Swan Dive
The Inflation Episodes — Act II, Featuring Silver, Gold and Dollar 2.0
December 3, 2025 • 6 minute, 22 second read
“Once inflation gets started, it’s very hard to stop.”
Paul Volcker said that in the early ’80s, when men smoked indoors and the dollar still felt like something you could drop on your foot. It remains one of the simplest sentences ever spoken by a central banker, an honest one.
Yesterday we covered the Fed’s quiet admission that its grand “normalization” experiment has failed again, as it did in 2019.
Quantitative Tightening (QT) — its solemn attempt to unwind the pandemic-era balance-sheet explosion — died on Monday, not with a philosophical argument but with a plumbing malfunction.
The Overnight Reverse Repo Facility drained from $2.3 trillion to almost zero, leaving the market’s liquidity buffer scraped clean. The Fed didn’t choose to stop QT; it hit a wall.
One more week of runoff and repo rates might have started misbehaving the way they did in 2019 when the usually benign rate shot up to 10%.
Now comes the part the headlines don’t know how to process: with QT dead and rate cuts already underway — even with inflation still above 3% — the 1970s and early 2000s playbook emerges from the drawer again.
The “rate-cut-into-inflation” era has returned.
In those earlier cycles, the Fed eased aggressively while prices were still rising, and inflation came back harder each time.
Volcker didn’t become Volcker until he slammed on the brakes so violently that half the country thought the Fed had lost its mind, sending the economy into a deep recession in the early years of the Reagan administration.
This time, though, the Fed won’t be able to slam. The balance sheet sits at $6.45 trillion. Rates are already falling. Fiscal needs are larger by 4 decades’ worth of unbridled spending in Washington. Popular political patience is shorter.
The next crisis won’t find a central bank with ammunition — it’ll find one already on its back foot… still reeling from the pandemic shock.
“Affordability” Doesn’t Mean Anything To Anybody
Meanwhile, the American consumers don’t feel – or are at least unaware of – monetary nuance. They’re just getting the bill.
Trump declared last night that “affordability doesn’t mean anything to anybody,” dismissing the term as a “Democrat scam”— this despite recently proclaiming
himself the “Affordability President” on Truth Social.
That’s the current state of political messaging on cost-of-living: part whiplash, part vaudeville. But voters aren’t confused. Grocery prices are still 30% higher than 2020. Tariffs add daily friction. Utilities, rent, houses, tuition, healthcare continue their daily grind upward.
And the credit system—the one most Americans rely on to plug the widening gap between income and expenses—is also starting to seize.
Another motive for the Fed to end Quantitative Tightening (QT), consumer credit is tightening
right where mom and pop feel it the most. (Source: Charles Schwab.)
Rejection rates for credit cards, mortgages, refis, autos, and personal loans have surged to their highest levels since the New York Fed began tracking the data in 2013.
- Refinancing rejection just hit 45.7%, an all-time high.
- Mortgage rejection is at a decade high.
- Auto loan rejections are the second worst on record.
For the bottom 50% of households, this isn’t macroeconomics — it’s a slow-motion income crisis.
That’s the backdrop for today’s Act II. Into this cauldron walk silver, gold, and Dollar 2.0 — the three monetary signals that tend to reveal the truth before the political class figures out how to spin it.
Let’s take the tour.
Silver, Repression, and the Inflation Tell
Paul Tudor Jones, who has survived more macro cycles than I’ve had haircuts, put it plainly: “All roads lead to inflation.”
His portfolio today — gold, bitcoin, commodities — suggests he believes the Fed’s pivot from QT to easing is not a mid-credits twist but the start of the main act.
Silver, as usual, is front-running the drama.
It has doubled this year, staging the kind of move you only see when financial repression — the quiet policy of keeping real rates negative — slinks back onto the stage.
In overnight trading in Asia last night, silver, already at historic highs, made a solid run at $60 per ounce.
Shanghai inventories are down 86% from the pandemic peak. Gold supplies there have fallen more than 80%.
China exported a record 660 tonnes of gold in October, sucked toward London to relieve tightness. Industrial demand is rising just as monetary demand is rising just as inventories vanish.
Silver in terms of bitcoin’s purchasing power makes a nifty new metric in
measuring the monetary system (Source: Zero Hedge)
If you want to buy silver using one bitcoin, the amount you can buy has collapsed from 3,500 ounces to roughly 1,400. Stated another way, as BTC has fallen, silver has risen quickly.
Crypto’s quick selloff plus silver’s moonshot equals a simple message: the non-AI, non-tech, non-hype hedges are telling you something fundamental about the future of money.
No guarantees, of course. But silver is behaving the way it behaves when inflation is not “transitory,” “contained,” or “cooling” — but structural.
Gold’s Playbook in a Cutting Cycle
Silver is the siren. Gold is the chronicle.
History shows gold tends to make its major cyclical highs during the rate-cut phase — not before it.
Gold rallies typically get a shot in the arm when the Fed begins a new round of quantitative easing in addition to overnight rate cuts. (Source: Global Markets Investor)
In 2007–08, the big top aligned with a Fed funds rate around 3%. If the Fed keeps trimming in quarter-point steps, we could be near that same zone by spring 2026.
That’s when Phase One of this gold bull market likely ends — not the end of the move, but the pause before the crisis that forces Phase Two: the QE period. That’s where the Fed starts buying assets again, not because it wants to, but because it has to.
December 1 — the day QT died — moved us one step closer to that shift.
Dollar 2.0: Treasury’s Quiet Masterstroke
Here’s the thing. Both the Fed and Treasury are dealing with a flawed system: credit-based fiat systems must expand. If not, they collapse.
While the Fed wrestles with interest rates and its own balance sheet, the Treasury has rewired the pipes.
The GENIUS Act — sold as stablecoin regulation — effectively deputized digital-dollar issuers as mandatory buyers of Treasury bills.
Reserves must be one-to-one in cash or short-term Treasuries. No rehypothecation. Monthly reports. PCAOB audits. No interest.
In other words:
If you mint a digital dollar, you are essentially buying government debt. If you mint more digital dollars, you buy more government debt. If the world adopts digital dollars, the Treasury gets a global automatic buyer.
Stablecoins have jumped from $200 billion to over $300 billion since July. Bessent openly projects $2–3 trillion by 2030.
Rather than relying on monetary policy, the Treasury has legislated liquidity engineering.
In the next crisis — when people can move money from a wobbling bank into a digital wallet with a thumbprint — Dollar 2.0 may go mainstream not because people want it, but because the system needs it.
~Addison
P.S. Tomorrow at 2 p.m. EST (11 a.m. PST), we’re dragging my old intellectual sparring partner Dan Denning — Bill Bonner’s investment consigliere and godfather to my middle son — into the Grey Swan Live! ring.
We’ll be cutting into the Fed pivot, the rise of Dollar 2.0, and what all this monetary plumbing means for your balance sheet before the next Enron or Lehman Bros. surprise rocks the mainstream AI narrative.
Bring questions. Bring skepticism. Bring popcorn. This one’s going to be fun.
If you have requests for new guests you’d like to see join us for Grey Swan Live!, or have any questions for our guests, send them here.
