for MN Gordon
Economic prism
The vast herd of investors is a deluded crowd. After Wednesday’s expected 75 basis point rate hike by the Federal Reserve, major stock indexes jumped higher.
Optimistic investors weighed in on the Federal Open Market Committee’s (FOMC) statement and, in particular, on the comment that the Fed, “will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects the “economic activity and inflation and the economy. and financial evolution”.
In some ways, this was perceived as the precursor to a political pivot. However, during the press conference following the FOMC statement, Powell clarified that “It is very premature to think about taking a break.”
Then the stock fell off a cliff. The Dow Jones Industrial Average (DJIA) closes the day with a loss of 505 points.
Will there be a pivot, a pause or no pivot? This is the wrong question to ask. The reality is that the major stock indexes have much more to fall before the bear market ends, regardless of whether the Fed pivots soon.
If you remember, the Fed started cutting interest rates in September 2007. However, the stock market didn’t bottom out until March 2009. Similarly, the Fed started cutting interest rates interest in January 2001. However, the stock market did not. funds until October 2002.
So, using these two most recent bear markets as a guide, once the Fed finally starts cutting interest rates, which would come after inflation has started to decline and a period of interest rate hiatus, the stock market it will continue to fall for another 18 to 18 years. 22 months
In other words, this bear market may not bottom out until well into 2025. Also, the entire dollar-based financial system will likely explode before then.
How’s that for a sad outlook?
Investors, as you can see, are incredibly twisted by the Fed’s money games and how they have enhanced the peaks and valleys of the stock market.
As for workers and voters, many have no idea of the ramifications for the real economy on Main Street.
Here’s why…
no clue
Fiscal policy, unlike monetary policy, is easier for workers and voters to understand. Income taxes, budget deficits, national debt.
These are all real things that the average person of means and moderate mental capacity can pick up, if they care to.
The effects of zero interest rate policy (ZIRP) or quantitative easing (QE), however, are less obvious to the casual observer. Politicians can make flippant comments about consumer price inflation if they think it will win them points with voters. But the actual policies of currency degradation are seldom mentioned.
Workers certainly experience the wild central bank booms and busts that caused price distortions. Yet few have ever traced the genesis back to the Federal Reserve. Instead, they see what appear to be extreme price increases and blame the producers.
For example, workers may falsely condemn capitalism for rising prices, especially when provoked by populist politicians. However, they never scratch below the surface where the Fed’s credit and money games are hidden. If they did, they would find a system that stacks the deck against them.
Take the wage worker. As he goes about his day to day life, he may find that despite working harder and harder, his luck in life never improves. In fact, it may even backfire.
But many do not recognize the hard monetary policy as reasons for their disappointment. The erosion of purchasing power can be subtle over long periods. Moreover, the effects of currency debasement policies extend to all corners of the economy.
Take the recent college graduate, earning a living wage at a coffee shop franchise, buried in less than $50,000 in student loan debt. He may be deeply aware that something is radically wrong. You may even ask, “How come the cost of the school is so different from the value it offers?”
However, many college graduates will not correlate the student loan debt bubble, or the massive construction boom on college campuses, with the Fed’s massive credit creation machine. Nor will they contemplate the broken promises that led them down such a futile path. Rather, they are looking to the president, like an ancient Egyptian pharaoh, to cancel their debts.
Give me my Stimmy
Likewise, voters can celebrate a stiff new paycheck, while scorning greedy capitalists for making their daily cup of coffee so expensive. Some will even use their free government money to buy a “GIMME MY STIMMY” t-shirt. Yet few will bother to ask, “Where does the money come from?”
The answer, of course, is as hollow as it sounds. In other words, it was created out of thin air.
Still, most Americans are unable to put two and two together. In fact, this week there was some spectacular evidence showing that most Americans are, in fact, slightly retarded.
What are we talking about?
The following Newsweek headlines will leave you questioning the enlightenment of democratic government…
“Most Americans Support New Stimulus Controls to Fight Inflation”
The Fed’s ingenuity certainly works very well when suppressing consumer prices during a multi-decade experiment in globalization and increased international trade. The Fed can get away with debasing the currency to juice financial markets and fund bloated government spending programs when cheap, imported goods fill the shelves of Costco and Walmart. The workers are none the wiser.
But after flooding the economy with more than $5 trillion to combat the effects of despotic coronavirus lockdowns, the Fed has produced a problem that won’t go away. The money is out, chasing higher prices. But most Americans want tighter controls to combat it somehow.
At the same time, a geopolitical shift is reversing the globalization trend of 50 years. This structural change in the economy will drive prices higher for decades to come. Raising interest rates several percentage points won’t cut it.
Obviously, the entire responsibility for the financial malaise of the general population cannot be assigned to the Fed. Lethargy and laziness remain the main culprits behind many people’s immobility.
Poverty, remember, for most people who live with it, is more of an attitude than an economic condition. Giving someone free money does nothing to adjust their attitude of poverty. On the contrary, it reinforces their dependence.
We have seen how industriousness and ingenuity can still overcome ZIRP. Although for wage earners this is an increasingly difficult task. What good is a 3% wage increase when the official consumer price inflation rate is 8% and the real inflation rate is over 16%?
Are you ready for the impending US government default?
The point is that, more than anyone else, the chairman of the Fed, Jay Powell, has his fingerprints all over the current consumer price inflation and the now destructive rate hikes meant to contain it. The Fed’s efforts to smooth out the peaks and valleys of the business cycle and keep the money flowing in its private banks have had the ill effect of increasing them.
The consequences for workers, savers and retirees are notably damaging. Moreover, as the current financial order strives to preserve the status quo, the level of intervention in the economy and financial markets will continue to grow like mold spores on wet plasterboard. Radical policies will be drawn up to cover the shortcomings of previous mistakes.
The US national debt has topped $31.2 trillion. Throw in the debt of households, businesses, state and local governments, and financial institutions, and you’re looking at a total US debt of more than $92.9 trillion.
As the Fed raises interest rates to contain the raging inflation it has created, the cost of servicing the public debt rises. Total US tax revenue is approximately $4.9 trillion. Total interest paid in the US is over $3.4 trillion. Before long, 100 percent of tax revenue will be needed just to pay the interest on the debt.
so what?
The popular American myth is that the US government has never defaulted on its debt. Frankly, this is an unadulterated lie. The US government has (unofficially) defaulted on its debt twice in the last hundred years.
Executive Order 6102 of 1933, which required all US citizens to surrender gold coins and bullion, was in fact a default. Gold ownership in the United States, with some minor limitations, was illegal for the next 40 years.
Under EO 6102, Americans were compensated $20.67 per troy ounce of gold. They were paid in paper dollars. Immediately following the government’s gold seizure, the price of gold was raised by the Gold Reserve Act of 1934 to $35 per ounce. Thus, American citizens were robbed of more than 40 percent of their wealth.
The second breach occurred in 1971, when President Nixon “temporarily” suspended the convertibility of the dollar into gold.
Before 1971, as determined by the Bretton Woods International Monetary System, which was agreed upon at Bretton Woods, New Hampshire, in July 1944, a foreign bank could exchange $35 with the US Treasury for one troy ounce of gold . After the US reneged on this established exchange rate, when foreign banks gave the US Treasury $35, they received $35 in return.
In both cases, the US government did not openly default on the debt. Instead, it changed the fundamentals (the terms and conditions) of the dollar. By all honest accounts, these are the defaults.
What dirty trick does Uncle Sam have up his dirty sleeve this time?
One possible scam is the issuance of a digital dollar, a central bank digital currency (CBDC) issued by the Fed or government that is traceable and programmable. When entered, your accounts will be credited one by one, like a federal reserve note for a digital dollar. But what you can buy in return with your digital dollars will be much less.
You see, the deployment of the digital dollar will provide elaborate coverage.
Make no mistake. This is a default value. And it comes much sooner than you think.
Are you ready?
Read the full article at Economic Prism
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Published on November 7, 2022
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