I have adopted the position that when a central bank allows its
government to overspend and abuse its currency, something has to give.
You could say this is one of the unwritten laws of fiat currencies. Time
and time again history has proven this to be true and it is the reason
many people claim gold is the only true form of money that cannot be
corrupted. In a world where everything seems subject to manipulation,
this claim about gold is still up for debate. The
overspending by governments coupled with inflation has really started to
affect the perceived value of currencies in relation to other
currencies. As these relationships break the losers are the people
holding the de-valuated currency. Of course, many factors feed into
how we value a currency but the crux of this article is not about
whether a currency is over or undervalued but rather what a country must
do to defend its value if it comes under attack. Brent Johnson of Santiago Capital is credited with coining the term the “Dollar
Milkshake Theory.” It explains how our debt-based monetary system can
cause the US Dollar to rise despite the increasing liquidity injections
around the world. Whether this was a “grand master plan” or a situation
that just developed over time, it is something that may bode well for
the dollar. Johnson recently took part in a discussion that included
subjects such as the future price of oil, housing, and the probability
of a huge global huge recession. About 28 minutes into the discussion which came out in both video and transcript form; https://www.completeintel.com/weekahead/300-crude-housing-japan-recession-oil Johnson
conveys what many of us see as a truth that haunts fiat currencies.
This is rooted in the fact that when the value of a currency falls, a
country and its central bank cannot save both its currency and its
bonds. In his “slightly edited” words; “The problem is you cannot, and this is for every country, the US
included, again, there’s a progression in how it’ll go, but you cannot
save both the bond market and the currency market because they work at
cross purposes. Whatever you do to save the bond market hurts the
currency. Whatever you do to save the currency hurts the bond market.
And every central bank in history has promised they won’t sacrifice the
currency, and every central bank in history has ultimately sacrificed
the currency.And the reason they always choose the currency over the bond or the
reason they always choose to sacrifice the currency over the bond market
is for two reasons. One, the currency affects the citizens more than the
government, and the bond market affects the government more than
citizens. So they’re going to bail themselves out before they bail the
citizens out. And the second thing is if the bond market blows up and
the banking system blows up, there is no longer a distribution system
for the government to raise money.
So they can’t let the bond market blow up because then they can’t get
money anymore. And then if they can’t get money, they can’t operate. So
this is a very long way of saying that I understand why the market
moved the way it did. I think maybe in the short term it makes sense,
but in the medium to long term, it doesn’t make any sense to me at all.
Again, kind of watch what they do, not what they say.”He later added “The problem, as we’ve kind of figured out and found out that it’s
very hard to just get four for four or 5% inflation. It goes from 2% to
12% pretty quickly. They don’t have as much control as they think they
do, right?
And the problem with four or 5% inflation, you can kind of get away
with it because it’s annoying and it is frustrating, but it’s not
totally ruining your life. But with 8, 9, 10, 12, 15, 80% inflation,
that starts to ruin the pledge life, as you mentioned. And that’s when
they start to push back from a political perspective. And that’s what
central banks and governments don’t want. They don’t want the populace
revolting” When
you think about the true motivators driving this “system,” it is logical the
government and
central banks would throw the populace under the bus. This is about
their survival. As to the question of equal pain, those in power justify
taking raises to offset the impact of inflation under the idea we “need
them” to steer things forward for the “greater good.” While Johnson’s remarks were aimed at what is most
apparent in the actions of Japan, this truth is problematic to all fiat
currencies. For more on the Dollar Milkshake Theory see; https://www.bing.com/videos/search?q=brent+johnson+milkshake+theory&view=detail&mid=82EA8634B5A01BE1506782EA8634B5A01BE15067&FORM=VIRE (Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)