The US debt could force the hand of the Federal Reserve: how can you be prepared for that

How fiscal dominance could make a comeback

If you are trying to make macro bets it pays to look at the trends that are unlikely to change over the long run. You figure out what are the consequences and see what kind of bets you can make to profit from them.

One of the trends that is probably not going away any time soon is the constant growth of the US Federal Debt and especially its share of the GDP.

That trend could eventually tie the hands of the Federal Reserve and lead to unpleasant consequences for the US dollar.

Let’s see what this is all about and how you can navigate this scenario.

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The US debt could force the hand of the Federal Reserve

The takeaway

When the federal government spending habits force the Federal Reserve into debt monetization we enter an epoch of fiscal dominance. Given the growth trajectory of the US debt this scenario is more likely than you might think.

But at the end of the day this is rather simple. Fiscal dominance means debt monetization. And debt monetization means a debasement of the US$. 

So as an investor you want to be positioned for fiscal dominance the same way you’d be positioned for QE:

• Short the US dollar.

• Long hard assets.

• Long Bitcoin and its derivatives.

Straightforward.

Now let’s see why fiscal dominance should be on your radar.

The trajectory of the US debt