THE "TRANSITION STAGE" IN THE ROAD TO A FIAT CURRENCY FAILURE

STAGE I: SLOWING REAL RATE OF GLOBAL ECONOMIC GROWTH

  • Unsound Money & Fiat Currencies (Illusion of Money)
  • Mispricing of Risk (Monetary Bond Policies: QQE, QE, TLTRO)
  • Loss of Price Discovery (Monetary Short Rate Liquidity Policies)

STAGE II: IMPAIRMENT OF CAPITALISM

  • Distortions Create Fragility
  • Investment Mutates to Speculation and then Outright Gambling  (Bigger Fool)
  • Fundamentals Replaced By Momentum and Growth Strategies,
  • Leverage Substituted for Organic Profit Growth (Buybacks, Lending)

STAGE III: CAPITALISM VERSUS CREDITISM

  • Unproductive Use of Capital,
  • Level of Debt Burden Servicing,
  • Stimulus Loses its Impact & Effectiveness,
  • Ever Increasing Levels of Stimulus Required,
  • Leverage More Tenuous – Borrowing Short, Lending Long Facilities   - ABCP (2008), VIXammegon (2018), Repo (2019)

STAGE III TO STAGE IV TRANSITION

      • Passive Investing Peaks: FAANGS & Unicorns,
      • Fiscal Stimulus / MMT Debasement Leads to:
        • “Value” and Hard Assets
        • Infrastructure

STAGE IV: INSUFFICIENT REAL COLLATERAL GROWTH

  • Third Party Risk & Security Guarantees (Price to Market),
  • Age of Conflict (Financial, Economic, Political & Social Strife),
  • Protracted Economic Stagnation (Japanization),
  • Rising Costs of Real, Unencumbered Collateral,
  • Kondratieff “Winter

STAGE V: FIAT CURRENCY FAILURE

 Return to Sound Money

OR A

Totalitarian Socialist State (Control of Production)

NOTE: Above as laid out in the six stages of the Sound Money Cycle   "LONGWave - 02-12-20 - FEBRUARY - Strategic Investment Insights (SII): 2020 Q1 Update" - Available to subscribers only.

Below is a slightly different view of the Fiat Currency Cycle Failure for comparison.

We most recently reviewed this cycle in "UnderTheLens - 01 22 20 - FEBRUARY - Investment Themes For The 20's". - Available to subscribers only.

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