Pricing Oil In Gold Is “Inevitable” | Luke Gromen

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Do the recent headlines speculating that Saudi Arabia may be ready to give up the petrodollar and start pricing oil in grams of gold?

Luke Gromen sees that as “inevitable”.

Here’s the link to the Howard Marks investor letter mentioned in this interview: https://www.oaktreecapital.com/insights/memo/sea-change

Luke Gromen: Ballooning Deficit Caused By Higher US Debt Costs Likely To Force The Fed To Pivot

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With the aggressive return of higher interest rates, the gargantuan piles of debt that world nations owe to each other suddenly become a lot more worrisome.

Higher interest rates means higher debt service costs. Which means less money left over for governments to fund their operations.

Today’s guest, macro analyst Luke Gromen, has long warned that the world has been heading into a massive sovereign debt crisis.

Have today’s rising interest rates just accelerated the day of reckoning? And what will such a reckoning look like?

In this video, we dive deep with Luke for answers.

Q3 A Critical Turning Point: Fed Reversal, Recession, More Inflation, Weaker Dollar | Luke Gromen

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Article:

Past Fed Chair Paul Volker has been invoked in countless discussions surrounding monetary policy these days. Many are wondering if current Chair Jerome Powell will have the resolve to exact the Volcker-style rate hikes necessary to combat inflation.

Macroeconomic expert Luke Gromen believes that this is

more about math than Powell’s resolve. 

With federal debt-to-GDP at 125% and US tax receipts, which are highly correlated with overall stock market, set to fall considerably, this is a matter of the US government’s solvency – not the sitting Fed Chair.

Volcker lived in a different time. 

Debt-to-GDP was 30% when he began his tightening cycle. The federal deficit was around $60 billion per year (1.5% of GDP at the time). Today it is over 46x that amount at $2.8 trillion (over 10% of today’s GDP)! 

According to Gromen, the US government simply cannot fund its almost $600 billion in interest payments, the roughly $3.5 trillion in entitlement spending, and the $800 billion for national defense, without defaulting or revamping QE. In the face of historically high inflation, neither of these options bode well for the bond market.

Default, especially when it comes to domestic entitlements, is not a politically palatable position. Therefore, Gromen believes QE will return and inflation will not subside, bringing us into unprecedented territory.

Which assets will perform well under this regime? Gromen believes commodities will experience a secular tailwind and that even Bitcoin may catch a bid. To hear all his insights, listen to the full interview at the top of the page.