Postcards: Help, Help, I'm Being Repressed!

"Now, we see the violence inherent in the (financial) system! Come and see the violence inherent in the (financial) system!" The Fed and Treasury Department will adopt more financial repression... ͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­ Forwarded this email? [Subscribe here]() for more You are a free subscriber to Postcards from the Florida Republic. To upgrade to paid and receive the daily Republic Risk Letter, [subscribe here](. --------------------------------------------------------------- [Postcards: Help, Help, I'm Being Repressed!]( "Now, we see the violence inherent in the (financial) system! Come and see the violence inherent in the (financial) system!" The Fed and Treasury Department will adopt more financial repression... [Garrett {NAME}]( Mar 12   [READ IN APP](   Market Update: Equity assets keep crawling higher. We’re up 45% since the bottom in October 2022, and liquidity just hit a new record (says Howell). But now the tough cycle starts. This is starting to feel like a “Sell in May and Go Away” kind of year—or at least a redux of 2021. NVIDIA is now at $900. T[he Electric Centipede rides again](. Dear Fellow Expat: Apologies to Monty Python and the Holy Grail… But we’re on the verge of something significant. Last October, I predicted our economic leaders' approach to addressing the never-ending train of debt and wealth destruction. Having finished the President’s proposed $7.7 trillion spending program in 2025, I can confidently tell you that I was correct. On October 20, 2023, I said I expected the U.S. debt to hit $34 trillion within three weeks - my birthday, no less. I underestimated the problem. It’s $34.5 today. It might be $35 trillion by May… I noted a Tweet by Michael Arnault on ways to deal with all this debt. I assigned odds to each choice. - Spending Cuts: 500,000-1 - Entitlement Reform: 100,000-1 - Drastic Tax Increases: 50-1 - Japanese-Style Fiscal Repression: 1-5. And… as expected… the fighter chosen is Japanese-style fiscal repression. Now, that’s a big term. Most people don’t care. Most people will ignore it. But not us. Let me break this down for you and how it impacts your money. Metaphors are hard to do with finance, but let’s try one. Here’s the Thing About Fiscal Repression Fiscal repression is when a government manages its debt by keeping interest rates artificially low. How do they do this?  By manipulating the bond market or encouraging domestic institutions like banks (or citizens) to buy government debt. If you’re like millions of Americans, you have a savings account. You expect your money to grow over time.  But if the government keeps interest rates low, the money you earn from your savings might not keep up with how much prices rise due to inflation.  So, even though the number in your account goes up, the actual value of your money – what it can buy (purchasing power) – goes down. The government does this because it helps them pay off their own debts more cheaply.  When interest rates are low, it's cheaper for the government to borrow money.  Plus, with inflation making money worth less over time, the debt they have to pay back is effectively less valuable.  This way, without openly raising taxes or cutting spending, the government can manage its debt, but it's savers who feel the pinch as their money loses its purchasing power. This approach, which has been used in Japan for years, tries to reduce the real burden of the national debt over time, as low-interest rates mean the government pays less on its borrowings. It acts like a backdoor tax on your money. Call it a Secret Biden Tax if you want… Or blame whomever you want. But the idea that Americans making under $400,000 won’t face this “Secret Tax” is a lie. I Really Want to Make Sure You Understand This It’s helpful to think about this in a few different ways. Metaphors are hard. So let’s sink or swim. Imagine financial repression as a fitness club where the government owns the building and has a huge mortgage. This mortgage represents our $34.5 trillion in public debt. As I said above, the club has options to pay off this cost. They could ask members to pay more (which would be like hiking taxes) or reduce the number of services and classes they offer (which would be like austerity or spending cuts). They don’t want to do either because it might hurt the business or the owners' reputations. So, the club managers (in this case, the Federal Reserve) engage in a few stealth ideas to lower that burden. Picture this: They install a thermostat that overheats the gym (inflation). Holding onto cash as it loses value becomes uncomfortable - just like it becomes uncomfortable sitting still in a hot room. This subtly encourages members (savers and investors) to keep moving their money around, ideally into the gym's own investment classes (government bonds), which are marketed as 'cooler areas' of the gym but offer lower returns. Simultaneously, the club restricts the number of water fountains (interest rates) and turns down their pressure, making it harder to quench your thirst (achieve returns on savings). This means members have to spend more time at the water fountains (invest more at lower returns) to get the same amount of refreshment (income from investments) they used to enjoy, all while the gym uses this environment to pay down its mortgage more comfortably with the cheaper, abundant inflow of member funds. In this scenario, members might not realize the full impact of these subtle changes on their workout experience (financial health). They’re focusing instead on the immediate need to stay hydrated and cool, inadvertently supporting the gym's mortgage repayment strategy. If this metaphor didn’t land. I apologize. Explaining central banking is hard.  If you can do better, please try in the comments below. What Do I Do? More liquidity and lower rates are bullish for risk assets, including equities, cryptocurrency, and gold. The likelihood of a credit event is low. Capital will flow where it needs to, and fundamentals will remain disconnected from reality for a while. While I think we will have an 8% drop at some point - largely around the Debt Ceiling - I expect we’ll hit 6,000 on the S&P 500 next year. But don’t act like this is “wealth generation.” It’s largely a hedge against this repression and what happens when you print money and keep rates artificially low. If and when it comes… BUY THE DAMN DIP. Buy good businesses with low debt that are part of natural monopolies or duopolies. Home Depot (HD) is a prime example. We’ll talk about this theme… tomorrow. Stay positive, Garrett {NAME} Disclaimer Nothing in this email should be considered personalized financial advice. While we may answer your general customer questions, we are not licensed under securities laws to guide your investment situation. Do not consider any communication between you and Florida Republic employees as financial advice. Under company rules, editors and writers cannot recommend their positions. The communication in this letter is for information and educational purposes unless otherwise strictly worded as a recommendation. Model portfolios are tracked to showcase a variety of academic, fundamental, and technical tools, and insight is provided to help readers gain knowledge and experience. Readers should not trade if they cannot handle a loss and should not trade more than they can afford to lose. There are large amounts of risk in the equity markets. Consider consulting with a professional before making decisions with your money.   [Like]( [Comment]( [Restack](   © 2024 Garrett {NAME} 548 Market Street PMB 72296, San Francisco, CA 94104 [Unsubscribe]() [Get the app]( writing]()