Category Archives: Financial markets

The Fed Isn’t Fighting Inflation, It’s Fueling It, by Mike Whitney

The Federal Reserve is taking baby steps to combat the price inflation it has caused. From Mike Whitney at unz.com:

Credit: Jesse’s Cafe American – https://jessescrossroadscafe.blogspot.com/
The media would like to believe the Fed is doing everything in its power to fight inflation, but it’s not true.

Yes, the Fed raised rates by 50 basis points in May and, yes, the Fed is trying to sound as “hawkish” as possible. But these things are designed to dupe the public not to reduce inflation. Let me explain.

The current rate of inflation in the US is 8.6%, a 40-year high.

At its May meeting, the Fed raised its target Fed Funds Rate to 1%. Here’s the scoop:

“The Federal Reserve recently announced that it’s raising interest rates by half a percentage point, bumping the federal funds rate to a target range of 0.75-1.00%.” (The Spokesman-Review)

Got that? So the Fed’s rate is still a measly 1%. That’s what the media is trying to hide from you, and that’s why you might have to read 9 or 10 articles before you find a journalist who provides you with the actual rate.

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Monday is Going to Be Interesting for Stocks, by Wolf Richter

This bear market won’t be over until “buy the dip” is regarded as a bad joke among bedraggled stock speculators. From Wolf Richter at wolfstreet.com:

Still way too much wild craziness, including the ultimate bag-holder gamble: Why the bottom isn’t anywhere near.

I went out looking for blood in the streets Friday evening after the sell-off to see if markets had hit bottom, but there wasn’t any blood. There was instead chatter about the next rally, about what to buy and when. And there was the relentlessly exuberant pump-and-dump meme-stock crowd hoopla-ing DVD rental company Redbox Entertainment, one of the infamous SPACs, and video-streaming service Chicken Soup for the Soul Entertainment, which is going to acquire Redbox, in an utterly ridiculous crazy-wild game with a deadline (we’ll get there in a moment).

That this game is even played – that this utter nuttiness in the markets continues – indicates that there is still way too much exuberance, way too much liquidity, way too much craziness. And the bottom isn’t in until this kind of craziness is snuffed out.

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Protection from a currency collapse, by Alasdair Macleod

Good advice on protecting yourself from a currency collapse from a man who has been warning of it for some time. From Alasdair Macleod at goldmoney.com:

While markets seem becalmed, financial conditions are rapidly deteriorating. Last week Jamie Dimon of JPMorgan Chase gave the clearest of signals that bank credit is beginning to contract. Russia has consolidated its rouble, which has now become the strongest currency by far. The Fed announced the previous week that its balance sheet is in negative equity. And there’s mounting evidence that we have a nascent crack-up boom.

Russia now appears to be protecting the rouble from these developments in the West, while previously she was only attacking the dollar’s hegemony. China has yet to formulate a defensive currency policy but is likely to back the renminbi with a commodity basket, at least for foreign trade. If it is taken up more widely by the members if the Shanghai Cooperation organisation and the BRICS, the development of a new commodity-based super-currency in Central Asia could end the dollar’s global hegemony.

These are major developments. And finally, due to widespread interest in the subject, I examine the outlook for residential property values in the event of a collapse of Western fiat currencies.

The mechanics of an apocalypse

Against the grain of the establishment, for years I have been warning that the world faces a fiat currency collapse. The reasoning was and still is because that’s where monetary and economic policies are taking us. The only questions arising are whether the authorities around the world would realise the dangers of their inflationary and socialistic policies and change course (extremely unlikely) and in that absence in what form would the final crisis take.

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There’s No Stopping a Recessionary Reckoning, by Charles Hugh Smith

The global economy has everything working against it. From Charles Hugh Smith at oftwominds.com:

If there was only one causal factor nudging the economy into recession, it might be a mild, brief recession. But with all five conditions in confluence, this recession will be unlike any other.

Recessions reliably arise from the confluence of these conditions. Note that any one condition can trigger a recession, but no one condition guarantees a recession. Severe, long-lasting recessions occur when multiple conditions arise at the same time.

1. The business cycle. The business cycle reflects human nature interacting with finance: as credit loosens, people borrow more to spend and invest, and this generates a self-reinforcing virtuous cycle of expansion.

Profits expand, speculation is rewarded and the positive vibes notch up to euphoric confidence in future expansion. Enterprises over-order to maintain inventories, hire more staff to expand production and go on a shopping spree, snapping up other companies by issuing more stock or borrowing via the bond market.

In this confluence of greed and euphoria, people over-borrow and put the money into marginal investments and speculations that unravel. Defaults rise, credit tightens, the mood sours and profits tank. Speculations crash, layoffs boost unemployment, consumers trim debt and enterprises work off excess inventory.

This is a conventional business-cycle recession: excesses are worked off and the dead wood consumed by write-offs and defaults. This a healthy process that is required to set the stage for the next cycle of expansion.

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The Coming Global Fracture as Economic Orders Clash, by Michael Hudson

It’s a battle between state-directed economic philosophies. From Michael Hudson at unz.com:

“Taken from an interview with the newly founded German magazine “ViER” which will be published in August 2022.” ViER (FOUR), stands for the media as fourth power in checks and balances).

(1.) Prof. Hudson, your new book “The Destiny of Civilization” is out now. This lecture series on finance capitalism and the New Cold War presents an overview of your unique geo-political perspective.

You talk about an ongoing ideological and material conflict between financialized and de-industrialized countries like United States against the mixed-economies of China and Russia. What is this conflict about and why is the world right now at a unique “point of fracture” as your book states?

Today’s global fracture is dividing the world between two different economic philosophies: In the US/NATO West, finance capitalism is de-industrializing economies and has shifted manufacturing to Eurasian leadership, above all China, India and other Asian countries in conjunction with Russia providing basic raw materials and arms.

These countries are a basic extension of industrial capitalism evolving into socialism, that is, into a mixed economy with strong government infrastructure investment to provide education, health care, transportation and other basic needs by treating them as public utilities with subsidized or free services for these needs.

In the neoliberal US/NATO West, by contrast, this basic infrastructure is privatized as a rent-extracting natural monopoly.

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The Handbook for Debt-Soaked Nations: Lie, Print, Inflate & Finger-Point, by Matthew Piepenburg

Over-indebteded nations rarely engage in anything within field goal range of being an honorable tactic to discharge their debt. From Matthew Piepenburg at goldswitzerland.com:

Below we consider the classic (and oh-so predictable) tactics of debt-soaked nations facing a showdown (corner) between tanking markets and ripping inflation.

Ultimately, I see a stagflationary end-game in which both occur, but for the near-term, prepare for more inflation, as it’s the option all debt-soaked sovereigns are eternally forced to take.

The Cruelest Month

T.S. Elliot famously described April as the cruelest month, but the recent (and ever-unfolding) events of May seem far crueler.

As we have warned from the very onset of this otherwise avoidable war in Ukraine, the backfiring of Western sanctions against Putin (de-dollarization, inflationary tailwinds and increasingly discredited central banks) were not only plain to foresee, but placed the West in an almost comical (yet tragic) scenario in which nations like Germany find themselves sending weapons to the Ukraine while simultaneously sending Rubles to Putin.

How did the world become so hypocritical, dishonest, cornered and silly?

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Recession, prices, and the crack-up boom, by Alasdair Macleod

The two biggest interrelated economic stories are debt and the debasement of fiat currencies. From Alasdair Macleod at goldmoney.com:

Initiated by monetarists, the debate between an outlook for inflation versus recession intensifies. We appear to be moving on from the stagflation story into outright fears of the consequences of monetary tightening and of interest rate overkill.

In common with statisticians in other jurisdictions, Britain’s Office for Budget Responsibility is still effectively saying that inflation of prices is transient, though the prospect of a return towards the 2% target has been deferred until 2024. Chancellor Sunak blithely accepts these figures to justify a one-off hit on oil producers, when, surely, with his financial expertise he must know the situation is likely to be very different from the OBR’s forecasts.

This article clarifies why an entirely different outcome is virtually certain. To explain why, the reasonings of monetarists and neo-Keynesians are discussed and the errors in their understanding of the causes of inflation is exposed.

Finally, we can see in plainer sight the evolving risk leading towards a systemic fiat currency crisis encompassing banks, central banks, and fiat currencies themselves. It involves understanding that inflation is not rising prices but a diminishing purchasing power for currency and bank deposits, and that the changes in the quantity of currency and credit discussed by monetarists are not the most important issue.

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Reckoning With Insanity, Part Two, by Robert Gore

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You don’t have to be David to fight Goliath, and you don’t have to be Atlas to shrug.

Part One

The Russian military doesn’t do shock and awe. It does grind, advance . . . and win. Contrary to Western propaganda, it is well on its way to achieving its objectives in Ukraine. In what looks like a watershed moment, most of the holdouts at the Azovstal steel plant in Mariupol recently surrendered. (The New York Times couldn’t bring itself to use the term “surrender” in its account of the capitulation.) This gives Russia a land corridor on the Black Sea from southwestern Russia to the Crimean Peninsula.

Left to their own devices the Russians and Ukrainians would eventually reach an agreement that leaves eastern and southern Ukraine in Russia’s hands or closely aligned with it as one or more autonomous states, with pledges from what remained of Ukraine not to join NATO or station nuclear weapons on its territory. Some such resolution was available before the war began. Facts on the ground mean it would now be more far more favorable to Russia than it would have been if war had never started. The war may cost Ukraine direct access to the Black Sea.

The $40 billion war appropriation indicates that the U.S. has no intention of leaving Ukraine and Russia to their own devices. Instead, the U.S. wants to promote a long Ukrainian insurgency that drains Russia politically and economically and in the best of all possible worlds, topples Putin. The concern has been expressed that backed into a corner, madman Putin might then take the conflict nuclear. The more pressing concern: that is the outcome America’s madmen and madwomen want. A generally unrecognized possibility (in the Western media) is that it could be the American contingent who find themselves backed into a corner.

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The U.S. may get its Ukrainian quagmire, but it would be a quagmire for both sides, with all sorts of unintended consequences and ramifications. Is the Biden administration adroit enough to create a tar baby for the Russians without getting itself stuck? Is the Biden administration adroit enough to turn on the White House’s Christmas tree lights? As it became clear that Vietnam was a quagmire, some advocated a nuclear strike on North Vietnam. Finding itself stuck, whoever makes the decisions may decide, unlike the Vietnam experience, that nuclear escalation, either outright or in response to a false flag, is just the answer for the situation.

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How the Fed Killed Growth and Mugged the Hamburger Instead, by David Stockman

The Fed has robbed savers, driven U.S. manufacturing to places like China and Mexico, facilitated the government’s debt binge, and debased the dollar’s purchasing power. Other than that, it’s done a great job. From David Stockman at lewrockwell.com:

Recently, it was reported that US industrial production rose in April for a fourth consecutive month, and owing to a jump in auto assemblies was up 1.1% from March and 6.4% versus prior year. So the usual suspects were out beating the Wall Street tom-toms about economic strength and no recession on the horizon.

But as demonstrated in the chart below, what we are mainly getting once more is born-again production, not net growth. That is, remove the April 2020 Lockdown swoon and scroll back to the interim high in December 2014 and what do you get?

Well, what you get is a piddling 0.26% per annum growth rate over the past 7.5 years. And for want of doubt, dial back to the pre-crisis peak in November 2007 and you get a per annum growth rate of just 0.21% over the past 14.5 years.

US Industrial Production Index, November 2007-April 2022

So, no, the US industrial economy is not strong—it’s been flatlining for the better part of the current century. And that’s something new under the sun, not in a good way.

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Viktor Orbán, the Man Who Could Save the European Union From Itself, by Robert Bridge

Viktor Orbán is one of the few European leaders with even a modicum of common sense or competence. From Robert Bridge at strategic-culture.org:

Viktor Orbán would be the perfect candidate to lead the European Union through this moment of ideological darkness, Robert Bridge writes.

Hungarian Prime Minister Viktor Orbán has once again deviated from the Brussels’ narrative, this time warning that the severe EU sanctions targeting Russia could produce aftereffects not unlike those of a nuclear explosion, potentially subjecting a large swath of the world’s population to food shortages and mass migration. Will Brussels heed his warnings this time?

Viktor Orbán has defied the fuzzy logic of Brussels, and once again it would appear he is correct. Perhaps this speaks less to any sort of political genius on the part of the Hungarian leader and more to the disastrous decisions coming from the EU leadership. In any case, Orbán deserves credit for being one of the last voices of reason when it comes to handling the Ukrainian crisis.

During a meeting with Serbian President Aleksandar Vucic at the weekend, the Hungarian leader said that the brutal «sanctions against Russia” are “equal to an atomic bomb,” where people around the world will go hungry, thereby triggering, among other things, a wave of mass migration.

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