The U.S. Is in a Vicious Cycle of Debt That Devalues the Dollar

Andrew’s Note: Today, we have a special guest essay from our colleague and macro expert Nomi Prins. 

Nomi is a best-selling author, financial journalist, and former global investment banker. She reached the upper echelons of Wall Street before setting out to demystify the world of money.

And this time she’s uncovering the biggest change that’s about to happen to the U.S. dollar – one that could have a devastating effect on the entire financial system, the stock market, and the lives of every American.

This Wednesday, June 21 at 8 p.m. ET, Nomi will reveal how to play this event so you can safeguard and amplify your wealth.

To find out more, RSVP for Nomi’s Countdown to Chaos briefing with one click.

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The U.S. government can’t keep a lid on its debt.

Ever since Hoover’s presidency in 1929, the debt has increased under every president.

And these days, the U.S. debt roughly doubles every eight years.

This, of course, isn’t shocking.

That’s because the Fed has made it a point to borrow or print money to run our economy.

The last 15 years are a case in point.

Since 2008, the U.S. has inflated the monetary supply by 13.73 trillion. That’s a massive increase of 180%.

This is called quantitative easing (QE). I’ve talked about it in these pages before. It’s a form of monetary policy that drives down interest rates and contributes to increased borrowing.

QE pushes the printing presses to work overtime. It’s when the Fed creates cash to buy bonds from banks.

That’s bad for the dollar. It’s no coincidence that the greenback has lost about 93% of its purchasing power since Herbert Hoover.

So today, I want to explore why our nation’s skyrocketing debt will continue to erode the value of the dollar. I’ll also reveal how you can protect yourself against this unstoppable trend…

A Vicious Cycle of Debt and Loans

Before the financial crisis of 2008, the U.S. national debt stood at around $9 trillion. By the end of the same year, it had surpassed $10 trillion. This is an increase of over $1 trillion in just one year.

Coincidentally, this was the same year the Federal Reserve announced its first QE program.

As regular Inside Wall Street readers know, that was the beginning of The Great Distortion between the financial markets and the real economy.

It’s also when the gap between the wealthy and the average American began to widen at a pace we’d never seen before.

Fast forward to 2020-2021, and the pandemic pushed the debt figure to $23.53 trillion.

And since the pandemic, U.S. debt exploded by another nearly 50% to about $31.5 trillion. That happens to be a bit over the most recent debt cap of $31.4 trillion.

But a more important metric to consider is the ratio of that debt to GDP. It not only shows how much debt a country has, but also how much it has to borrow relative to the size of its economy.

Last year, the U.S. had a debt-to-GDP ratio of 129%. And it’s expected to reach 133% by the end of 2023.

So for every dollar the American economy produces, more than $1.30 will have to be borrowed.

Only Japan, Greece, and Italy have a higher government debt-to-GDP ratio.

Now, here’s the problem with having a lot of debt…

The more debt there is and the higher the interest rates on it, the more debt the U.S. will have to issue just to keep up.

This creates a vicious cycle. Anyone who’s taken out massive loans is already familiar with this gruesome process…

U.S. Debt Is Only Bound to Go Up

Now that the U.S. raised the debt ceiling and put an end to its political posturing show, the Department of the Treasury has been scrambling to get back to business as usual.

In other words, it needs to raise cash. And fast.

So on June 5, it auctioned off $15 billion worth of one-day cash management bills.

These bills mature in a relatively short time frame, from a few days to a year. They’re used to help manage the Treasury’s short-term financing needs.

In the past 25 years, the Treasury has held just six one-day cash management bill auctions. It’s a pretty extraordinary measure.

What’s more, the Treasury also issued an additional $123 billion in longer-term bills on June 8.

The reason is simple. The government has to pay off some big bills soon. And the Treasury makes most of its interest payments around the 15th day of each month.

Now that the debt ceiling bill has been signed into law, you can bet that the Treasury will announce more borrowing initiatives.

Long ago, Benjamin Franklin said: “Two things are certain – death and taxes.”

Here’s a third one: The U.S. debt will always continue to go up.

And as the debt increases, it will chip away at the U.S. dollar.

How Interest Rates Affect the Dollar

Our country’s large debt undermines the public’s faith in the government to honor its obligations. It’s sowing seeds of doubt among investors worldwide.

It also hurts the dollar.

But here’s the thing you need to understand. The dollar isn’t always hurting, nor is it always weak… at least not in the short term.

In 2022, the dollar had a strong year.

And that was due to the Fed’s hawkish interest rate policy.

In March 2022, the Fed raised its federal funds benchmark rate by 0.25%, to the range of 0.25-0.50%. The rate hike marked the first time since 2018 that the Fed has increased rates.

The U.S. dollar skyrocketed… In fact, it surged so much that its value equaled the euro for the first time in 20 years.

When interest rates rise, individuals see a higher return on their savings. This tends to attract foreign investment, increasing the demand for (and value of) the home country’s currency.

But here’s the catch.

The Fed can’t keep raising interest rates forever.

That’s because the more debt the government creates, the higher the interest payments on that debt will be… unless the Fed eventually lowers rates, or buys more of that debt.

That’s why I believe the Fed will pause rate hikes. I call this Stage 2 of the Fed’s three-stage pivot back to cutting rates.

During this rate-neutral stage, the Fed will assess the impacts of its aggressive rate-hiking campaign. Then, I believe the Fed will eventually start cutting rates, or enter Stage 3, in early 2024.

As I write this, the dollar is under pressure. I expect the Fed to pause its rate-hike policy at the Federal Open Market Committee (FOMC) meeting taking place today and tomorrow, June 13-14.

Overall, I don’t expect to see another rate hike. But I do expect a weaker U.S. dollar going forward.

What This Means for Your Money

You don’t need to be an economist to know that issuing more debt only makes our economy and currency more vulnerable. 

You see, the dollar is not as powerful as it used to be.

And as more countries around the world begin to turn away from the dollar, the Federal Reserve is set to enact a transformation to our monetary system to maintain its power.

The Fed and the financial elites are about to do the same thing they did in 1913… 1933… and 1971.

They’re going to launch an inside attack on the dollar… and unleash a new era of pain and suffering for most Americans. 

The good news is, those who position themselves early for what’s coming can safeguard their wealth – and even profit from the Fed’s fourth attack on the dollar.

On Wednesday, June 21 at 8 p.m. ET, I’m hosting a special briefing called Countdown to Chaos.

In it, I’ll reveal exactly what’s about to happen… and one “non-programmable” asset you can use to see 5,000% gains or more.

Reserve your spot with one click here.

Regards,

Nomi Prins
Editor, Inside Wall Street with Nomi Prins

P.S. I’ve circled July 31 on my calendar…

That’s when the Fed will unleash its final mandate on the American people and grab unprecedented power.

The good news is, time after time, when chaos strikes the markets, there’s one asset that shoots higher…

So on Wednesday, June 21 at 8 p.m. ET, I’ll reveal exactly what’s about to happen… and how you can use this asset to see your money go up by as much as 50x. Sign up for my special briefing with one click right here.