“Lots of talk about inflation,” writes Grey Swan reader Jack J., “M2 money supply, global crisis in government debt. Everyone seems to have a sense that a crisis is coming… but no one can identify when or what indicator reveals a point in time [when it will happen].”
Jack goes on to point out that the U.S. debt-to-GDP ratio in 2024 was 124% and that by 2030, we could be as high as 140%. Mr. J urges that anything over 90% is already critical.
Inflation, a concern, is revealed in 15-20 consumer items. But oil and the cost of energy are dropping. The effect of tariffs has not been priced in manufacturing or finished products, yet.
“M2 — [cash in the system] has to turn down!” Jack writes adamantly.
In the end, Jack like any gentleman trying to manage his own money through Trump’s “great realignment” of the economy and global politics, wants to know what key or critical indicators identify a “point in time” when the crisis will begin. “The next 5 minutes or the next 5 years? Where is the starting point?”
Darn good questions, Mr. Jack.
Jack’s frustration is exactly why we talk about Grey Swans. The art isn’t in pretending to time a crisis to the minute — it’s recognizing the trends early, hopping the good waves, and steering clear of the bad.
A short anecdote: From August to November 2006, my family and I took an extended “staycation” to Cannes in the South of France.
At the time, the mercurial economist Dr. Kurt Richebächer was living along the Boulevard de la Croisette adjacent to the beaches there. He’d invited me to help organize, research and write what he intended to be the “first legitimate critique” of the Bernanke Fed.
Ben Bernanke had assumed the role of Chairman of the Federal Reserve earlier that year on February 1, 2006.
If you’re at all acquainted with Kurt Richebächer’s writings, he was an articulate critic of the global financial architecture, credit markets and what he believed was the shoddy methodology of data collecting in various U.S. and global institutions.
Including, we add today, the employment and productivity numbers published by the U.S. Bureau of Labor Statistics (BLS).
Kurt wrote in English, but the sentences he crafted in his mind were purely Germanic. Long, a ton of dependent clauses, but precise. He had no use for fuzzy logic. Nor did he shy away from confrontation. He had a global reputation as a crank.
Yet, a few years later, after the global financial crisis of 2008, he was credited by Fortune magazine and Bloomberg for having diagnosed the simple causes of the epic financial crisis for years in its buildup.
On one beautiful autumn day, while having lunch under sun umbrellas at a beachside bistro, I asked Dr. Richebächer, “Why all the gloom and doom?”
“What!?” he boomed back at me, startling our waitress.
“How… why… do you call it ‘zis ‘gloom and doom’? It is reality!”
“What good would it do if I only wrote about all the things that are going well with the credit markets, the economy … politics? How would people be prepared when ze crisis hits?”
The Jobs Don’t Add Up
The Bureau of Labor Statistics and ADP, the private tabulator of employment data, are living in parallel universes.
As the Kobeissi Letter points out in detail on X, the BLS claims the healthcare and social assistance sector added +58,000 jobs per month over the past three months.
Meanwhile, ADP shows the same sector losing an average of -33,300 jobs per month. That’s a 91,300 job gap — after years when the two data services have tracked closely.
Worse, the Labor Department just revised down -911,000 jobs from the past 12 months — the largest revision in U.S. history, bigger even than 2009.
Private hiring was overstated by -880,000 jobs.
Trade, transport, leisure, hospitality — all quietly cut back. Excluding healthcare, the U.S. economy has actually lost 142,200 jobs over the past four months.
The revisions are so large they now rival the global financial crisis.
If June’s downward revision of -27,000 is counted, that’s -285,000 over two months, the worst outside of 2020.
For several years, we’ve been told the labor market is strong. The data now shows it is not. And hasn’t been.
The Fed’s Dilemma 
Also, for several years, the Fed’s “dual mandate” has been hijacked by inflation.
Now, the labor side is flashing red while inflation still runs hot.
The popular betting site Polymarket shows 80% of the market expects a 25-point rate cut after the September 16-17 FOMC meeting. 25% wager the cut will be deeper, 50bps. An imperceptible number think rates will remain unchanged. (Source: Polymarket)
In one week, the Fed is expected to cut rates by 25 basis points — the first rate cut in more than 30 years with PCE inflation above 2.9%.
In other words, when they do cut, they will be cutting into inflation.
For retail stock investors, that means another windfall.
For savers, retirees, and wage earners, it’s the same old story. A weaker economy, but an inflated market. A new era of monetary policy is dawning, one where weakness is strength — for Wall Street.
The Repo Rumbles 
We’re also watching the repo market.
On paper, it’s the smoothest corner of finance: banks swap Treasuries for cash overnight, and the Fed backstops it. The “repo” market is how the Fed injects liquidity into the market with or without interest rate cuts.
In reality, it’s flashing stress.
Yesterday, the Fed injected $101 million into overnight lending. Small by historical standards, but troubling. Instead of a single blowout (like 2019), we’re seeing jagged spikes, like an engine that keeps stalling.
Money market funds are sitting on $7 trillion, yet collateral is being hoarded, not lent.
Dealers are rationing, commercial paper spreads have flipped, and Treasury bills are collapsing to the low 4s.
This is a quiet collateral shortage colliding with rollover risk in corporate paper. The Fed keeps stepping in to keep the pipes from freezing.
Treasury Secretary Scott Bessent’s job is more nuanced. He has to figure out a way to finance the nation’s $37 trillion in outstanding debt obligations through the Treasury market.
Bessent’s Realignment 
Yesterday, Bessent proved he isn’t shy about pointing fingers:
“The Federal Reserve is among the foremost drivers of inequality in America. By failing to deliver on its inflation mandate, the Fed allowed class and generational disparities to grow worse, expanding the divide between asset-owners and lower-income Americans. The Fed must regain its independence and stop serving the wealthy at the expense of everyone else.”
Bessent has already removed his name from the straw hat of potential Powell replacements. Still, he’s not averse to joining the chorus clamoring for a rate cut to keep the economy afloat during Trump’s “grand alignment.”
Independence or not, the Fed is already setting up to cut, and the asset-owners will cheer it all during what we expect is the next leg of the most terrifying bull market in history.
This Day in History 
On September 10, 1897, George Smith, a 25-year-old London cab driver, became the first person arrested for drunk driving after crashing into a building. He pleaded guilty and was fined 25 shillings.
The U.S. followed with its first DUI law in 1910. Then came the Drunkometer in 1936 and, in 1953, the Breathalyzer — simpler, more accurate, and still the standard today.
A reminder: even the most familiar systems of order are often young and fragile — until someone blows too hard and the numbers tell a different story.
~Addison
P.S. We never did finish Dr. Richebächer’s critique of the Bernanke Fed. A few months after we returned from Cannes to Baltimore, Kurt was diagnosed with an aggressive form of lung cancer. He died on August 24, 2007. He didn’t live long enough to witness the economic, financial and political calamity of his accurate forecast. (See: Kurt Richebächer, 1918 — 24 August 2007 )
P.P.S. Tomorrow at 2 p.m. ET, join us for Grey Swan Live! with Mark Jeftovic. We’ll be talking about the Shadow Fed and the American Dream.
A new study released this week shows the American Dream already costs more than $5 million per household over a lifetime. And now a rate cut into inflation could trigger one of the most dramatic changes to the U.S. dollar in its short history.
We’re going to help you prepare for it. If you have any questions for us, send them to Feedback@GreySwanFraternity.
Your thoughts? Please send them here: feedback@greyswanfraternity.
