Yesterday we walked through the forty-year era of falling interest rates and cheap credit that shaped the American economy from the ground up.
It was the era of debt, deficits, offshoring, and mass-financialization. I call it the Age of Paper Wealth.
Today I want to talk about why I believe that era ended in 2022… and what the reversal looks like in real time.
After more than a decade of near-zero interest rates, quantitative easing (QE), and then two rounds of extraordinary money creation during the Covid hysteria, consumer price inflation came roaring back to life in 2021.
Suddenly, we saw our grocery bills and other daily necessities start to skyrocket in price… and that gave Federal Reserve (Fed) Chairman Jerome Powell the cover he needed to pave the way for the greatest economic reorganization in a century.
In 2022, Powell’s Fed began raising the Federal Funds Rate at the most aggressive pace in its history. The Fed’s target rate went from effectively zero to over 5% in just eighteen months.
But that’s only part of the story… because the Fed only controls short-term interest rates.
In 2018, Powell and the New York Fed instituted a distinctly American interest rate benchmark called the Secured Overnight Financing Rate (SOFR). SOFR calculates interest rates based on real transactions in the US repo markets. That’s a stark contrast to the London Interbank Offered Rate (LIBOR), which is “set” each morning by a consortium of bankers in London.
When they rolled SOFR out in 2018, it was set to gradually phase into the system over the next four years. Then, in 2022, it began to fully displace LIBOR as our interest rate benchmark here in the US.
While it seems arcane, the significance of SOFR is that it eliminates the ability of foreign institutions to manipulate mid-term interest rates in the US – which they had a history of doing when LIBOR was in place.
In addition, Powell engaged in what came to be known as “quantitative tightening”, which is a fancy way of saying that he stopped buying US Treasury bonds on net and allowed years of QE to reverse. This served to remove the artificial ceiling on long-term interest rates and allow market forces to take over.
Put these three actions together, and the Fed created a dynamic where interest rates could rise as high as they needed to allow the market to start to clear out decades’ worth of malinvestment. For the first time in many years, money had a real cost again.
And here’s what’s important to understand… these moves didn’t just make it more expensive for people to buy a home or a car. They changed the economics of everything that was built on cheap credit.
Corporate buybacks started getting more expensive to finance. Private equity deals that required cheap leverage stopped penciling out. Shady start-ups that had made a killing by tapping into the IPO markets disappeared. The commercial real estate market — office buildings, shopping centers, apartment complexes all built on floating-rate debt — started quietly cracking.
Underneath it all, something deeper was shifting. The forty-year assumption that had been baked into every financial model, every retirement plan, every pension fund — that interest rates would not go up — turned out to be wrong.
And rates are only half the story. The other half is what’s happening in the real economy.
The offshoring era is reversing. Not because a few people had a change of heart — but because the geopolitical environment made it necessary.
The Covid hysteria exposed how fragile global supply chains really were. And the World Economic Forum’s (WEF) Great Reset push revealed that America’s true enemies were its closest “allies”.
So now we’re seeing definitive progress on America’s reindustrialization.
Semiconductor plants are being built in Arizona, Ohio, and Texas. Battery factories are going up in Georgia and Tennessee, as is a brand-new critical minerals refinery. And of course, massive high-end data centers are going up all over the country – from Idaho to Texas to Virginia.
This is real economic activity. Concrete, steel, and copper are flowing freely in this country once again. And in those areas where the action is, wages are rising fast.
An engineer in the Phoenician League recently told me that he can go make $100,000 in 6-8 months by working on the data centers being built in Ohio. That’s the kind of opportunity that hasn’t existed in this country for many years.
And then there’s energy.
For forty years, cheap energy flowed freely to keep the wheels of globalization turning. But the energy landscape has permanently changed.
With the rise of AI data centers and the massive reindustrialization effort, future energy requirements are skyrocketing. Suddenly, robust energy sources like oil, natural gas, and uranium (for nuclear power) are in high demand… while most of the world has realized what a folly the “green” energy push was.
This is what I mean when I say the Age of Paper Wealth is ending…
It’s not about physical cash. It’s about the four-decade era in which financialization redirected economic energy towards financial engineering and away from productive activity. That increasingly rewarded financial cleverness over productive work because paper claims on future cash flows kept inflating while the real economy underneath slowly hollowed out.
That era is over.
And what’s replacing it is an era in which real assets — gold, Bitcoin, energy, critical minerals, productive land, hard infrastructure — reassert themselves as the foundation of wealth. Not only because they are tangible… but also because they enable the systems and the technologies that make the modern world go ‘round.
The investors who recognize this shift and position accordingly stand to do very well. The ones who remain stuck in the old paradigm — assuming that their 401(k) will be enough to provide a long and fruitful retirement — are probably going to be disappointed.
More to come…
-Joe Withrow
P.S. Don’t forget that the first episode of the Phoenician League podcast will drop next Tuesday, April 21st, at 6:00 am Eastern. We will publish a new episode every Tuesday at the same time thereafter.
The podcast is already live with the trailer published, and it’s available on all the major platforms. This includes Apple Podcasts, Spotify, and all the others. The video version will be available on our YouTube channel as well.
Please subscribe to the podcast on whichever channel you use to get notified when a new episode is released each week. The first several episodes will lay the foundation, and then we’ll get into timely macro talk and feature some great guests afterwards.