The “Milkshake Theory” predicts a sovereign debt crisis where rates rise, treasuries fall, the dollar strengthens, US equities increase, and gold appreciates.
Dedollarization leads to defaults, dollar scarcity, and ultimately a system reset, differing from redollarization which merely postpones the problem through new dollar loans.
A full-scale Treasury crisis could force central banks to tighten monetary policy, sell assets, or seek emergency support due to their large holdings of US Treasuries.
Gold is predicted to reach at least $5,000 as the dollar’s strength destabilizes the system, potentially leading to its remonetization.
Foreign buying, not US demand, is expected to drive gold prices, especially when countries face currency crises.
The US, with its large gold reserves, is likely to be in a strong position if gold becomes the new reserve asset and may “fail last” in a global economic crisis.
Rising US interest rates have global repercussions, as demonstrated by the 2022 crises in the British pound, Japanese yen, and emerging markets like Sri Lanka and Pakistan.
Higher US Treasury rates affect global finance, increasing borrowing costs for corporations worldwide and pressuring other countries’ economies.
The US is in an era of fiscal dominance, where deficit spending becomes the primary determinant of economic growth and inflation, overshadowing monetary policy and private sector lending.
The 2025 US fiscal deficit is projected to be the 3rd largest in history, behind only the COVID emergency spending years of 2020 and 2021, despite no ongoing global pandemic or economic lockdown.
Fiscal dominance creates a two-speed economy, benefiting wealthier investors through asset price appreciation while middle-class workers struggle with inflation, high mortgage rates, and tight monetary policy.
The US deficit is primarily composed of the “big four” spending areas: social security, Medicare, defense, and interest on debt, which are politically difficult to cut due to their popularity among voters and lobbyists.
Healthcare costs and demographics are major long-term structural issues driving the deficit, making it challenging to address without unpopular decisions.
The US trade deficit and fiscal deficit are interconnected due to the global reserve status of the dollar, with excess dollar demand fueling trade deficits and artificially boosting import power.
The “heavy is the head that wears the crown” concept from Lyn Alden’s book “Broken Money” highlights the significance of the US dollar’s global reserve status in shaping economic dynamics.
In a fiscally dominant environment, value equities, particularly medium-sized banks in good financial shape, are attractive investments as they are less likely to be impaired by recession.
Emerging markets, including Brazil, offer investment opportunities in a fiscally dominant environment, potentially benefiting from dollar weakness.
Energy pipelines, especially midstream companies and limited partnerships (MLPs), are considered attractive for income-focused investors due to reasonable pricing and higher yields.
Under fiscal dominance, recessions may manifest as shallower, stagflationary periods of malaise rather than severe busts, characterized by above-target inflation and mild economic downturns.
The AI capex flywheel is a key variable to watch in the next 6-12 months, with potential risks of overinvestment echoing the dot-com era.
The new administration’s policies have shown strong trade focus but mixed execution, with tariffs potentially acting more as a tax on Americans than achieving trade wins.
Freedom of speech remains a bedrock value, with decentralized social media solutions like the Nostr protocol emerging to protect free expression in the digital age.
Environmental policies promoting alternative energy sources waste critical nonrenewable resources like silver, which is essential for future technology and environmental protection.
Silver production has been in deficit to consumption for over 5 years, largely due to subsidies expanding silver use in solar panels and electric vehicles, which require frequent replacement and are difficult to recycle.
The conservationist approach, based on property rights and market-driven decisions, is more effective for resource management than environmental policies, supported by thousands of years of evidence.
Market prices and interest rates enable resource owners to make precise calculations on whether to use resources now or save them for future use, promoting efficient allocation.
Silver, currently priced at over $600 per pound, is scarce on Earth, difficult to recycle, and often found in just a few grams per ton of ore, making it profitable only as a byproduct of mining other metals
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