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The Fed and Congress Blew It
Karl Denninger

It's coming folks.

I know, I know, have a happy face.  There are even those who think we should be "nice" to China, and more than a few who think that Russia wanted China to dump treasuries in 2008 and blow us up.  Incidentally, if they had done it, it wouldn't have blown us up - it would have blown THEM up.  How many Treasuries did The Fed buy during that time to drive down rates on purpose through QE?  Another trillion would have done nothing.  The threat was always toothless; if you're scared of a shark with no teeth, well, that's on you.  However, had they done it their own debt-stoked bubble would have suffered a crippling dislocation and odds are it would have taken down all of their banks.

The truth is that we should have enforced anti-IP theft and similar laws (yes, stealing is a crime) decades ago.  We should have never granted sovereign immunity to OPEC and similar after the 1970s, but we did, and we also should have revoked that during the 80s and 90s when the mistake recognized, but we did not.  As a result we have a cartel acting in manners flatly illegal in the United States, and yet neither side of the aisle will introduce and pass the legislation to revoke that stupidity and then criminally charge all members of OPEC.  We could do that tomorrow, and damn well should.  Not doing it has enabled a monstrous bubble in the oil patch with fracking and similar, and as it has several times through the previous decades this one will burst too, and when it does it will result in a monstrous problem right here at home, including the bankruptcy of many firms and huge state budget problems centered around oil-producing states.

We have a company, Spamazon, that has been caught repeatedly doing things that are blatantlyfelonious.  They subsidize losing businesses with profitable ones, which is a felony and has been for more than 100 years.  They actually force sellers to price-fix or punish them, which is a felony and, again, has been for more than 100 years.  These are not civil matters, they're facially criminal ones under 15 USC Chapter 1, and yet not one criminal charge has been laid against any of these firms nor their officers.  Beelzebezos, in my opinion, should be trying to "enjoy" his billions from behind the bars of a federal prison cell where he is serving a 5,000 year sentence since each instance is a separate and distinct offense.  It is my belief that he has created more misery and offshored more jobs, killing people indirectly in the process, than anyone else outside of genocidal wars.  Instead of filing charges, however, our states "compete" for their new headquarters, effectively rewarding this outrageous behavior even as the firms that are currently there are literally starved to death.

You can't really blame Bezos for doing this, however -- he has plenty of patterning to work from and every reason to believe he'll get away with it.  The medical industry is the poster child for this; they collude and price-fix every single day.  We keep arguing over small-ball nonsense games instead of locking up a few executives, which would solve the problem instantly, crash the price of medical care by 80% and...... oops, also toss several million people who have jobs only due to the price fixing as they're actively involved in it out on the street where they'd have to find a way to make a living that doesn't involve screwing people up the poop chute.

Both of the above, plus many other examples, of course, have made the stock market go up.  Everyone loves that but they shouldn't -- in fact, if they were logical the general public would be in a wild-eyed homicidal rage aimed at every single member of Congress, every State Legislature and all of these firms.  You see, you can't possibly outrun the destruction of your standard of living by "investing" unless you're in the top 0.1% of the population; it's simple mathematics, since your surplus that you can invest is not large enough to outrun the cost structures, and what's worse is that unlike the executive who can and does cash out from the bubble you can't -- if you do, you stop the evasion and yet their surplus is so large that cashing out 10% of it is enough to insure they'll never be poor and whenthe inevitable crash comes the rest goes "poof" but doesn't impact their lifestyle.  If you cash out you still go broke and if you don't when the inevitable crash comes it goes "poof" and you do starve.

Those who argue otherwise are arguing against the manifest body of evidence -- the destroyed small towns, the shuttered factories, the tens of thousands who drug themselves to death via opioids every year, the hundreds of thousands more who drink or eat themselves to death and the tens of thousands who overtly commit suicide.  Rather than take any of this on we scream about 30 people being shot to death by a couple of raving maniacs while the same sort of shooting toll takes place in Chicago every hot, summer weekend without a peep from anyone.  The thundering silence on the latter is racist but nobody cares; "those people" are nearly all black or Hispanic.

China of course contributes mightily to this and while we can act on it we don't.  Trump's "tariffs" are in fact a pinprick.  The $50 pair of shoes has a $10 cost in China, so the actual tariff at 10% is a buck.  You let people at CNBC run nonsense claiming that the tariff will increase the price to $59 which is a knowing, intentional lie.  Not one person challenged them on the air and yet anyone who is doing anything more than reading a teleprompter, programmed by some jackass who has a political agenda to pound or even worse, who might be on the Chinese Communist Party's payroll, would instantly challenge such an assertion.  I have not heard one such challenge in the mainslime "media" which leads me to believe they're all either working for Nike or worse, the Chinese Communist Party.  Pick one; either is equally bad when it comes to the impact on your wallet.

We should embargo China or, even better, declare their trillion and change in Treasuries to be liquidated damages in part for all the IP theft and burn them.  Indeed, the value of said theft and forced transfer is likely in the tens of trillions, much more than any Treasury holdings.  The correct way to deal with trans-national theft like this, assuming you're not willing to have a war over it (which, I remind you, would be nuclear in nature) is to total it up and then seize it from assets you can reach.  In this case that would mean all their Treasuries, anything any of their nationals or their government owns here and a 100% confiscation of all FedWire transactions, taking any and all dollars they attempt to pass or clear anywhere, until it is paid in full.  If they don't like it **** 'em.  What are they going to do about it?  Shoot at us?  They're not that stupid and we know it.  Were we to take actual effective action for all the theft committed their economy would collapse in a week.  Good; it's about damn time the check got served on these jackasses.  We'd survive that; their economy and political system would not.  Said trillions would go a long way toward restoring our debt:GDP balance.  If the WTO doesn't like it **** them too; what are they going to do about it?  Those who wish to engage in fair trade without such shenanigans we should encourage.  Everyone else can go to screw a goat.

Never mind that we must address the economic problem of what do you have on offer as productive employment for those on the left side of the bell curve?  It cannot be "nothing."  This in turn means we must stop deficit spending, stop offshoring by making it uneconomic to do it and eject all illegal invaders, right now.  "Learn to code" sounds good but it's bull**** and everyone knows it; anyone on the left side of the curve, which is half the population, can't.  Further, suppressed interest rates eventually lead to economic stagnation and collapse since it is savings and positive return on same that is the reservoir of capital that forms new businesses and investments.  We've spent two decades destroying that and we had better stop it right damn now because the bill for this comes due by 2024 when our federal deficit will spiral out of control due to health monopolies; we have just a few short years to weather the disruption from doing so or the result is likely to be either economic and fiscal collapse or worse, an internal dirty civil war.  If you think El Paso and Dayton were horrific (they were) how would you like one of those an hour -- because you're taking the risk that this is exactlywhat you're going to see within the next five years if this crap is not stopped.

Trump, for his part, is cheering on even more capital destruction by our central bank instead of slamming the door on the fingers of any and all central banks and currencies that run rates below federal deficits.  This includes Japan, China, and the EU for openers.  There is utterly no reason for us to tolerate this and following suit as policy is suicidal.

Consider this folks -- Joe Biden (the actual front-runner right now for the DNC nomination) has now sworn to attempt to send police officers to confiscate guns if he wins.  If he wins he will by doing so paint a target on every police officer's back.  Any rational person who believes in the 2nd Amendment and sees such an officer has every reason to believe that said officer is coming to kill him or her should said person actually believe in our Constitution as written.  What is the logical thing you do if you know someone intends to kill you and has the means to do it right here and now in their possession?  In addition Biden is repeating the "fine people" hoax -- a knowing lie -- and accusing Trump of inciting a literal race war.  You know damn well what's coming under such a promise and Biden regime -- if you think a market crash is bad how would you like to live through that mess?  There's a decent chance you're about to find out in roughly 18 months.

How long do you have before we go over the cliff with any or all of this?  The common chestnut has for decades been that we're leaving this mess for our children and grandchildren.  Sorry people, time's up -- that was perhaps an accurate statement in the 1990s, or at 2000, or maybe, even, in 2008.  It no longer is; we're now staring at the reality of what our insanity has brought to us in the present tense; we either act on this as a body politic now or within the next five years, and perhaps, if any of the external factors go sideways on us, that timeline may be greatly accelerated and impact us right here and now.


Mr. Denninger, recent author of the book Leverage: How Cheap Money Will Destroy the World, is the former CEO of MCSNet, a regional Chicago area networking and Internet company that operated from 1987 to 1998. MCSNet was proud to offer several "firsts" in the Internet Service space, including integral customer-specified spam filtering for all customers and the first virtual web server available to the general public. Mr. Denninger's other accomplishments include the design and construction of regional and national IP-based networks and development of electronic conferencing software reaching back to the 1980s.

He has been a full-time trader since 1998, author of The Market Ticker, a daily market commentary, and operator of TickerForum, an online trading community, both since 2007.

Mr. Denninger received the 2008 Reed Irvine Accuracy In Media Award for Grassroots Journalism for his coverage of the 2008 market meltdown.

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