“Inflation” And Possible “Black Swan” Event

Since I can recall, the U.S. government has increased and hit the debt limit every year. We are currently feeling the effects.

In a back and forth with Senator Mike Lee, Senator Rand Paul (R.KY), forecasted the potential dangers associated this large government spending.

“It is alarming. It is foolish and unwise for us to say, oh, it’s there are no consequences. They will, according to me. And the number one that we’re seeing now is inflation,” Paul Stated.

Senator Mike Lee went on to ask about the United States’ position as the world reserve currency, “As the United States is having the world’s reserve currency, the US dollar has given us some flexibility in that area, flexibility that other countries like Greece haven’t had. You think there’s some risk of becoming overly confident in that world reserve currency status, in other words, could be could we be jeopardizing the very thing that we fought so hard to achieve and that so few nations ever achieve?”

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Paul responded, “having the world’s currency allows us, you know, many countries trade in dollars. You’ll go into marketplaces all around the world. And what they’re actually exchanging is dollars. Paul then went on to state “Some have described that as being able to export our inflation. People have also said, well, the dollar is it perfect, it’s a fiat currency, it’s being inflated, but everybody else is so bad that we’re sort of the cleanest shirt and a closet full of dirty shirts. It is true that being the reserve currency has helped us last longer. However, there are certain rules that economics will eventually catch up with a country. And I think we approach those.”

Paul then forecasted what could happen if we keep going down this path, “I don’t think anybody can predict exactly when we get there. However, I believe we are nearing a point and that it might not be gradual unraveling. You know, if you look back at the history of our marketplace, we’ve had these black swan events.”

With Secretary of Treasury Janet Yellen proposing that we eliminate a total debt limit, congress is becoming less concerned about debt. The question of if there will be a rapid market Black Swan or rapid inflation may not be the right question. Instead, it is a question of when government spending is truly going to catch up with us.