How can a country (USA) with huge debt be saved by restarting its Economy without causing Social chaos?

What is the invisible foundation of the narrative about the depreciation of the US dollar?

Let us recall that it is a key goal of the Trump 2.0 administration to address the fiscal derailment and the persistent trade deficits.

• The first assumption says that the invisible foundation of the narrative about the depreciation of the US dollar is based on TINA: There Is No Alternative – that is, There Is No Alternative to devaluing the dollar until its value is almost zero and at the same time there is … a repricing of all goods!

1. And this is because changing the course through reversing the course of debt expansion and increasing the money supply (i.e., inflationary monetary expansion) is impossible in an economy dependent on debt creation.
2. Without a continuous expansion of debt and a continuous depreciation of the dollar so that debtors can more easily repay existing debts, the economy would collapse.
3. Therefore, continuing the same pattern that leads to collapse is considered a “solution” chosen by the status quo.

• The second assumption of the dollar depreciation narrative is that those who hold cryptocurrencies, precious metals, and other tangible assets will not only survive the coming crisis, but will emerge richer – since the value of their assets does not depend on fiat currencies (i.e. those issued by central banks).

The Winners and the Losers

This leads to the following reasoning: if those who hold the keys to power know that the end result of devaluation will be the collapse of the US currency and economy, and know the economic devastation that this will bring not only to the majority of citizens but also to the wealthy, whose wealth ultimately depends on a functioning economy, wouldn’t they consider pursuing a less destructive, if painful, strategy that would avoid free fall?

Furthermore, history has shown no mercy to governments that have let their currency collapse. Those in power would be wise to seek a way to avoid the spiral of devaluation of the world’s leading reserve currency, for reasons of self-preservation, as their power would not survive the (entirely avoidable) destruction of the currency and the economy.

In other words: is there a way to avoid the spiral of dollar devaluation that would restart the economy, allowing for feasible improvements in the quality of life, after first disconnecting the economy from its deadly dependence on ever-increasing debt and devaluation to support the illusion of “prosperity”?

Sharing the Costs of Destruction

There is a way to reverse the deadly spiral, and the key for those in power is to distribute the inevitable pain fairly enough so that no social class is left with nothing to lose and seeks the complete overthrow of the existing regime.

Over the past five decades, the status quo has gradually drained the poorest 80% of the population, directing all the gains to the top 10%.

There were enough “crumbs” for the bottom 80% to comply rather than rebel, but the pain of reversing the devaluation can make rebellion more attractive than compliance. Note that this redistribution was the result of political decisions that benefited those who benefited from the “financialization” of the economy and globalization. It was a choice, not fate.

For the reversal to have any chance of success, policymakers must balance the losses so that the wealthiest and most advantaged sectors (the top 10%) bear the brunt of the economic damage, while many of the essential goods are channeled to the bottom 80% to avoid social upheaval.

Let’s recall the figures: the top 10% own the majority of financial assets, while the bottom 50% own just 2.5%, down from 3.5% in 1990. The share of the top 1% has increased to 42% from 35.6%.

The only way to reverse the spiral of devaluation is to end the economy’s dependence on ever-increasing debt to finance consumption and on the ever-expanding money supply to fuel the asset “bubbles” that reinforce wealth inequality and the overconsumption of the top 10%, which creates a distorted illusion of “growth.”

The Solution: Make Money More Expensive

• The most effective way to defend the dollar and suppress debt expansion is through supply and demand management: raising Treasury yields and interest rates.

• Global capital will flock to U.S. bonds in search of higher interest rates, while demand for new loans will decline as interest rates become expensive.

• The federal government’s borrowing costs will skyrocket, limiting government spending, while consumption through debt with fake money will collapse.

• Herein lies the necessity of inducing a recession that addresses the debt-inflation addiction that the system has avoided for 45 years through excessive money supply and debt expansion.

• At the same time, the Fed will let bankruptcies and defaults reduce private sector debt, avoiding bailouts of Wall Street and “too big to fail” banks.

• Overly indebted banks will collapse as a necessary step to restore the market to a healthy regime, instead of supporting the biggest gamblers (the principle of moral hazard for creditors will be truly applied).

• At the same time, the authorities will sell off assets, and the losses will be distributed to the public over time to manage the disaster.

• Note that the nominal federal debt of over $38 trillion constitutes about 1/3 of the total debt, while 2/3 belong to the private sector.

• The reversal requires a simultaneous reduction in the money supply by the Fed, causing a decrease in monetary circulation (supply) and strengthening the dollar’s strength, suppressing exports but increasing purchasing power for workers and businesses.

The Necessary Restructuring

• The necessary reboot will cause pain, but the only strategy that can work is to share the losses equally.

• Restructuring will reverse the policies of the last 50 years that have benefited the top 10% of income earners at the expense of wage earners (the bottom 90%).

• For example, imposing the 15.3% Social Security tax that applies to the self-employed on all non-wage income, such as capital gains and stock options.

• At the same time, eliminating the perverse incentives in Big Techs, Big Pharma, Big Banks, health, education, etc. will transfer … the pain to elites and sectors that have benefited from decades of federal support.

• The recession will reduce consumption and employment, causing mass defaults (stopping payments) and the cancellation of trillions of dollars of debt.

• All the currency created through debt disappears, and the circulation of dollars decreases, reversing the deadly cycle of debt-devaluation-inflation.

Every step seems “impossible” due to resistance from powerful economic interests, but the collapse of the currency will cause much greater pain to the elites than a controlled reversal.

The result is already visible.

The only uncertainty is the social reaction – its magnitude will depend on the policies that will be undertaken before the inevitable collision with the “desert of the real”. And let no one think that we will not see the social collapse because we do not yet suspect it…