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
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
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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