The Economy

I'm not talking about individual behavior. People respond to the incentives in front of them. If you can lease a car you wouldn't be able to afford without the Fed incentiving batshit risky lending -- with little down and a crazy low interest rate -- you'll do it. If you can buy way more house than you should be able to afford with 5 percent down and a rate of interest that is hundreds of basis of points below what an actual market would charge in a shitty economy, you are going to take the home. If a corporation can sell billions of dollars of bonds that costd little in interest, and use the proceeds to buy back stock and make its shareholders richer, it'll do it. If your company is bust, and without the Fed you'd be in bankruptcy court, but instead you can just borrow billions of dollars endlessly to stay a zombie company, you'll do it. I can go on and on. This is the criminality of what the Fed has done. A lot of that stuff is going to end up with massive defaults and financial problems for the people involved. But interest rates are prices -- they are the cost of money -- and when you destroy the supply and demand forces that should set that rate and do Soviet-style intervention to artificially set that rate way too low trying to tell everyone you are Santa Claus -- it's stimulus! -- you create massive distortions. You push savers into riskier and riskier behavior to make back the yield they are being robbed of, and you end up with a lot of reckless lending, which creates a chain reaction leading to, among other things, speculative frenzies on the back of all of the "free money." And it's all great while the free money is flowing.

But the bubbles they have blown require artificially suppressed interest rates, huge government deficits and escalating private debt loads. That is destructive to the dollar. At some point, markets will wake up to clealry see the inflationary effects of what they the Fed has done and we're going to have a full-fledged currency crisis.

I don't have the answer to when. If I knew that I could gamble speculatively on all kinds of things right now. ... and know with confidence that I can get out right before the bust (which is going to be an epic bust). But there is no telling in advance what random catalyst might happen suddenly and serve as a pin prick. Like in the financial crisis it was Lehman Brothers imploding on its debt. No one saw that coming -- like right up to the day it happened. Right up until then, people were flipping houses that were getting more expensive by the second and it was, "What is going to make the Fed stop the party?" With one catalyst that they couldn't control, though, housing prices started to drop, loans started to get called in, and insane excesses that took years to build up, busted quickly (and would have busted completely, except the Fed stepped in to prop up the debt mess with. ... MORE debt).

During the current period, we have had a few near catalysts that were met swiftly by intervention. They are backed against a wall now because the price tag for the past recklessness is going to be devastating. So they have spent the last several years frantically trying to keep the debt loads growing exponentially (to service all of the bad debt) to hold off a collapse. For example, the short-term REPO market was rebelling before the pandemic and driving up inter-institution lending costs. ... and they had stepped in to buy debt hand over fist to prop it up. They saw some of the bubbles, like the stock market, buckling as short-term rates ticked up. So they intervened, and it blew up their balance sheet a little more. It's been a number of things like that.

At some point, they will step in to try to intervene when an implosion begins, and it is just not going to work. Each intervention since the financial crisis -- the rounds of QE, operation twist, the REPO market buying, the recent buying where they gave up all pretense (including loading up on trillions of dollars of corporate debt and junk bonds!) -- has required them to go bigger and bigger and take over more of the debt markets. Which is making it more and more impossible to keep up their confidence game. When there is no actual market left independent of them buying all debt without regard to price, it's over. Not just for them, but for the dollar. They are heading there more quickly than you ever could have imagined.

 

Yes. And while I am at it, I'll give you the trifecta results for tomorrow at Aqueduct.

You're right, though. It's much easier to be the guy on a message board who never has anything to offer before something happens. ... but AFTER it happens, he's the guy who has all the answers about what could have prevented it and he posts endless criticisms of people for how they are trying to deal with a situation.

 

If I was simply saying, "doomsday is coming," my posts wouldn't be as wordy as they are. The point has never been about this grand prediction that is always way more about you trying to turn those detailed posts into a cartoon, than it is about me. The runaway debt monetization I described doesn't culminate with a simple doomsday that is the extent of the harm we are doing ourselves. The harm to most people has been cumulative, with the biggest effect being the growing wealth disparity that has created a ton of social unrest. Or millenials who are drowning in student loan debt and don't have $300 in savings for a medical emergency. But if I go on and on giving examples like that, and try to explain the behavior and mechanisms that are causing those things. ... all you are going to see is, "doomsday."

 

Of course various people -- not just people with mortgages -- have benefitted from the debt binge all of the monetization has enabled.

That is the whole point. It's a party that ignores the costs because they aren't immediate, and because a lot of people don't understand the artificial dynamic making it possible and how that cause and effect inevitably ends.

The boom that is "helpful" to people. ... always leads to a devastating bust that costs way more than the the fleeting benefits. Every single debt monetization scheme in history has ended the same way.

When close to 4 million people had their homes foreclosed on between 2008 and 2010, their lives were ripped apart.

If you had come across someone in 2005 or 2006 pointing out the exact mechanism that had been creating an artificial environment that was going to inevitably end badly, you would have turned it into them predicting doomsday, and how it's so easy to do that because they'll eventually be right. ... like they were making wild predictions out of left field, not describing a cause and effect that ends up being costly.