Dear Reader,
Inflation expectations among manufacturers are themselves inflated.
These inflationary expectations — in fact — hover at the highest point in 23 months.
That is because the cost of industrial inputs are on the jump.
And so the Federal Reserve finds itself wedged within a pickle jar.
It is reluctant to lower its target rate while inflation remains so… “sticky.”
Economist Thomas Ryan of Capital Economics North America:
- [The rise in prices] is a worry for the Fed as it is consistent with PCE supercore inflation remaining at 3.5% until the middle of next year. This serves as a good reminder that the Fed’s fight against inflation is not over, particularly going into a year where tariffs and immigration curbs are set to reignite price pressures.
Falling Odds of Rate Cuts
Market odds of a full-percentage point rate slash are therefore plunging:
Source: Zero Hedge
Poor Wall Street. Its denizens fatten on cheap, low-calorie money.
The higher interest rates that attend inflation put them on lean rations.
Is it coincidence that stocks have shed steam since mid-December — when the Federal Reserve indicated a cautious path forward?
“We’re going to be cautious about further cuts,” said Mr. Powell after last month’s Federal Open Market Committee confabulation.
Yet Wall Street can go scratching, I say. Let it go upon lean rations.
Economic Gimcrack
Depressed interest rates — artificially depressed interest rates, that is — constitute economic gimcrack.
They are gaudy baubles lacking all substance.
Their enticements are false, their promises are false. They signals they send are false.
They give false impressions of flush economic conditions.
Artificially depressed interest rates inflate bubbles of every model and make — a technology bubble, a housing bubble — an everything bubble.
As all balloonish structures sent aloft under artificial helium… they come inevitably to grief… and detonate in spectacular bursts.
The gas is simply too unstable, too combustible. And come the ultimate explosion?
The monetary authorities proceed to gather the debris. Yet, curiously, they do not discard it.
Instead they glue it back together… and again pump it full of false helium.
Up and away it goes.
And up and away it goes towards its identical end.
A market — and an economy — addicted to this false levitation confront identical ends.
Financial Fentanyl
Economic commentator Charles Hugh Smith:
- Low rates and loose credit are poison that tastes so good we can’t stop consuming more. Then the effects kick in, and the emergency measures — bailing out Too Big To Fail lenders and agencies — don’t restore the phantom wealth or a healthy economy. Rather, they make the economy dependent on financial fentanyl for its “growth.”
Financial fentanyl! I like it! Yet let me proceed with my air-sac analogy.
Elevated interest rates displace the false helium. They engorge the balloon with stable, far less combustible vapors.
It is then capable of safe and sustained adventures aloft. Charles:
- High interest rates and tight credit standards force consumers to discipline their financial habits to save money and pay down debt as the only means to increase their creditworthiness. The same discipline is imposed on big-time developers/investors: marginal projects no longer pencil out, and so risky gambles are set aside.
Separating the Economically Fit From the Economically Unfit
This pitiless discipline yields a great culling of the economically unfit. The economically fit can then proceed on sound footings.
Or in my little analogy, they can take safely and confidently to the aerial ways.
Unlike the economically unfit, their failings do not burden society:
- The economy prospers when marginal borrowers doomed to default are excluded and risky ventures doomed to fail are tabled.
- Low interest rates and loose credit inject default and catastrophic losses into the system, and as these defaults and losses ripple through the tightly bound financial system, they trigger other defaults and losses, forcing financial authorities to reward the losers with bailouts: the profits skimmed from risky lending and investments are private, but the losses fall on the taxpayers and the public.
Alas, the Federal Reserve has rewarded the losers with bailouts. Their losses have fallen on the taxpayers and the public.
Thus the losers can continue to lose… secure in the knowledge that their losses will continue falling on the taxpayers and the public:
- In effect, the big players in the casino can go ahead and gamble on high-risk bets, knowing the house will cover their losses. The individuals sucked into margin debt, pyramided debt and risky gambles will be wiped out — no bailout for you — while those that enabled the casino are saved from the consequences of their risky gambles.
An Unjust System
As I have argued before in these pages:
I am heart and soul for the free enterprise system.
Let a business concern present itself before the free and open market.
Let it wrest what profits it can wrest from ruthless yet honest combats.
If it takes the lion’s take, well friend, then it takes the lion’s take.
It has earned it in authentic competition.
Yet as I am heart and soul for the free enterprise system… I am heart and soul against the manipulated system.
As I have also argued before in these pages:
There exists a force within the liver and lights that cries out against it. This force demands a square and honest accounting.
The manipulated system — as I see it — is actively arrayed against a square accounting.
It is, in brief, an unjust system.
Robin Hood in Reverse
The present system rewards not authentic talent, not authentic ability… but inauthentic talent and inauthentic ability.
Thus the manipulated system is a form of welfare.
It is welfare not for the indigent but the anti-indigent.
It is Robin Hood in reverse.
And the manipulated system — the reverse Robin Hood system — is the present system.
It is against justice as I understand the concept of justice.
“Fīat jūstitia ruat cælum,” is my response: “Let justice be done though the heavens fall.”
Even if — or perhaps especially if — the heavens fall upon Washington’s Marriner S. Eccles Building.
There is located the headquarters of the Federal Reserve System.
Regards,
Brian Maher
for Freedom Financial News
