The federal government is not just the largest institution in America. It is larger than any private institution by at least a factor of 10.
All state and local governments combined spend around $3.7 trillion annually. Seems like a lot of money. But it’s only half of federal outlays.
The largest U.S. corporations have annual revenue in the low hundreds of billions. Even the very largest private or quasi‑public systems (hospital groups, universities, Fortune 10 firms) are one order of magnitude (10x) smaller than the federal budget taken alone.
A leviathan spiraling toward insolvency with a printing press, isn’t going to suddenly become chaste. It is going to defraud its creditors. And it is going to force the world to continue to take its worthless currency.
It has happened before.
In October 1973 Egypt and Syria attacked Israel on the Jewish holiday Yom Kippur. The United States resupplied Israel, and the Arab oil producers answered with an embargo. Oil ran from $3 a barrel to nearly $12 in a matter of weeks, a 300% increase.
What Americans were never told was that America’s involvement in this war was never about Israel. It was always a war over the dollar. Israel was only the battleground.
Before 1971, OPEC oil was paid for in U.S. dollars. That’s because the dollar was the center of the Bretton Woods currency agreement: it was as good as gold. But after Nixon defaulted on that promise in August 1971, the Saudis demanded the U.S. honor the gold price for its oil. And they threatened to trade oil in other currencies if we didn’t.
The war proved to the Saudis and the other OPEC nations they had no choice: accept the dollar or face destruction. The U.S. and Saudi Arabia secretly struck an agreement where Saudi oil would continue to be sold for dollars and Saudi surpluses would be recycled into dollar assets, especially U.S. Treasuries. In return, we guaranteed the Saudis’ sovereignty – most importantly, we promised to protect them from Iran.
This agreement held until the massive COVID inflation. After we printed $5 trillion in a year, senior Saudi officials began publicly saying at the World Economic Forum in Davos and elsewhere that they were open to settling oil trade in currencies other than the dollar, breaking the greenback monopoly. And in 2024 Saudi Arabia quietly let its old, informal understanding about pricing oil exclusively in dollars lapse, signaling that, while most deals still clear in dollars, the Saudi kingdom reserves the right to accept other currencies, especially China’s yuan, for at least some exports.
Today, about 25% of the world’s oil is priced in Chinese yuan – not dollars. The leading non‑dollar exporter? Iran.
Don’t watch the news. Watch the money.
What this war is really about is ensuring that the Saudis (and the rest of the Arab Gulf) cannot leave the dollar system. But will that work this time? And at what cost? The market doesn’t know.
Brent crude oil is sharply higher this year. Analysts at major banks are modeling $120 to $150 a barrel global oil prices if the Strait of Hormuz remains closed for much longer. Energy inflation in the latest American data runs at 17.9%, and it is dragging the headline inflation rate back up. War, then oil, then inflation. That was the sequence in 1973.
It will happen again. And, once again, the U.S. monetary authorities will monetize the spiraling costs, leading to vastly higher rates of inflation.
Here’s what happened last time.
The Dow Jones Industrial Average peaked at just over 1,000 in January 1973. It bottomed at 577 in December 1974, a fall of 45%. The S&P 500 lost about 15% in 1973 and then another 26% in 1974. Real GDP swung from +7.2% in 1972 to –2.1% in 1974. Inflation ran from 3.4% to 12.3%. The unemployment rate doubled.
The Nifty Fifty, the unkillable one‑decision stocks, were slaughtered. Their multiples collapsed from 42x earnings to under 10x earnings. Polaroid fell 91%. Avon fell 86%. Xerox fell 71%. The market did not reclaim its 1973 high, in nominal terms, until 1981. In real terms (adjusted for inflation) the market didn’t recover for 25 years.
Today the bubble is more concentrated. The deficits and the debt are vastly larger. The government is vastly more powerful and far more desperate to maintain its fiscal hegemony over the world’s economy. Loudoun County, Virginia – outside of Washington, D.C. – has been the richest county in the United States since just after the Global Financial Crisis. It will destroy the entire country to remain so.
The crisis hasn’t happened yet. The labor market is booming. The economy is growing fast. You’ll see headline after headline going into the elections this fall that America’s economy is the strongest it has ever been. But don’t forget, in 1972 GDP growth was 7%+ – one of the strongest growth prints post‑WWII.
Here’s how to prepare and survive the next crisis:
2029: THE END OF AMERICA
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