269172/the-ep…

Foreigners that owe USD debt cannot print USDs...

...but foreigners do have a $50T (gross; $18T net) "USD piggybank" they can tap to acquire needed USDs any time the USD gets "too strong."

This is why the UST market keeps "dysfunctioning" every time the USD gets "too strong."
2/ This is what the "Let's weaponize a stronger USD!" advocates continue to miss.

You can only "weaponize a stronger USD" if doing so does not threaten to blow up the UST market, which requires low debt/GDP & low deficits/GDP...& the US has neither low debt nor low deficits.

Another symptom of "US Dollar Dutch Disease"

As the "Saudi Arabia of money" (link), we can easily produce more USDs, but if you need manufactured goods in large quantities, we can't help you.

"USD Dutch Disease" has become a threat to US defense readiness.👇

https://twitter.com/DeItaone/status/1711402928672506356

2/ The cure to "USD Dutch Disease" is simple, but not politically easy:

Replace USTs as the global primary reserve asset with a neutral reserve asset that floats in all currencies (ie, gold, or maybe someday, BTC.)

This would require the Fed to buy up much of the UST market.

This chart shows the moment markets began discounting that Fed rate hikes would quickly push the US into fiscal dominance. The market's view was effectively confirmed by:

a) March 2023 US banking strains, &

b) the Fed's response to those banking strains.

Via @BobEUnlimited 2/ For this divergence to close, Fed needed only to stand aside & let unsecured depositors at SVB, etc. lose 100% of their unsecured deposits, & then continue to stand aside thru the ensuing bank run, equity mkt sell-off, & severe global recession that likely would've followed.

1/ US investors: "JPM is likely to be the biggest winner in banking turmoil."

12/1/22: JPM becomes 2nd GLD custodian 18 years after GLD was launched

12/5/22: GLD to use non-UK vaults for 1st time

1/12/23: JPM reportedly moves into gold clearing in Zurich

US investors: 🦗🦗🦗 2/

12/1/22: bloomberg.com/news/articles/…

"...what matters is not the currency in which Brazilian trade is denominated...What matters are the assets in which exporters want to accumulate the proceeds of their exports." -Michael Pettis

EXACTLY! Now, consider this chart below & then Google "Brazil Central Bank buys gold"

https://twitter.com/michaelxpettis/status/1646571061461520385

2/ Many arguing that "de-dollarization isn't happening" employ a strawman argument like:

"CNY is not freely convertible", or

"China's capital account isn't open", or

"China won't run deficits to generate the debt".

These arguments miss what is happening in plain sight.

Compare $-value of Russian oil & gas prod'n to $-value of global gold prod'n for a potential reason gold has diverged from real rates

"In an annual report, the Russian CB said it had been accelerating investments in assets that cannot be blocked by states it calls “unfriendly." 2/ Everyone has been so focused on trading gold on real rates that (almost) all of them forgot gold also trades with energy (but not @JoshCrumb!)

The physical oil market alone is ~10-15x the global gold market in annual, USD production terms.

1/ "If you look at all of the personal income tax returns that were filed in California in the year 2020, just 1% of the total number of income tax returns that were filed were responsible for more than 49% of all of the personal income tax that was paid in that year." 2/ "And unlike most of us who get our income from wages and salaries, that very narrow band of taxpayers derives a lot of their income from things like capital gains, stock markets [and] bonuses that are tied to corporate or stock performance."