The Economy Or Bust! Er ...
What Am I Talking About?
Last night there was an interesting exchange in the comments about The Crash, which I’ll reproduce—the exchange, that is—because I want this to be the reference point for what follows:
Melinda Romanoff:
NO. This is inaccurate and worse, incomplete.
The BoJ and the ECB are ramping UP their QE programs at the same time the Fed is trying to tighten. That's worse than a wash sale, because last time I looked, cash is fungible. MMT is still alive and pumping.
Just not quite so clear to whom it's pumping towards....
Dissonant1:
There are definitely distinctions between the U.S. and Europe that condition how the Fed will operate vs. the ECB. For example, I have felt that the ECB would not raise rates or tighten at this point given current levels of sovereign debt on the "periphery" of the EU; I believed they would not risk "fragmentation" or national insolvency which might cause a break up of the EU especially given its current fragility. That seems to be true given Lagarde's strange statement a couple of days ago and today's ECB announcement. MMT thus fits nicely with their political agenda. But you probably have a better view of that than I do (and I have no expertise in economics).
It is interesting to speculate what the WEF thinks about all this. Some have speculated (for example, Tom Luongo) that they might WANT the EU to collapse economically. Maybe so, but on their own timeline?
The Fed has a little more latitude but not much. They can raise rates and tighten a little bit but not enough to really put a dent in inflation. Most seem to feel they will pull back at the first sign of trouble (this is what the markets today reflected) - trouble being something like the credit markets starting to seize up. If the Fed is truly serious about bringing inflation down as much as it says, a lot of people invested in the U.S. markets could be in for a a really bad surprise.
Amanda Redford:
I think people have forgotten what happened in 08 to EU countries: Spain, Portugal, Ireland and especially Greece were nearly bankrupted. The whole EU project has been propped up ever since by financial trickery.
Yanis Varoufakis wrote a book about the fraud carried out under Merkel and the ECB that threw Greece under the bus - 'The Adults in the Room". EU is going to be the first house of cards to fall I think.
First, with regard to Melinda’s reference to the Bank of Japan, this showed up this morning:
Later on I’ll be linking to Tom Luongo’s discussion—he has a lot to say about the bond markets. I’ll say nothing, since finance simply baffles me. However, you can read more here:
This next shows one of two things: 1) Progs really believe in the magical power of their words over reality, or 2) they think they can fool most of the people all of the time:
So, with that intro, here’s a really interesting (to me) video with Alex Mercouris. I’ve cued it to start where Mercouris say’s: “And this is where things get really weird.” Needless to say, he’s talking about Zhou, so it’s bound to be weird. Even demented.
Mercouris is talking about Zhou and his regime threatening energy companies, and he starts by pointing out that before the sanctions war started the energy companies were going around warning that exactly what has happened would happen. Zhou and the EU simply ignored this good advice, so now he’s trying to shift the blame to the truth tellers—shoot the messengers. Meanwhile the Zhou regime and the EU are both undercutting their own sanctions. Imagine how Putin is laughing. And he’s having some fun, by slowly cutting exports of gas to the EU. Turnaround is fair play, right? But that never seems to have occurred to the elite.
“But then it gets stranger still!” Mercouris shifts, at about 34:00, to “the increasingly bizarre decisions by the ECB.” Mercouris ranges widely, including what he terms the Christine Lagarde non-meeting (nod to Dissonant1) and the difficulty of raising interest rates given the debt situation of Southern Europe (nod to Amanda). Investors are increasingly unwilling to buy government bonds—it’s a mess. There is the possibility of a rerun of the debt crisis of a decade ago, but on a new and more catastrophic level. The solution seems to be … to dither! Enjoy:
Now, Mercouris continues by noting that with the EU in an economic crisis to begin with, the EU enthusiastically joined an economic war against Russia. It’s madness, and Mercouris is in substantial agreement with Jacob Dreizin (yesterday): the timing couldn’t be worse, and nobody knows—at a time of high inflation—whether to raise interest rates or continue QE. His bottom line? Mercouris says he’s never seen a time when world governments got things—military and economic—so catastrophically wrong and at the worst possible time. What was that that Obama said about Zhou? But we all know Zhou’s not in charge, anyway. At least there are no more mean tweets. Thanks Bluto.
I’ll finish with links to Tom Luongo’s distinctly non-family friendly take on these events. Basically, as I understand it in my own economically illiterate way, Luongo is maintaining:
The EU is even broker than the US.
Powell is not raising rates to halt inflation, he’s doing it to break the EU.
The US could save itself by cutting government spending by 25%.
This is the end of the old monetary system.
EUROPE IS CRACKING - EUROPEAN BOND MARKET IS BREAKING
See what you think. In the meantime, Russia is saying, Yeah, we’ll listen to anything the Ukrainians want to say, but we’re not stopping anything just to listen. Does that suggest who’s in the driver’s seat in this global crisis?
KD rants to good effect:
Biden, Threats And Energy
https://market-ticker.org/akcs-www?post=246142
Mark, thanks very much for your work compiling these great sources on economic matters. I am humbled that you presented my comment to help frame your presentation, which is excellent.
I think Mercouris did a very good job explaining the EU situation in understandable terms. It isn't pleasant to contemplate Luongo's view that at a high level we are dealing with a "turf war" between the commercial banks, central banks, Davos, and Russia (and that we are the collateral for all of them). Yet it is hard to argue against that. Of interest to me was Luongo noting that the ECB itself is potentially subject to bankruptcy due to its holdings of bonds in Italy, etc. Wasn't there a saying that the first purpose of any organization is its own preservation? There are any number of ways things could go sideways in Europe now. It is no longer a stable environment for investment and as you have noted well, the ECB is seemingly powerless at this point.
So much of the economic health of the West depends on energy and our current governments are doing all they can to make it scarcer and more unprofitable to produce and distribute. Their efforts can only be seen as purposely malicious and destructive. Even more disturbing is that as Denninger notes you cannot just flip a switch to bring more energy back online when the means of production and transportation have been shut down and disincentivized. Very tough times ahead for at the very least a few years.
Thanks again for this. Much appreciated!