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Fix the Money, Fix the World with Lawrence Lepard (WiM469)
The "What is Money?" Show
The Brutal Inflationary Cycle and the Potential Doom Loop
The speaker believes we are in an inflationary cycle that will be harsh. As interest rates rise, the government's financial situation worsens leading to a doom loop. Higher interest rates increase the government's costs, leading to a larger deficit and the need to sell more debt. However, finding buyers becomes challenging as buyers demand higher interest rates. This cycle creates a situation where the government may be forced to sell its debt to the Federal Reserve. If interest rates reach critical levels like 10%, the country could face bankruptcy as the federal government's average interest rate on debt is around 3.2% while short-term notes are selling at about 5%. The potential increase in short-term note rates to 6, 7, or 8% could have catastrophic consequences.
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