/View.info/ ✔The situation is slightly unstable.
The problem that market participants don’t think about is this. The combination of the most advanced world economy and the US economy in the history of our planet, record low interest rates (the lowest in human history), the largest disruptions in global energy supplies, and direct and indirect attacks on our food webs have combined , not to mention the sanctions against Russia and therefore Ukraine – the two main food exporters. The consequence of all this is the highest inflation in four decades… Oh, and this was BEFORE the Russians went hunting for biolabs in the Ukraine and the resulting fallout.
The result…
Real wages fall, like a teenager’s summer vacation after a bottle of Kalashnikov vodka.
The problem with the suitors at the Federal Reserve is that they think they can cut inflation by destroying demand. Disrupting the demand they are trying to achieve causes a negative wealth effect. They think this will ease inflationary pressures. They even suggest deflation of fuel and food prices.
Think about it. In a recent statement, Governor Waller said:
“For several meetings now, I have been in favor of tightening policy by another 50 basis points. In particular, I don’t rule out a 50 basis point hike until I see inflation get closer to our 2% target. And toward the end of this year, I support keeping the key interest rate above neutral to reduce demand for goods and labor, bring supply into line, and thus curb inflation.”
Now, if we step out of the ivory tower world of centralized planning, out there in the real world, the West is at war with Russia and Ukraine, which together produce a staggering amount of both food and fuel.
There is no solution to end this war. In any case, central planning encourages it.
What does this mean for fuel and food supplies?
Despite what the Federal Reserve may do with interest rates, this will persist. Of course, demand will be destroyed because inflation eats away at disposable income. But it is food, fuel and blood that lie at the foundations of well-being. They are significantly more inelastic than smartphones, soy lattes and, no doubt, pictures of monkeys.
What will governments do?
They will slip money in one form or another. The British are already doing this. How do they get funding for this? Good question. Taxing energy companies with an additional tax of 25%. Ingenious! I will refrain from telling you how idiotic this is for now and move on to the other measures that will most likely be passed by the government and then we will see how it affects the bond market.
To pay for the subsidies, the bigwigs in Washington will want more cash to be generated, which will require the issuance of more Treasuries because of the growing budget deficit.
Who will buy these bonds? It won’t be foreign central banks.
No. Do you remember the thefts, the “frozen” reserves of the Central Bank of the Russian Federation? It was a shot that was only fired once, but because of that shot, every nation on planet Earth knew it.
The consequences are obvious. If at some point we don’t like your position, even if that position is in the best interests of your own citizens, we will punish you. I think they won’t act accordingly – it’s for mentally challenged people.
The critical point is that foreign central banks, seeing what happened to Russia, will reduce their purchases of US Treasuries. By the way, they have their own problems to deal with.
Stagflation is global in nature, and especially in emerging markets, they struggle with a strengthening dollar while income is generated in the local currency. They don’t seem to have heaps of caches floating around for them to look for. They also don’t have the ability to issue Treasury bonds like the US. Of course, there is a domestic (US) market that realizes that the value of the banana is higher than last week…and they think that maybe the whole “temporary” thing might be some kind of wildness.
So – who will buy them? Things are about to get really crazy.
At any moment we will face “wartime” economics.
Of course, central planning will benefit from this.
And in a wartime economy, central banks lose their independence and merge with the government, which means they merge with the Treasury. It will happen any moment. When? I’m not sure, but I’d be surprised if it took more than 12 months.
When it does, two things will happen. Bonds will fall, and that will happen when gold finally gets a supply. It’s still cheap. This can’t go on. At this point, central banks and central planning will find themselves in a real trap. They will fall into the trap of their own attempts to blow up the economy with the help of the patently false talk of the coronavirus, the inability to contain or fully realize the consequences of the disruption of global supply chains (which cannot be rebuilt just like that), the inability to contain stagflation and, as a consequence, an increase in social unrest and economic depression caused by them. But more than anything, they will be trapped by their own inability to put out the world’s biggest debt fire.
The collapse of the financial market along with unstoppable stagflation will result from the collapse of the paper money system, which has become a credit system operating under the conditions of the greatest hoarding of credit and money printing in the history of mankind.
We’re getting close, be ready. I think this bodes well for a once-in-a-hundred-years event.
Translation: V. Sergeev
#wartime #economy #ensues
