Tightening until it breaks could be the new motto of central banking in the face of crushing inflation which they partly created.
How did policy objectives move to tightening until it breaks?
Post financial crisis of 2008, central banks were flooding the markets with liquidity purchases assets, known as quantitative easing, suppressing interest rates and the yield curve.
Loose monetary policy was touted as a tool to stimulate demand, reflate the economy, and fend off depression.
But the easy money, the trillions of dollars keyboarded into existence to keep asset prices inflated, created the everything bubble, which aided and abetted a boom in the speculative casino economy.
The stock buy-back bonanza where CEOs would look like heroes in the eyes of their shareholders by buying back company stocks with cheap money to reflate the stock prices was all the rage.
Why take the risk of investing in innovative technology to win market share when you can pump up the stock price by simply buying more of the company’s stock?
“Post financial crisis of 2008, central banks were flooding the markets with liquidity purchases assets, known as quantitative easing, suppressing interest rates and the yield curve”
Tightening till it breaks has its roots in the failure of loose monetary policy
A decade of central bank liquidity has accelerated the speculative economy. The everything bubble in asset prices acted like a malfunctioning thermostat valve, diverting capital flows into the speculative economy away from the productive economy.
The result has been higher inflation in asset prices and a starving of liquidity into the productive economy, which leads to a widening wealth gap and political instability.
The higher up the human food chain one lies, the more likely their income is derived from assets rather than wages.
Giving tax breaks to the wealthy can lead to the trickle-down wealth effect if the wealthy use the extra income to invest in the productive economy.
Building factories and creating businesses create jobs.
But if that wealth goes into the speculative economy, inflating the work of art of a long-dead painter, commodities that is inflationary.
Here is an example of a failing and unsustainable economic system; At an auction held at Christie’s New York in 2016 during a contemporary art event, Salvator Mundi by Leonardo da Vinci turned into the most expensive painting ever sold, selling for $450 million at the end of a nineteen-minute bidding war.
“The higher up the human food chain one lies, the more likely their income is derived from assets rather than wages”
Tightening until it breaks, but it is already broken
Fed Chair Powell said publicly more pain is needed to get inflation down.
But if unprecedented amounts of monetary easing failed to get the economy firing on all cylinders, tightening will fail spectacularly with a systemic crisis.
The peak central bank liquidity, which marked the bubble of everything around about the time when the above painting sold for $450 million, was also a period of the largest wealth divide and political instability.
“The EURO, the second most traded currency in the world, has collapsed below USD parity, approximately 20% year to date” – Win Investing
Tightening until it breaks central bank monetary policy could be the final straw that creates a systemic crisis
Frankly, it is already broken, with a monetary crisis at the doorstep of another great depression.
G7 currencies have collapsed against the US dollar.
GBP has sunk to a four-decade low against the USD, speculators are now betting on a USD parity. Currency speculations now jokingly refer to GBP as the Zimbabwe pound. As I write this piece GBP is in freefall down 22% year to date. Short GBP is an easy money trade.
The EURO, the second most traded currency in the world, has collapsed below USD parity, approximately 20% year to date.
The monetary crisis in emerging currencies is even more acute, and there is chatter about a tsunami of an emerging market sovereign debt crisis.
The ultra-strong dollar has made a tsunami of emerging market dollar-denominated loan defaults that will make the subprime mortgages financial crisis of 2008 look like a picnic.
So a currency crisis and financial crisis are now in play.
“Americans increasingly cannot afford their grocery bills. Global food prices are projected to increase 23 percent this year, on top of the 30 percent they increased last year” – Win Investing
Tighten until it breaks, but the world’s largests consumers are struggling to buy the basics, food
Americans increasingly cannot afford their grocery bills. Global food prices are projected to increase 23 percent this year, on top of the 30 percent they increased last year. And per usual, those already living on the margins are feeling the consequences the most.
Tim Fetsch, the chief operating officer of the St. Louis Area Foodbank, which provides nearly 400,000 meals per year, told the Wall Street Journal, “We have had to work harder to secure the food needed to support the community.” He went on to explain that his organization is grappling with supply chain issues, increased transportation costs, and an increase in food prices. And he pointed out that while retail stores used to donate heavily to their program, they too are facing many of the same challenges.
Tighten until it breaks with the last shoe the housing market to implode
Think about it, the world’s richest consumers are struggling to buy food, imagine what food hyperinflation is like outside the king dollar area.
So if Joe public is struggling to buy food and we are not even near freezing winter yet, imagine how many households are going to miss mortgage payments.
The Fed is tightening or tapering its purchases of MBS bonds, which were intended to make interest mortgage payments affordable, now they are doing the reverse. So housing market collapse two is on the cards.
Tightening until it breaks, then war
So monetary policy wants you in economic hardship, homeless, without a job, and green policies want you immobile and uncomfortable. But there are ample funds for the war. Congress last month approved multi-billion dollars of funds to fan the war flames in Ukraine. A wider war in Europe is being planned, along with the economic draft.
Cold, hungry, and with no future, demoralized millions of young men will willingly sign up. TINA is coming to Mainstreet. Your blood, your wealth for hegemony.