Today Zerohedge is featuring post after post maintaining that the Fed can’t rein in inflation, will fail, will in fact fall on its face in the attempt. Many of these posts are written in openly sarcastic terms. For our purposes, I want to focus on one:
Fed Paper Admits Central Bank Can't Control Inflation; Finger-Points At Federal Government
The central thesis of this post is that the Fed realizes that raising interest rates will NOT quell inflation but WILL cause a recession or worse. The Fed is going ahead, nevertheless, in order to blame the government for the coming catastrophe: We did what we could, it was the other guys’ fault!
The article begins with sarcasm …
It appears somebody at the Federal Reserve has figured out that the central bank can’t tame inflation, so it’s setting up a scapegoat – Uncle Sam...
but then moves on to quote the Fed paper. The Fed paper is saying nothing remarkable, and nothing in the paper is—in my opinion—an “admission” of any sort. The sum of it is simply this:
the central bank can’t stop inflation when the federal government needs inflation to survive.
The reason the federal government needs inflation is so that it can repay debt obligations in devalued dollars. It’s basically a scam. Who really thinks the people at the Fed and the banks behind the Fed don’t understand this? Of course they understand this basic fact of fiscal life in the United States, which is why this paper isn’t an “admission.” Instead, it’s pointing out the facts of life to people who read Fed papers—perhaps including politicians or their staff.
You may recall Tom Luongo yesterday saying exactly the same thing. What the Fed is doing isn’t really about inflation, in this sense: The Fed has known from the start of its tightening process that Fed actions alone cannot tame inflation as long as the Fed is forced by law to monetize federal government debt. Nevertheless, the Fed is going ahead with its interest rate increases. The question is: Why?
To my mind the Fed paper reads like a warning—or maybe even a threat. Here’s the key paragraph, which is quoted at the link:
When fiscal imbalances are large and fiscal credibility wanes, it may become increasingly harder for the monetary authority to stabilize inflation around its desired target. If the monetary authority increases rates in response to high inflation, the economy enters a recession, which increases the debt-to-GDP ratio. If the monetary tightening is not supported by the expectation of appropriate fiscal adjustments, the deterioration of fiscal imbalances leads to even higher inflationary pressure. As a result, a vicious circle of rising nominal interest rates, rising inflation, economic stagnation, and increasing debt would arise.”
I can understand how this paragraph could be understood as setting up the federal government to bear the blame for the economic woes that are just beginning. It’s also a call for the federal government to do its part in restoring “fiscal credibility”—lest matters get totally out of control.
However, there does not appear to be any suggestion in the Fed paper that the Fed intends to back down from its tightening program. Indeed, at the Jackson Hole meeting Jay Powell assured anyone who was listening that the Fed isn’t going to back down. Logically, that sets up a game of chicken: Who will blink first, the Fed (the monetary authority) or Congress (the fiscal authority)?
Now, the author of this article maintains that Congress will NOT come forward with “credible future fiscal plans.” But he offers no argument for his belief. I get it that there’s a long track record of fiscal irresponsibility on the part of Congress, one that is continuing. However, in the face of a world economic crisis and a major recession in the United States, it just might be Congress that does blink. I’m not saying they’ll be a reformed gang of fiscal crooks, just that they may have to back down for the time being.
The reason I’m suggesting this as a real possibility is that Jay Powell is not simply Mr. Smith going to Washington. He wouldn’t be doing what he’s doing without powerful backing. It just may be that the financial oligarchs who own our politicians—the best money can buy—have drawn a line in the sand. They won’t be doing it for you and me, they’ll be doing it for themselves, but the country may share in some of the benefits.
We shall see. There’s more going on here than meets the eye. I very much suspect that this is not business as usual, just as the world geopolitical scene is also in upheaval.
In support of the above, I quote an article today by Bill Blain:
… the basic rule of everything that all things revert back to normal, which in the case of the stock market is going to be “painful” at best.
Yesterday we also had market legend Jeremy Grantham on BBerg warning the current stock market super bubble has “yet to pop”. … Grantham cited “a dangerous mix of overvalued stocks, bonds and housing, combined with a commodity shock and hawkishness from the Fed” as further reasons to be fearful.
The reality of mean reversion takes us right back to when the stock market was last normal – which was sometime back in the late 1990s, early 2000s before Central Banks decided their price stability mandate included market stability as a precondition to stability.
Oh, ye Mighty, look upon my works and despair… is the lesson they have now learnt. Mess with markets, and they will mess you back.
Hmmm. That sounds a bit like Schumer’s law of Intel agencies. Only in this instance the markets will be messing with Congress. Who will you bet on? I’m not gonna put my money on Congress.
Central Bank monetary experiment has proved a clusterf*ck of monumental proportions. Its resulted in the most distorting period of market manipulation ever. From 2010-2021 central banks piled on Quantitative Easing and Zero Interest Rate Policy to notionally boost economic growth …
The result is all that cash – trillions up gazillions of dollars – ended up not in the real economy, but in financial assets. The value of bonds and stocks went stratospheric, chasing each other higher, even though the real economy did little more than chug along. We pretended the world was changing …
We did not see any great industrial revolution improving productivity – what we saw was … the rich got insanely richer on stock market gains, and inflated C-suite rewards, while everyone else got progressively poorer.
As you read these next paragraphs, think: The Fed isn’t simply Jay Powell. Powell is the front man for the banking oligarchs:
We are now into the end stage of the game:
Central Banks are no longer playing ball. They actively want markets to correct to remove the inflationary impulse from falling financial markets adding to real world inflation. The Fed “Put” has become the Fed “Call”.
Financial asset sanity is reasserting itself – folk have woken up to fundamental truths like: cash is a better place to store wealth than negative yielding bonds, stocks with no income have no value, and emperor’s new clothes swindles like Crypto and NFTs are zero-value, zero-utility Ponzi games that rely on a greater fool to keep buying and push them up.
Savers have no discretionary income left to save – and little incentive to invest in financial asset markets, which are now revealed as so clearly mispriced.
So where does this take us?
…
I would refer you to great chum of mine, David Murrin, who has done fantastic work on reading the Code of Markets. ...
... As central banks continue to aggressively hike interest rates (and everyone now expects 75 bp from the ECB), David is predicting: “the Western Economies that have been based on cheap money at ultra-low interest rates will quite literally fall apart, and the stock market will collapse.”
Which brings us full circle to “market legend Jeremy Grantham” (above).
WTH!!! I cannot believe the visual imagery used during Biden’s speech. Blood red lighting, Marines behind him. Tucker is correct in his statement that Crazy Joe has crossed over into dangerous territory.
If the Republicans don’t get off their collective asses after this speech, we are finished as a nation.
I’m still reeling after seeing this disgrace.
Open sarcasm @ ZeroHedge . . . what's not to like!
Too bad the Fed failed miserably at its supposed reason for being, that is maintaining the value of the United States Dollar, which has the purchasing power that 2 cents had a century ago. I was very annoyed by Trump when he bad mouthed the Fed for raising interest rates in 2018. Uncounted $ trillions of interest on deposit accounts lost because of the stupid zero interest policies, robbery by bankers/politicians.
Lastly, Josef R. Satan has completely gone off the deep end, pity the poor Marines that were assigned to flank the Idiot in Chief . Divine intervention would be welcome!