A group of investors ought to be formed to sue the hell out of the Federal Reserve for price-fixing. Because, near as we can figure it, that’s just what they’re engaged in. Making up money and distorting markets.
I can’t think of a single provision under the Constitution law that permiting goverment a right to distort finance. (Cleverly, I notice they didn’t ask…they just DID. )
To me, it smells and has all the hallmarks of consumer fraud. However, so let’s focus on how their Crash-Up is working.
Before we launch, however, there are three axioms of economic reality you need to keep firmly in mind:
- “Don’t Fight the Fed” As stated by the late Marty Zweig.
- “Inflation is not prices going up – it’s the value of your money going down…” Some whack job named Ure.
- “It may be necessary to use methods other than constitutional ones.” – Late Zimbabwean president Robert Mugabe. The father of Making Up Money – also sold as “modern monetary theory” which distills down to “OMG are people stupid…let’s roll with that…”
The Dow futures are up more than 700 points this morning – and we are (for now) leaving the track of 1929. The U.S. Fed is conspicuously papering over the chasm and so, in resorting to extreme (just under hyper-inflation) finance it will appear that America is not sinking into a Second Great Depression.
But pay close attention to your lifestyle. Because the recent rise is gold holds a bitter truth – as does the Federal Reserve’s own H.6 money stocks report out last night after the close:
This is the highest inflation rate I’ve ever seen. Given a year at this rate, even without any adjustments for cost of goods sold, this would jack the price of a $30,000 auto up to $35-thousand and change within a year . That $5.39 half-gallon of organic milk? $6.33 in a year. Or more…
You’re Being Played
We’re pretty clear that the path we are trending towatrd is the same one undertaken by Mexico in the mid-1990’s when that country was having the same problems – unable to meet their foreign debt. Mexico, too, devalued their money and by slipping the decimal point three places. Result? Their “national debt” went from over 100% of GDP to 1/10 of one percent of GDP – and so the cycle of economic illusions could be continued.
Yet, it wasn’t magic. The working class in Mexico got hammered. The rich – seeing how it would work – either got rich (oil, silver, and other resource – hard asset – plays) or they threw-in with the cartels. Either way, the rich got richer. But the regular people, who might have had 1000 peso’s saved woke up one morning to one Nuevo Peso. Sandersfied, we call it…
The exits were blocked for people who wanted to use the devaluation personally. Big, Mean governments don;t like it when little people want to keep up with the fraudsters.
Truth be told, cutting dead capital pools down isn’t all bad, except savings gets destroyed. Screw of the bondholders.
As a result, at the time of devaluation in Mexico, all previous contracts and debts were rolled over at the same rate. Debt holders who were previously owed $10,000 old pesos were now still owed N$ 10. The ones getting screwed were the national debt holders.
“On January 1, 1993, the Bank of Mexico introduced a new currency, the nuevo peso (“new peso”, or MXN), written “N$” followed by the numerical amount. One new peso, or N$1.00, was equal to 1000 of the obsolete MXP pesos.
On January 1, 1996, the modifier nuevo was dropped from the name, and new coins and banknotes – identical in every respect to the 1993 issue, with the exception of the now absent word “nuevo” – were put into circulation. The ISO 4217 code, however, remained unchanged as MXN.
Thanks to the stability of the Mexican economy and the growth in foreign investment, the Mexican peso is now among the 15 most traded currency units.”
The academic question is whether faith in the debt-logged U.S. dollar will remain. Because it is no longer a U.S. Dollar – it’s all Federal Reserve Notes and that’s a scandal for another day’s recounting.
Our point this morning? Devaluation of the U.S. debt is looming large. We lioke hard assets best. Paid-for land and such.
In Asia, both Japan and China own significant amounts of U.S. debt (a little over a trillion each). Their thinking was that the U.S. taxpayer was a good risk. Joke’s on them, at this rate.
What’s no joke is the financial basis of the U.S. where J. Powell and colleagues at the U.S. Fed have gone near-enough crazy creating money out of “thin air.” Out print collapse is Game On.
The nightmare – for the rest of the world – is that if the U.S. drops its dollar with a Mexico-like move, instead of Asia getting what is essentially 2-3% of U.S. tax-squeezing’s, they could get less.
So our bottom line is not to predict any such dire outcomes, but to reassure you that economic games with the “underlying purchasing power of money” are in play. And since pension funds and Richy Rich types are in the game, and we little people are not, it’s a safe bet that a crooked outcome is in our future.
Which then gets us to the most serious of the Robert Mugabe quotes:
“Our votes must go together with our guns. After all, any vote we shall have, shall have been the product of the gun. The gun which produces the vote should remain its security officer – its guarantor. The people’s votes and the people’s guns are always inseparable twins.”
Mugabe was a master of inflation – the trillion dollar Z-bucks paper the office here. Yet, they serve – along with a few “old pesos” that governments – once detached from The People – serve only one thing well.
The American Restart Debate
I wrote-up the “post-pandemic restart problem” for you. In a February 18th column earlier this year (“Markets: Xi’s Terrible Virus Quandary”) I explained the problem this way and I’ve marked it up so you can see we’ve gone to “Markets: Trump’s Terrible Virus Quandary:” Search and replace function news, here we go…
“You don’t want to be the President of
China the U.S. this week. Xi Jinping Donald Trump is walking the edge of a razor with his country.
IF he lets everyone in quarantine go back to work
this next week, he will save exports, diminish global supply chain impacts and keep the global economy from imploding.
BUT if everyone goes back to work – and we already know the quarantines are not long-enough based on video leaks – THEN
Xi Trump will face an even BIGGER problem when the back-to-work crowd begins spreading the disease like wildfire.
ADDING to the mess, Apple is already out with lower revenue guidance because cell phone sales are cratering in
China the U.S. due to product delays.
We hate to mention it, but how long does the virus remain active on surfaces of goods (and packaging)? This is one data point where the CDC guidance has been woefully lacking. (4/17 note – the guidance is still weak…)
My consigliere pointed out three weeks back (or longer) while governments are putting on the “happy-face” and telling people not to worry, behind the scenes it has been apparent to us that utter panic is afoot….”
Despite all the hoarding and all the hype, and all the checks (loans against tax refunds to come) not a hell of a lot has changed since mid February.
The taxpayer screw-job comes in April 2021, safely after the elections. Suckah’s!!!
Yet another “Quick! Look surprised!!!”
The Stupid “Peak Debate”
Is the problem gone? Nope. And I have to whole-heartedly agree with conservative talk show host Dr. Michael Savage who (unlike the spring breakers and the political hacks on the right who see the pandemic as a political hoax) when he calls out the misleading noise from the right. The New York Times syndicated story in the Chicago Trib over here gets it refreshingly right.
Now, let’s see whether going back yet makes sense when we look at the data, OK?
You make the call – to me? Still looks like the spread rate is too high. But let’s see what the non-medical, non-statistical, political class is trying to make of this, shall we? Meanwhile…
Meanwhile, we ought to sail through 2.2 -million cases later on today. And in terms of our outlook?
The “social distrancing” moves have moved the “run out of people point” out to mid-September. And while there’s little evidence for “equal midpointing” that would place the length of Wave 1 at 8-months, so the midpoint would be four month, so middle of May…but only valid if the reopening is done on a reasonable basis and people keep up distancing. Otherwise, seems clear that restarting too fast or without due caution turns into the incept point for Wave 2…
Dow futures are still up 700 points at click-time. With the impacts of the virus, collapse of economic fundamentals and no certainty on reopenings, we sense that Chairman Mugabe-Powell has a fair shot….until someone besides us notices the dollar is on fire.
WSe’ll cherck testosterone *(and IQ) levels right before the close. Holding over the weekend smells like a fool’s game…especially if the Fed runs out of ink.
Tough choice to ponder: Paper products: Allocate for T.P., Masks, or Money?
Write when you get rich (and well),