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Created on: 6/10/2021 8:01:06 PM   Last Update: 6/11/2021 12:45:37 AM Posted by: RTT
1 POST US is bound by these economic rules (RTT Plus)
us-is-bound-by-these-economic-rules-rtt-plusThe US is managing its way through a 100 year sovereign debt crisis, and to avoid a financial collapse a few economic statistics must be managed.

The US is in a sovereign debt crisis, the proof is below. US debt is considered not attractive at the current interest and inflation rate levels. The FED has to buy US Treasuries (UST) to control the yield curve.



Debt




STATISTIC 1

The US can continue to avoid a sovereign debt crisis so long as US Nominal GDP percent (not adjusted for inflation) is greater than the interest rate.

Statistic to control: Nominal GDP YOY % rate > interest rate %.


The US has to pay these two important bills, (1) interest payments, (2) and entitlements with, 100% tax receipts. Failure to do so means money printing would be required to pay these, and this would not be good for confidence in US debt.

This is why BIDEN is announcing continuous spending programs: $1T here, $6T there, BIDEN must keep GDP growing at a good rate. This is also why the FED is suppressing interest rates with yield curve control management (see chart above).



STATISTIC 2

The US must deflate away its debt, while trying to avoid a debt crisis (that is US debt holders selling, because US debt holders are the biggest losers). To deflate away the debt, inflation must higher than interest rates. This requires the FED to allow inflation to 'run hot'. In other words, very easy monetary conditions. 

Statistic to control: YOY Inflation % > interest rate % (or Negative Yield).




POINT

The FED must not tighten monetary conditions (increasing interest rates or tapering the balance sheet in any meaningful way), the FED must not make a mistake. The US Gov't must keep GDP growing at all costs. A deflation shock (say like COVID March 2020) would multiply any fix exponentially.


MAJOR RISK

If inflation gets out of control and or the US dollar falls to fast this would create a PANIC in the voter base, voters would demand a 'fix', then politicians would force the FED to hike interest rates, hence breaking the economic formulas above. The result would be a 1929 style COLLAPSE!




FED DOES MAKE MISTAKES

The 1937 mistake, the FED hiked FED FUNDS rate twice, ooops. 



Click for popup. Clear your browser cache if image is not showing.
1937





 

   
SOURCE: This post was originally posted in our private RTT Plus members blog, and released on this public blog in a time delayed manner. RTT Plus members have access to private content immediately.Please be aware links to secured RTT Plus content will not work without a RTT Plus membership.


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Changes in the world is the source of all market moves, to catch and ride the change we believe a combination of Gann Angles, Cycles, Wyckoff and Ney logic is the best way to ride the change, after all these methods have been used successfully for 70+ years. This post is a delayed and small sample of what is avaliable to members. Sign up to enjoy the full service.


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Investing Quote...

..“The game of speculation is the most uniformly fascinating game in the world.  But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer.  They will die poor.”...

Jesse Livermore


..“By failing to prepare, you are preparing to fail”..

Benjamin Franklin


.."If you have trouble imagining a 20% loss in the stock market, you shouldn't be in stocks"..

John (Jack) Bogle


...“People somehow think you must buy at the bottom and sell at the top to be successful in the market. That’s nonsense! The idea is to buy when the probability is greatest that the market is going to advance”...

Martin Zweig (The inspiration behind a number of Martin Zweig’s methods came, from Jesse Livermore).


My experience has been that in successful businesses and fund management companies, which performed well over the long-term, some courageous decisions were taken. Courageous fund managers reduce their positions when markets become frothy and accumulate equities when economic and social conditions are dire. They avoid the most popular sectors, which are therefore over-valued, and invest in neglected sectors because being neglected by investors they are by definition inexpensive. The point is that it is very hard and that it takes a lot of courage for a fund manager to avoid the most popular sectors and stocks and to invest in unloved assets. Finally, every investor understands the principle ‘buy low and sell high’, but when prices are low nobody wants to buy.

Marc Faber





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