Are We About to See an Economic Boom?

In our last post, we provided context around how the U.S. empire has grown at the expense of the middle class over the past 80+ years, which has led to the rise of populists like Donald Trump. We explained that this has largely been driven by our government's weaponization of the U.S. dollar, punishing Americans to save and produce, while still pushing them to consume overseas, keeping us reliant on foreign production. Towards the end of the post, we also briefly hinted at the playbook policymakers could use to drive real economic growth. While it's impossible to predict exactly what will happen and when, we believe that some form of the actions below must be taken for America to succeed:

1. Slash government spending

2. Reform entitlement benefits

3. Replace production taxes (income tax) with consumption taxes (tariffs)

4. Allow the dollar to weaken towards its fundamental trade value

5. Cut debt to GDP from >120% (near all-time highs) to <80%

6. Cap nominal interest rates & let inflation run hot

7. Eliminate regulation that prevents the private sector from driving productivity

   
   

We're still unsure about the Administration's intentions to weaken the dollar given Trump's recent threat to BRICS countries. However, we believe that narrowing in on these seven ideas would allow us to begin reversing this failing empire, which would restore power and prosperity back to the people. In this post, we're going to lay out what this means for the bottom 99% of Americans, which includes most small business owners, and as a byproduct, the working class. By studying history and analyzing the present with an open mind, we believe you can get a leg up on the competition when thinking about the future, so we're also going to describe a strategy you can use to prepare for what may be coming. Let's dive in.

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Debt & Deficits

U.S. government debt has now surpassed $36T, which doesn't include unfunded liabilities nearing a mind-boggling $200T according to some estimates. The government is also running nearly a $2T annual deficit. As we mentioned in the last post, we're excited about the new Department of Government Efficiency led by Elon Musk and Vivek Ramaswamy, but when we take a closer look at federal revenues and expenditures, it becomes quite clear that cutting some discretionary costs won't be enough.

In the chart below from Myrmikan Research, we can see that even if Elon and Vivek managed to cut 100% of discretionary spending (which we believe is highly unlikely), we'd still have a major deficit, and this is BEFORE any of Trump's tax cuts, which would reduce revenue. Trump has also talked about spending more on the military, which is one of the country's largest expenditures. Additionally, since Janet Yellen miraculously failed to refinance U.S. debt at ultra-low rates, it's reasonable to expect interest expense to stay high in the near term. Lastly, who knows how much it will cost to facilitate the deportation of millions of illegal immigrants, but we doubt there's a hard price tag.

Additionally, if material cuts were to happen, we might expect something similar to what Argentina has experienced under Javier Milei who has made significant progress by cutting government expenditures leaving the country with its first surplus in almost two decades. While Argentina's GDP has actually fallen with the spending cuts, Milei currently has the third highest approval rating of all global leaders. While we doubt the U.S. government would tolerate falling GDP (which is the "growth" metric Wall Street obsesses over), slashing government spending is beneficial to the people.

Hopefully we'd see some entitlement reform, but the main point here is that while spending cuts will certainly help, they alone cannot meaningfully reduce the debt. Therefore, we think the U.S. government could also look to inflate away a portion of the debt like it did following WWII.

Interest Rates & Inflation

Remember our our first key point from our last post? There's always a cost to government spending, which must be paid for via taxes or inflation; and outstanding government debt can only be extinguished through taxes, inflation, or default. There are no exceptions.

Well, we've already established that taxes aren't likely to increase. Therefore, a continued deficit will be inflationary. Additionally, we don't think the U.S. government is going to explicitly default on its debt. That would likely deter almost all potential lenders to the government going forward. Therefore, we can also expect debt to be paid for via inflation. But, how does this work?

Following WWII (the last time debt-to-GDP was this high), the Federal Reserve and U.S. Treasury worked together to cap interest rates. Short term Treasury bills were capped at 0.375% and long-term Treasury bonds were capped at 2.5%. This allowed the government to continue affording it's debt (without paying out millions extra in interest to bondholders) without cutting off the private sector's access to affordable capital. Make no mistake, the spending was still paid for, but it was paid for by decreasing the purchasing value of the dollar, making debt as a percentage of GDP much smaller.

Wages

BLS data isn't readily available to see precise wage growth figures for each year following World War II due to a lack of resources. However, it's widely known that inflation and wages saw significant growth during the period. Numerous sources show that wages roughly doubled from 1940 -1949. While 1950 had periods of deflation, 1951, which was the year the Treasury and Fed removed their cap on interest rates, saw inflation pick up again and approach 10%. Therefore, in general, we can assume that this ChatGPT estimate (around 8% annualized wage growth) is close enough for years 1946 (first year following WWII) through 1951 (last year of heavy inflation):

With the Trump administration, we can expect heavy tariffs designed to punish overseas production along with some level of deportations. While this reduction in labor supply may be partially offset by the current white collar recession, in which overpaid employees are forced to go look for other jobs in high-demand productive industries, we think it's reasonable to expect at least moderate wage growth (and inflation in general) over the next 5-10 years.

Capital Markets & Investments

While inflation was hot following WWII, the Dow Jones didn't fare as well. The annualized growth of the index from 1946 through 1951 was about 4.9%. Now, dividends were about 4% per year back then, but growth barely kept up with inflation, especially after the 25% capital gains taxes. Additionally, with interest rates being capped, bondholders (who were paid in fixed income) got crushed on a real basis (after inflation). Savings yields were also poor at the time.

While gold was capped at $35/oz starting in 1944 with the introduction of Bretton Woods, other commodities fared well. Silver increased by about 17% per year, oil increased at an 11% clip, and coal (used for energy and steel) increased by about 8% per year.

So, how does that compare to today?

First, while the stock market has seen strong growth in recent years, it's worth noting that the Dow Jones Index is trading just above 30x earnings. This means that on average, it would take the companies in the Dow Jones 30 years to generate profit equal to your initial investment without any growth. (Note: The S&P 500 is trading slightly lower at 28x earnings). Additionally, many of the largest companies are going to be hit with tariffs or forced to spend capital on reshoring. They may also incur higher labor costs, which could cut into margins.

For comparison, the Dow Jones was trading at just below 16x earnings at the end of 1945. Therefore, stocks are about 95% more expensive today based on current earnings. Additionally, when we factor in dividend yields of 1.7% today vs. 4% in the 1940s, it appears stocks are even more expensive today.

• 1945: 6.25% earnings yield (1/16x) + 4% div yield = 10.25% total yield

• Today: 3.33% earnings yield (1 / 30x) + 1.7% div yield = 5.03% total yield

Additionally, as the chart below shows, stock prices have been increasing significantly while corporate cash flows and earnings per share are essentially flat over the past three years.

What all this means is that without significant growth that would trounce one of the largest booms in American history (not to mention many of the largest companies being hit with tariffs or forced to spend capital on reshoring), the outlook for stocks may be poor over the next 5-10 years. Bonds also likely won't fare well. Current Treasury yields are around 5% with corporate bond yields trading slightly higher. The Fed has already begun to cut rates, and heavy inflation may eat away most (if not all) of those returns even before taxes. The banks really didn't increase savings yields either after post-Covid rate hikes, so we can't expect any difference there.

Precious metals, commodities, and Bitcoin are skyrocketing, but how much is left in the tank? We don't really know, but it would make sense that inflationary periods are good for things like gold, silver, Bitcoin, steel, etc. However, these are likely to be heavily volatile.

What To Do With My Capital?

So, what should you do with your capital? Our answer largely depends on whether you'll need to access it over the next 20+ years. If the answer is "no," then perhaps there's a portion of your capital to deploy into asymmetric risk-reward opportunities if you can withstand heavy short or medium-term volatility. However, if you'll need to access your capital over the coming years, we'd recommend starting Infinite Banking.

In a structurally-inflationary environment, business owners need ways to keep up with rising costs such as equipment and labor. Rather than keeping revenue in a bank account and spending cash on expenses, we can safely grow and leverage our capital. The cash value collateral generates guaranteed tax-free growth, which eliminates downside. Ordinarily, we'd see people keep this cash in a bank account. As we mentioned, yields are poor, and that's before taxes and any additional rate cuts that may pull yields back closer to zero. Unless you plan to speculate on short-term stock market performance with your cash, inflation was already going to be a problem for you.

As opposed to equities, cash values cannot decline in Whole Life insurance policies. So, right off the bat, we've eliminated downside and volatility. When it comes to bonds, we ideally don't want to just save our cash in a Whole Life policy, which is why we recommend Infinite Banking. Our objective is to generate guaranteed long-term growth on our capital, and then safely leverage it to reinvest back in our businesses. This allows individuals to avoid paying heavy interest costs to third parties while also getting paid to save.

Conclusion

Rather than using someone else's bank to invest in someone else's businesses, Infinite Banking allows us to use OUR OWN privatized banking system to reinvest back in OUR businesses and future. It provides business owners with financial autonomy and provides a far superior way to save, finance, and invest over the long run. The safety and guarantees provide unmatched security during heavily volatile economic periods, which could be just around the corner. And lastly, if we do see an economic boom, business owners are going to need a safe place to grow and leverage capital.

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