Over-Fed but Malnourished
Is the inflation I’ve been writing about really all just transitory as Papa Powell claims it is? The Fed Head assures us he has this under control. Would that be just like Father Fed and friends had bank reserves under control right before the repo crisis blew up in late 2019? Or just like they had their Great Rewind under control right before the stock market imploded in late 2018 due to Fed tightening that was promised to be as boring as watching paint dry?
Or just like Janet Yellen, the author of paint-by-numbers boredom, now has everything under control, except apparently her yellin’ mouth:
The important thing to observe here is not Yellen’s statement, which was really not yelling at all, but a whisper that the market responded to as if she yelled. Look, instead, at what her little statement wound up revealing about the Fed’s control of inflation. It proved in real time that, if someone who is not even part of the Fed anymore even HINTS that interest rates MAY have start to rise, the stock market, being utterly Fed-up and Fed-dependent, will immediately implode … just as it did when Powell announced that Fed tightening, long underway, would go on indefinite autopilot in October of 2018.
That clearly shows the Fed cannot possibly have inflation under control because the Fed’s primary inflation-adjusting tool (the one Yellen just advocated) turns out to be the stock market’s self-destruct button for the bubble the Fed created. As I said well before 2018, the Fed cannot ever unwind its solutions without unwinding the bubbles it built with those solutions. It has never had an end game because you cannot let all the hot air out and expect the balloon to stay inflated. We saw that proved out in late 2018 in stocks and in late 2019 in the Repocalypse.
In reading back her statement to stem the flow of blood-red ink in the stock market, Ex-Fed Chair Yellen, stated in a calming voice,
How can the Fed be counted on when merely whispering the obvious possibility that inflation might cause the Fed to have to tighten nearly ignited a taper tantrum? It is no doubt being “counted on” by the masses and by the US government and by banks around the world, but it isn’t going to succeed.
It’s not hard to read those tea leaves.
Dream on, Father Fed, dream on! You haven’t got anything under control, least of all yourselves!
Powell putters and stutters
That’s why, when Powell was asked this week,
the best Papa Powell could answer was,
Was there anything hard to understand in that question?
Helping the apparently elderly Powell understand this simple question,
Powell’s incisive answer, laced with bull crap, was,
Ah, the punishment will continue until attitude improves. I put it that way because the next question led to an answer that was telling as far as how much the Fed understands that the Fed is the cause of distortions throughout the economy. Powell was asked,
To which Powell responded,
In other words, the explosion of inflation in the housing and rental market is just inadvertent collateral damage that is spinning off from the Fed attempt to help banks with their mortgage-backed-securities problem. It’s just a distortion caused by a Fed solution to another problem.
So, we are to believe the Fed firmly has inflation under control as housing prices skyrocket more than 20% in an insta-bubble that makes 2007 look like a piker — a bubble that would not be so readily financed at ultra-low interest if the Fed stopped sucking up all those MBS (mega BS) the banks churn out in order to sell the over-inflated mortgages they are issuing in this bubblicious market.
We do all recall it was the Fed that inflated and then popped the initial housing bubble in the early 2000s, right?
And, so, dementia-ridden Powell blethered on:
Yes, indeed. They’ve done this before … right up to 2007 when they stopped doing it. Which all sounds a lot to me like, “We don’t really know what the heck we’re doing, but we’re going to keep right on doing it until it starts doing what we want it to do.”
This kind of waffling is only confidence-building in the sense off a con game.
Where does the boom go bust?
Larry McDonald, author of The Bear Traps Report, writes of what he calls the “cobra effect.” First, the definition:
McDonald says the cobra is about to released:
The cobra effect in this case is that the trillions of dollars have already been dumped into the financial system by the intervening Fed and into consumer pockets by the federal government as well as by central banks all over the world with apparent good intentions. Powell has just admitted “the effect is proportional to the amount we buy.” In other words the explosive inflation in housing he was being asked about is an unintended consequence of Fed meddling that is directly proportional to Fed meddling.
That money cannot be sucked back out without crashing all the recovery the money was used to build. We’ve seen them try that before with disastrous results — twice. The shortages of materials for manufacturing and now the backlog of available products to purchase (laid out in revealing detail in my latest Patron Post) have already been fully baked in by months and months of government-mandated COVID closures and transportation restrictions and years of trade wars.
That means all the government interference is already fully in place. The economy is bloated with cash and savings, but all of the inflation simmered in the background so few people saw inflation coming. It simmered away unseen as producers absorbed rising input costs because of the shutdowns that were restricting human activity. Now, as the economy is opening up due to vaccines and summer weather, those people who are flush are already pushing prices up to buy goods in short supply. The chemistry already put in place sets up massive back pressure beyond any experiment in human economics.
If you want to see the huge swath of data that reveals how inflation is finally bursting into the public streets everywhere, I’ve laid all of that out in may latest Patron Post. Otherwise, let it suffice it to say “the lid has just come off the pot, and the pot is fully boiling over into streets everywhere.”
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