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The Federal Reserve has been increasing the money supply at an explosive rate. The federal budget, deficits, and the trade deficit are record levels. Governments, both foreign and domestic, have locked down people, restricting production and consumption. How should this be viewed by an economist?

There is clearly chaos in the economy, and hardly a day goes by when I don’t find unusual if not unprecedented situations in day-to-day economic life. However, many people and economists are either oblivious to the problems or in denial. Things are normal for them. Politicians are mostly in this camp. For economists and investment promotors, inflation is “transitory.” They don’t know how the economy works and they expect near perfection from the economy and entrepreneurs. This view is wrong.

The chaos is all too real for most others. Homemakers who spend household income are seeing their purchasing power shrink, their choices disappearing, and more of their time consumed stretching the family budgets. Christmas shopping will be worse than normal.

Chaos deniers are further entrenched in their experience by the mainstream media (MSM). The problems are either not reported by the MSM or are masked by aggregate statistics like price inflation, i.e., the Consumer Price Index, low unemployment, wage increases, and extremely high stock markets and real estate, especially housing prices. These stats make people feel good, or at least less nervous.

Below the government economists’ radar there is real economic suffering. Small businesses are hurting and going out of business. Based on Help Wanted signs I drive by every day, it is extremely difficult to hire employees or purchase inputs. One local BBQ restaurant recently had a sign that said, “Out of Chicken, Pork and Beef.”

…click on the above link to read the rest of the article…

Are We Really Crazy Enough to Believe This Is Going to Work?

October 15, 2021

Are We Really Crazy Enough to Believe This Is Going to Work?

Unbeknownst to the giddy participants, they’re not just betting on the omnipotence of the Fed Politburo, they’re also making a max-leverage bet that “the madness of crowds” will never end.

Imagine an economy so dominated by its central bank that all markets hang on every word of its priesthood as life or death. You know, like the Federal Reserve and the American economy.

Now imagine this central bank issues enormous sums of new money which supercharges speculative activity such as hundreds of billions of dollars in stock buybacks, special purpose acquisition casinos, oops, I mean companies, and so on. You know, like the Federal Reserve’s trillions in nearly free money for financiers.

Next, imagine that the central bank makes barely concealed promises that should any big gambler lose money in the casino, the bank will flood the financial system with even more nearly free money for financiers and bail out the loser.

Since flooding the system with nearly free money for financiers keeps the speculative frenzy going, the bank has implicitly promised that assets driven higher by speculative frenzy will never be allowed to drop. This promise naturally incentivizes even more speculative borrowing, leverage and risk, generating a titanic Everything Bubble in which risky assets skyrocket from pennies into dollars and dollars into fortunes.

Now imagine that this speculative frenzy spreads into every nook and cranny of the economy such that everyone is drawn into one casino or another, and previously sober, cautious people are seized by a quasi-religious fervor in which they become convinced that their gambling chips on NFTs, SPACs, meme-stocks, obscure alt-coins, homes, collectables and pretty much anything within the manic swirl of speculative frenzy is now a can’t lose path to carefree permanent wealth because the central bank guarantees it and anyone who questions this is in league with the Devil (or worse).

…click on the above link to read the rest of the article…

Lies, Lies & More Lies from the Financial Press

October 15, 2021

Lies, Lies & More Lies from the Financial Press

COMMENT: Marty; the Fed quietly published the banks it was funding in the Repo Crisis. I just wanted to say, you are always right. The press claimed it was tax time, but you said it was the crisis in European banks. Your sources are always spot on. Thanks for the light of truth.

REPLY: Yes, that story that the liquidity crisis occurred because US corporations withdrew large amounts from the banks in order to make quarterly tax payments was the most absurd propaganda I ever heard. Why then do we not see the same liquidity crisis event during tax season?

The bulk of the loans covered foreign banks, as well as Goldman Sachs and JPMorgan Securities. It was all driven by the simple fact that Merkel said there would be no bailout for Deutsche Bank, which was the major derivatives counterparty problem involving Wall Street. Deutsche Bank had a major derivatives book, and if it failed, it would have taken down US banks. Deutsche Bank was in crisis and then it was too big to merge with Commerzbank. They had to lay off nearly 20,000 staff and a major effort was undertake to try to isolate its toxic assets.

That is why the Fed had to step in as the market maker to bail out Europe for US banks all backed off. I really do not know who makes up these stories to try to hide the truth. But they always do in hopes of preventing panics. This time, the game is up.

Here’s Why the Housing Market Has Gone from Overheated to Raging Inferno

October 10, 2021

Here’s Why the Housing Market Has Gone from Overheated to Raging Inferno

Image credit: Creative Commons (CC0)

The housing market is on the verge of spinning out of control. Just about everything that could be going wrong is going wrong.

The only holdout for the moment is home prices, which are up an astonishing 22.5% just this year. For many homeowners, that’s great news. Home equity is a huge source of wealth for middle-class Americans. And when home prices are high (just like when stock prices are high), you feel wealthy.

Unfortunately, like stocks, home prices can drop like a rock at a moment’s notice. That’s one lesson we learned all too well in 2008. Another Great Recession-type plummet in home prices forces many buyers underwater, stranding them with an asset they overpaid for and can no longer afford, and can’t even sell.

Let’s start our brief examination of today’s overheated housing market by taking a glance at how the Fed has been propping it up so far.

How the Fed props up housing prices

The Fed employs various financial interventions to coax the economy in the direction they choose. We know the words: quantitative easing. Lowering interest rates. Repo and reverse repo. Obscure financial hocus-pocus that nevertheless moves markets worldwide.

When it comes to the housing market, the Fed doesn’t need to do anything fancy. They just create artificial demand for mortgage-backed securities (MBS, also known as one of the notorious “toxic assets” that poisoned the U.S. in 2008).

Mike Shedlock revealed the trick:

In a single week the Fed added $22 billion in mortgage backed securities, nearly all of which had a duration of 10 years or longer. This is an ongoing process despite major subtractions via reverse repos. In the process, the Fed gooses housing by extending the duration of the assets it does hold, effectively lowering long-term interest rates in the process.

…click on the above link to read the rest of the article…

Life’s a Beach Until the Tsunami Hits: Four Waves Nobody Cares About–Yet

October 9, 2021

Life’s a Beach Until the Tsunami Hits: Four Waves Nobody Cares About–Yet

Four monster waves are about to crash onto the Fed’s beach party and sweep away the unwary revelers.

Hey, is the water in the bay receding? Never mind, free drinks are on the Federal Reserve, so party on, life’s a beach, asset bubbles will never pop, we’re safe. Of course you are. The Fed is all-powerful and would never let a rogue wave turn all its precious phantom wealth into broken detritus.

The water is fast receding and a wave is visible if you care to look, but nobody cares to look. Why bother? The Fed is invincible, that’s all you need to know to mint another fortune.

Just to keep life interesting, let’s look anyway. Gordon Long and I discuss four monster waves that are about to crash onto the Fed’s beach party and sweep away the unwary revelers:

1. Declining liquidity: while everyone is focused on the Fed’s ceaselessly repeated reassurance that the liquidity spigot will never be closed, never ever ever, so party on, asset bubbles will never pop, never ever ever, other central banks have already started reducing global liquidity while domestically, the Treasury General Account (TGA) is soaking up liquidity to fund the federal government’s monumental deficit spending.

2. Declining global growth: long before the pandemic swept ashore in 2020, global growth was faltering: the business cycle had not been abolished, despite Fed assurances that growth and asset bubbles will continue expanding until they reach Alpha Centuri and beyond (Dow one trillion, yowza baby!), growth by any conventional measure (PMI, ISM, industrial production, global trade flows, etc.) had stagnated or rolled over.

…click on the above link to read the rest of the article…

Is The Small Business Sector Being Deliberately Targeted for Destruction?

October 8, 2021

Is The Small Business Sector Being Deliberately Targeted for Destruction?

Photo by Stephen Paris

The past 18 months have not been kind to small businesses. If you were unfortunate enough to live in a blue state during the onset of the covid lockdowns and you own a brick-and-mortar business then you have probably spent a large part of that 18 months closed, or struggling to stay open with a skeleton crew of employees. If you did manage to get a PPP loan from the government during shutdown you are now realizing that the 24-week grace period is running out and you will probably have to pay most if not all of that money back soon. Many who tried to get a PPP loan failed because the money was quickly chewed up by major corporations instead of being reserved for small businesses.

And this isn’t even the beginning of the list of troubles for small companies. I have to say, unless a large part of your business is handled online your chances of staying solvent are slim. This is not the fault of most business owners, though, it is a consequence of artificially created conditions and restrictions.

What do I mean by this? Well let’s look at some factors that many people might not be aware of…

Here’s why small businesses are suffering

For example, both state and federal governments have been offering some level of covid unemployment stimulus. In the case of federal programs this could amount to $300 extra a week on top of a person’s existing unemployment checks, even more if their state has a separate program. This has created a massive drought in the employee pool. No one wants to work when they can stay home, do nothing and make more money than they ever were before the pandemic…

…click on the above link to read the rest of the article…

Like The Dance Band On The Titanic, The Band Plays On

October 8, 2021

Like The Dance Band On The Titanic, The Band Plays On

As The Ship Goes Down The Band Plays On

It is said the dance band on the Titanic played on as the ship went down. This was all done as a grand effort to reassure the passengers and ease the panic in their hearts. Consider the possibility that behind all the noise we hear today a similar effort is being made to comfort us and take your attention off the hopeless feeling that comes when things sink away beneath your feet. For the last several months I have come to feel a similar story is playing out here. The Biden-Yellen-Powell economy is less than inspiring.Looking back, it is clear the Fed’s policies have hurt savers, It has caused savers to flee towards riskier investment in search of higher yields, driven speculation, increased equality, add added to inflation. Rather than using the bully pulpit and warnings of higher interest rates to keep government spending in check, the Fad has acted as an enabler to the crowd in Congress that loves nothing better than to sending taxpayer money back home calming it is a gift and proof they are “working hard for their district.”

With historically low-interest rates, rising inflation, and many consumers struggling to make ends meet. The economy is at a place where there is not much capability to increase consumption without throwing money from a helicopter and massively increasing the national debt. The problem with that is such stimulus programs are poorly focused. As we look about in this post-pandemic covid-lite era we see supply chains crumbling, stagflation mounting, and jobs being lost to automation. These are all immense problems even in the best of times.

…click on the above link to read the rest of the article…

My “Wealth Effect Monitor” for the Money-Printer Economy: Holy Moly, October Update

October 6, 2021

My “Wealth Effect Monitor” for the Money-Printer Economy: Holy Moly, October Update

The bottom 50% need not apply. They just get to eat the soaring costs of housing. How the Fed totally blew out the already gigantic wealth disparity during the pandemic.

On Friday, the Fed released the detailed data about the wealth of households by wealth category for the 1%, the 2% to 9%, the “next 40%” (the top 10% to 50%) and the “bottom 50%” for the second quarter, after having released less detailed figures on September 23. You read the stories at the time about how the Fed’s money-printing and interest-rate-repression has enriched American households.

But the detailed data, just now released, show whose wealth jumped the most, and who got left endlessly further behind. It wasn’t households in general that benefited, but only the richest households with the most assets. The more assets they had, the more they benefited.

My Wealth Effect Monitor divides the wealth (assets minus liabilities) for each wealth category by the number of households in that category, which produces average per-household wealth within each category. The wealth of the bottom 50% is reflected by the jagged green line on the bottom, essentially on top of the horizontal axis:

Not shown separately are the truly rich – the 0.01% – and the Billionaire Class. The Fed wisely doesn’t provide any information on them separately, but includes them in the Top 1%.

But according to the Bloomberg Billionaires Index, the top 30 US billionaires are worth on average $69 billion per household currently, having gained on average $2.2 billion in wealth each over the quarter.

The bottom 50% of US households (green line above) – 63.2 million households – are worth on average $47,900 per household. But this includes $25,970 in “durable goods” (cars, phones, furniture, etc.), which for consumers are normally considered consumables, not assets, because their values are declining, and they don’t produce incomes.

…click on the above link to read the rest of the article…

Peter Schiff: Government Serves Grade-A B.S. on Inflation

October 5, 2021

Peter Schiff: Government Serves Grade-A B.S. on Inflation

OCTOBER 5, 2021 BY SCHIFFGOLD 0 0

Both the Federal Reserve and the Biden administration continue to insist inflation is transitory. And they are also trying to shift the blame for rising prices so they avoid any responsibility. In this clip from his podcast, Peter Schiff explains why the government inflation narrative is Grade-A B.S.!

The Fed has finally acknowledged that inflation is running hotter than they’d expected. During the September FOMC meeting, the central bank raised its forecast, anticipating core inflation to increase 3.7% this year. That compares with a 3% projection in June. But the Fed and US government officials insist that rising prices are simply a function of supply chain issues and that it will be “transitory.”

Meanwhile, they ignore the elephant in the room – the increasing money supply. The central bank created new money at a record pace in response to the economic chaos caused by government shutdowns for COVID-19. And while money creation has slowed in recent months, it continues at a very high pace. Last month, M2 grew at the fastest rate since February.

If inflation is always and everywhere a monetary phenomenon, and you have this record increase in money supply, and then you also have this big increase in consumer prices, how can you not bring up the possibility that all of this money printing is potentially responsible for prices going up?”

But the central bankers continue to focus solely on the supply chain.

Peter suggested the money printing could account for the supply chain problems.

Whenever there is a surplus of money, there is automatically a shortage of stuff, because the government can print money very easily…

…click on the above link to read the rest of the article…

The Market Crash Nobody Thinks Is Possible Is Coming

September 30, 2021

The Market Crash Nobody Thinks Is Possible Is Coming

The banquet of consequences is being served, and risk-off crashes are, like revenge, best served cold.

The ideal setup for a crash is a consensus that a crash is impossible–in other words, just like the present: sure, there are carefully measured murmurings about a “correction” but nobody with anything to lose in the way of public credibility is calling for an honest-to-goodness crash, a real crash, not a wimpy, limp-wristed dip that will immediately be bought.

What I’m calling for is a rip your face off, weeping bitter tears over the grave of the speculative wealth that you thought was forever crash. All those buying the dip because the Fed will never let the market go down will be crushed like scurrying cockroaches and all those trying to rotate into the next hot sector or asset class will also be crushed like scurrying cockroaches because when the Everything Bubble pops, well, everything pops. There is no shelter in a risk-off cascade.

The crash is coming as a result of multiple mutually reinforcing dynamics, the first being that no “serious person” believes a crash is possible, much less imminent. In no particular order, here are a raft of other causally consequential triggers of a cascading market crash:

1. As I noted in my call for the top, Is Anyone Willing to Call the Top of the Everything Bubble? (September 6, 2021), there is no history to support the widespread confidence that the extremes of over-valuation, leverage, euphoria and speculation last forever, or even much longer than the lifespan of a cockroach. We’re well past that benchmark into unprecedented insanity. So what happens next: squish.

Just for the record, the Dow topped out on August 13, the S&P 500 topped out on September 2 and the Nasdaq topped out the day after my call, September 7. (Close enough for gummit work…)

2. The credibility of the Federal Reserve is in the dumpster, which just caught fire. As I explained in The Fed Is Fatally Corrupt– And So Is the Rest of America’s Status Quo (September 10, 2021), the Fed is corrupt on multiple levels–thoroughly, completely corrupt, and so are all its minions, proxies, apparatchiks, toadies, apologists and lackeys.

…click on the above link to read the rest of the article…

“Transitory” is the New Spandex: Powell Admits it, Still Denies its Cause. Why this Inflation Won’t Go Away on its Own

September 30, 2021

“Transitory” is the New Spandex: Powell Admits it, Still Denies its Cause. Why this Inflation Won’t Go Away on its Own

Blames tangled-up supply chains but not what’s causing supply chains to get tangled up in the first place: The most grotesquely overstimulated economy ever.

Fed Chair Jerome Powell, during a panel discussion hosted by the ECB today, admitted again that inflation pressures would run into 2022 and blamed “bottlenecks and supply chain problems not getting better” and admitted they are “in fact at the margins apparently getting a little bit worse.”

“The current inflation spike is really a consequence of supply constraints meeting very strong demand, and that is all associated with the reopening of the economy, which is a process that will have a beginning, a middle and an end,” he said.

OK, good, he almost gets it: “very strong demand” is causing this. But where the heck does this “very strong demand” come from?

Here’s where: The most grotesquely overstimulated economy ever.

The Fed has handed out $4.5 trillion to investors in 18 months, and repressed short-term interest rates to near 0%, and long-term interest rates (via the $120 billion a month in bond purchases) to ridiculously low levels, and this has inflated asset prices, including home prices, and beneficiaries are feeling rich and flush, and they’re going out and borrowing against their assets and buying $70,000 pickup trucks, electronic devices, yachts, second and third homes, and a million other things. That’s where much of the demand comes from.

The other part of the demand comes from the government, which spread $5 trillion in borrowed money around over the past 18 months – stimulus checks, forgivable PPP loans (over $800 billion), extra unemployment benefits, funds sent to states to spend how they see fit, to airlines and other big companies to bail them out, which then used this money to buy out their employees that then spent this money.

…click on the above link to read the rest of the article…

If the Fed Can’t Hit It’s Inflation Target, Why Not Just Move the Goalposts?

September 29, 2021

If the Fed Can’t Hit It’s Inflation Target, Why Not Just Move the Goalposts?

The Fed has an inflation problem.

The CPI is running well above the mythical 2% target and there isn’t any sign that it will ease soon. To deal with this problem, the central bank should tighten its monetary policy. But that would create a whole new problem, given that it can’t tighten in this economic environment. So, what is a central banker to do?

Well, if the Fed can’t hit the target, how about just moving the target?

That idea is apparently seriously being considered.

In a Wall Street Journal article, Greg Ip floated the idea.

One strategy [Powell]—or his successor—should consider in that eventuality is to simply raise the target.”

Ip buys into Keynesian economic voodoo and thinks straitjacketing the Fed with a 2% inflation target will hinder job creation.

Why would higher inflation ever be a good thing? Economic theory says modestly higher, stable inflation should mean fewer and less severe recessions, and less need for exotic tools such as central-bank bond buying, which may inflate asset bubbles. More practically, if inflation ends up closer to 3% than 2% next year, raising the target would relieve the Fed of jacking up interest rates to get inflation down, destroying jobs in the process.”

In a sense, the Fed has already raised the inflation target. Not so long ago, it was a hard 2% target. But the COVID-19 pandemic gave the Fed just the excuse it needed to move the inflation goalposts.

Jerome Powell announced the shift to “average inflation targeting” during his Jackson Hole speech in August 2020. In effect, the Fed will allow the CPI to run “moderately” over 2% “for some time” to balance out periods where it runs under that level.

…click on the above link to read the rest of the article…

Senior Fed Economist Slams Economics As “Arrant Nonsense”, Hints It Perpetuates “Criminally Oppressive, Unjust Social Order”

September 27, 2021

Senior Fed Economist Slams Economics As “Arrant Nonsense”, Hints It Perpetuates “Criminally Oppressive, Unjust Social Order”

For some “inexplicable” reason central bankers usually wait until after they part ways with their employer before they tell the world all the dirt on their former employer (not that the world seems to care much or, for the most part, understand their criticism with a majority of Americans thinking that the Federal Reserve is a natural park).

One such example is former BOE head Mervyn King, and the man who started QE in the UK, who now is a member of the committee that slams QE. Another example is Andy Haldane who two months ago gave his final speech as the Bank of England’s chief economist. His departing remarks, as TS Lombard put it, were a scathing attack on modern central banking, which he said had created the “most dangerous moment inflation targeting has faced so far” – a “Minsky moment for monetary policy”. Other prominent economists – including Larry Summers, Charles Goodhart and Olivier Blanchard – have expressed similar views, although all after quitting their jobs and becoming freelancers.

In the US, such a level of honesty is more rare because former central bankers usually end up working for hedge funds (the former head of the Fed’s plunge protection team Brian Sack works for DE Shaw, Ben Bernanke works for Citadel, etc) and as such they try not to make any big splash in public and attract attention to their employer, (furthermore why give out free soundbites in public when they can charge $250,000 an hour to do so in private).

…click on the above link to read the rest of the article…

The Biggest Federal Reserve Scandal

September 27, 2021

The Biggest Federal Reserve Scandal

Following revelations that Federal Reserve officials made trades in financial assets while the Fed was taking extraordinary efforts to “stimulate” the economy, Federal Reserve Chairman Jerome Powell ordered a review of the Fed’s ethics rules. While these trades appear problematic, they pale in comparison to the biggest Fed scandal — the Fed’s impoverishment of ordinary Americans, enrichment of the elites, and facilitation of government debt and deficits.

The depression induced by coronavirus, though really caused by so-called public health actions government took in response, was the official reason for the Fed’s increased asset purchases last year. However, the Fed actually started ramping up its money creating activities in September of 2019, when it began pouring billions a day into the repo markets, which banks use to make short-term loans to each other, in order to keep repo market interest rates low.

Coronavirus was just a convenient excuse for the Fed to do more of what it was already doing. Now, the Fed is using the limited reopening as a scapegoat for rising prices. Of course, anyone who understands Austrian economics understands that rising prices are a symptom, not a cause, of inflation. Inflation is the very act of money creation by the Fed.

Rising prices that diminish the average American’s standard of living are not the only result of the Fed’s manipulation of the money supply. The manipulation distorts economic signals, producing results including booms, bubbles, and busts.

Inflation has always benefited the well-connected elites who receive the Fed’s newly created money before the new money causes widespread price increases. The true motivation behind Fed policies was revealed by former Fed official Andrew Huszar in 2013. Huszar, writing for the Wall Street Journal, confirmed that quantitative easing kept stock prices high, instead of helping Americans struggling with the aftereffects of the 2008 meltdown.

…click on the above link to read the rest of the article…

Before They Were An Inconvenience, But Now The Shortages Are Really Beginning To Sting

September 24, 2021

Before They Were An Inconvenience, But Now The Shortages Are Really Beginning To Sting

Have you noticed that store shelves are starting to get emptier and emptier? During the panic shopping that was sparked by the start of the COVID pandemic in 2020, there were very intense shortages of certain items, but those shortages did not last very long at all. But now there are widespread shortages in just about every sector of our economy, and they are starting to become quite painful. Unfortunately, we are being told to expect the shortages to intensify as we head into the holiday season. That is extremely alarming, because in many areas the shortages are already quite severe.

I had been away from the news for a couple of days, and when I came back there were lots more stories about our ongoing shortages. For example, the following comes from an excellent piece by Matt Stoller…

There are shortages in everything from ocean shipping containers to chlorine tablets to railroad capacity to black pipe (the piping that houses wires inside buildings) to spicy chicken breasts to specialized plastic bags necessary for making vaccines. Moreover, prices for all sorts of items, from housing to food, are changing in weird ways. Beef, for instance, is at near record highs for consumers, but cattle ranchers are getting paid much less than they used to for their cows.

In my entire life, I have never seen anything like this.

Even the Federal Reserve is admitting that we have a major problem at this point. In fact, in the latest Beige Book the Fed referred to the shortages a whopping 80 times.

In certain parts of the country, these shortages are really beginning to sting. A reader just emailed me about what is going on in his section of Connecticut, and he said that I could share this with all of you…

…click on the above link to read the rest of the article…

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