This week I am back with Philip Pilkington, who has quite rapidly become one of my favorite sources of context and information.
Philip lives in Europe so we began by discussing the enormous challenges Europe is facing, especially Germany, due to disastrous leadership and policy choices.
In particular, Germany’s industrial base – the source of the majority of its prosperity – has been sacrificed upon a green altar. This part of the conversation should be quite sobering to anyone living there, and serve as a cautionary tale to people living elsewhere.
Prosperity does not result from feel-good alternative energy slogans and government redistribution programs. It comes from real people working hard while taking real-world risks while supported by abundant and cheap energy.
Our conversation then turned to the Treasury interventions and their short-lived results. Philip argued that attempting to force down long-term rates while inflationary pressures are rising risks pushing the problem from the bond market into the currency. In other words, it’s financial repression, which places the majority of the burden on those who can least afford it.
Which means the dollar itself may be the ultimate constraint. How far is this administration willing to go to evade reality? If the SPR drawdowns are any indication, the answer is “all the way.”
But, perhaps the U.S. Treasury has less leeway than imagined. The so-called bond vigilantes are once again awakened and making ominous noises. Once thought extinct, they seem to be back and as dangerous as ever to DC’s free-spending habits.
Philip thinks we’ve 2-4 years for all this to play out. I think that’s possible, but it’s equally possible that the timeline is far more compressed than that, with my own hopes are for another 6-12 months before things turn ugly.
What’s the answer for everyone? The same script as before: become resilient and don’t have all your eggs in the dollar basket.
Timestamps
00:00 The Warning About Bessent
02:00 Europe’s Diesel Shortage Is Getting Real
05:10 How Germany Destroyed Its Industrial Base
10:00 The Asset-Stripping Theory
15:20 Europe’s Coming Energy Fight
18:50 Treasury’s Bond-Market Intervention
23:10 Wall Street Turns on Bessent
26:50 From “Grey Magic” to “Black Magic”
34:10 Trump’s Bizarre Theory of Interest Rates
41:20 Why Investors May Abandon Treasuries
48:00 China, Sanctions and the AI Bubble
55:00 The Worst Possible Decisions
01:00:50 The “Magic Money” Computers
01:11:00 The Dollar Isn’t the Only Game in Town
01:20:00 Gold, the Fed and Financial Repression
01:30:00 When the Paradigm Runs Out
01:41:00 The Coming Crisis Singularity
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by cmartenson