Yield Curve Control Is Inevitable: Foreign Capital is Fleeing Treasuries for Factories and Gold!
A tectonic shift is underway in the global financial system. It is a shift so profound that it is rewriting the rules of international capital flows, and it is a shift that will culminate in the re-monetization of gold as the world’s premier reserve asset.
For decades, the world has operated on a simple model: the U.S. offshores its manufacturing, the rest of the world sends it cheap goods, and in return, they recycle their dollar surpluses into U.S. Treasury bonds.
This system has been the bedrock of the dollar’s reserve currency status, and it has allowed the U.S. to run massive deficits without consequence.
But this system is now breaking down. The world is no longer content to be the factory of the U.S. and the financier of its deficits. Foreign capital is no longer flowing into U.S. Treasuries the way it used to; and it has begun flowing into U.S. factories.
This is the great reallocation, and it is a game-changer for the global financial system. The double-entry bookkeeping of global capital flows dictates that you cannot have it both ways.
The world cannot simultaneously fund the U.S. government and build the U.S. industrial base. A choice must be made. And that choice has been made.
As foreign capital shifts from buying U.S. debt to building U.S. factories, it will put massive upward pressure on interest rates. But the U.S. cannot afford higher interest rates.
It is a nation that is drowning in debt, and it is a nation that will be forced to print money to cap its borrowing costs.
This is the inflationary endgame, and it is a future that is incredibly bullish for gold.
The End of the Treasury BubbleThe 40-year bull market in U.S. Treasury bonds is over. The forces that drove yields to generational lows are now reversing, and the consequences will be devastating for investors who are not prepared.
The primary driver of the Treasury bull market was the relentless flow of foreign capital into the U.S. But that flow has now reversed.
Foreign central banks are net sellers of U.S. debt. And private foreign investors are no longer content to earn negative real yields on U.S. government bonds. They are seeking higher returns, and they are finding them in the real economy.
This is the great reallocation. Foreign capital is no longer financing the U.S. government; it is financing the U.S. industrial renaissance. It is building the factories, the power plants, and the infrastructure that will power the U.S. economy of the future.
And in doing so, it is creating a massive headwind for the U.S. Treasury market. Every dollar that is invested in a new U.S. factory is a dollar that is not available to buy a U.S. Treasury bond. Every foreign company that sells its Treasury holdings to finance a new U.S. manufacturing plant is another nail in the coffin of the Treasury bull market.
Let’s Dig Into The Following:- As foreign capital flees the Treasury market, interest rates will rise, which the U.S. cannot afford. With a debt-to-GDP ratio of over 120%, even a small increase in borrowing costs would have a devastating impact on the U.S. budget. This is why yield curve control is inevitable.
- When the Fed caps interest rates, it is effectively creating an inflationary release valve. By preventing the market from setting the price of money, the Fed is ensuring that the value of money will decline over time. It must inflate away its debt through this inflationary release valve.
- As the U.S. dollar is debased, the world will be forced to seek a new reserve asset. It will need an asset that is not subject to the whims of a single government, an asset that cannot be printed, and an asset that has preserved its value for thousands of years. That asset is gold!
- The great reallocation of capital from U.S. Treasuries to U.S. factories is not just a financial story; it is a geopolitical story. It is the story of the end of the unipolar moment and the rise of a new, multi-polar world order. The New World Order is forming before our eyes!
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