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by Adrian Sobers
“The prophets abandoned, the law take advantage, the market is crashin’.” – (Kendrick Lamar, N95)
“The LORD is good, a stronghold in a day of trouble; he protects those who take refuge in him.” – (Nahum 1:7, NRSV)
Contrary to popular opinion, unpopular opinion recognises the global democratic deficit is fueling other deficits; most noticeably a global economic deficit, as evidenced by 40-year inflation highs in the US and the UK.
The same economic policy wizards who told us inflation was “transitory” are now telling us the inevitable recession will be “mild” or “contained” to particular markets.
Damian Marley’s Caution doubles as a running commentary about the pickle our monetary policy magicians have gotten us into and its effects on ordinary households. A recent report on Iran is a good place to start:
“The protests were triggered by a cut in government subsidies for imported wheat that caused price hikes as high as 300 percent for a variety of flour-based staples.” How did we get here? Cause and deflect.
Our monetary (and political) masters should proceed with caution, especially since they are bent on ignoring/denying the root cause of the fallout from our fiat fiasco. On a recent Macro Watch episode (What the Fed Can’t Admit), Richard Duncan said: “In theory, the monetization of government debt by a central bank is perhaps the greatest TABOO in all of policy making.” It is a mockery of democracy. In a word: de-mockery (ba dum tss).
Although the Fed (and other central banks) have monetized government debt throughout history it’s never been this bad/obvious, and the consequences have never been this disastrous: “During 2020 and 2021, the US government borrowed $6.3 trillion. At the same time, the Fed created $4.6 trillion and injected it into the financial markets. That means the Fed financed 73 per cent of the government’s borrowing during those two years.”
Duncan later explained how the Fed created too much money with its multiple rounds/doses of quantitative easing. The current market turmoil is the result of our Supreme Sorcerers trying to undo their quantitative easing spell, no doubt echoing Dr. Strange’s lament from the multiverse of madness: “But I never meant for any of this to happen.” Our sorcerers were warned, as was Stephen Strange, yet here we are in our respective multiverses.
To what can we compare the Fed trying to reverse their spell? What is it like? It is like a man deliberately setting fire to your house, then trying to put out said fire, and expecting you to pat him on the back for “fighting” the fire.
The Fed has two options, neither of which are good news for the poor/middle class. To curb the inflation they created (and exported given the dollar’s reserve status and other central banks following their lead), interest rates have to rise to Volcker-like levels which would collapse the debt-based global economy.
If rates remain artificially low: governments will continue to gorge on debt, asset bubbles that eventually go pop get created, and inflation will continue to soar.
Caution: “So di pauper, doesn’t have a cash in him billfold / An cyaa buy di knowledge weh di rich man own / Nor look afta his family or his humble household.”
One of the effects of the previous response, the artificial suppression of interest rates, led to the equally artificial inflation of asset prices (like stocks); assets that are traditionally held by the rich at much higher volumes.
Anytime a politician expresses hyperbolic moral outrage about the rich getting richer, remind them that this is primarily a function of two things, both of which are
features of creditism: their addiction to inherently inflationary policies, and, the point at which newly created money enters the financial system. Hint: it’s not your pocket or portfolio. (See Money, Inflation and Business Cycles by Arkadiusz Sieroń for details.)
Mr. Marley’s final verse doubles as a summary of the effects of the inherently inflationary policies that affected those who are least able to afford it, the most. Again, Caution: “Dem cyaa gain no traction / Cyaa find no satisfaction / Election is just a distraction / Write it inna caption / Caution … Warning to all.” Allan Meltzer
also issued a warning at the end of Volume 2 of his history “of the Fed.
It is repeated here under the caption, Warning to Monetary Magicians: “In 2008, the Federal Reserve increased its balance sheet from about $800 billion to more than $2.2 trillion. […] Once confidence begins to return, the Federal Reserve will have to absorb a large volume of reserves. The 1970s problem will return in an exaggerated form.”
The exaggerated form of the 1970s problem, namely inflation, has been with us for a while now, and we still have some ways to go yet for reasons that we need not bore you with here. Just proceed with caution: at the ATM, on the street, be careful. Our monetary magicians weren’t, and threw caution to the wind. Whether denarius or dollar, the decline always starts with money. Those with ears and all that.
Adrian Sobers is a prolific letter writer and commentator on issues of national interest.