Gold News

The Fed's Pandemic Bubble

And now they want to pop it...?!?
HOT OFF the presses comes this story from Politico, says Bill Bonner in his Diary of a Rogue Economist:
"Fed set to begin pulling plug on massive aid to economy
"The Federal Reserve said Wednesday it will begin to slow its massive bond purchases later this month, the first step in removing its extraordinary pandemic-era support for the economy.
"The long-awaited move signals both optimism about the pace of job growth and wariness about price surges that have pushed inflation up to its highest level in decades. The central bank has been buying $120 billion a month in US government debt and mortgage-backed securities, a process designed to supercharge its efforts to keep borrowing costs low for households and businesses."
Fed chief Jerome Powell (our fellow student at Georgetown Law Center) insists that the Fed's money-printing was an emergency program.
If the Fed had not taken control of the economy in 2008...and again in would be in a shambles, he believes.
And by June 2022, the emergency will be over, says he.
But what really happens when the Federal Reserve gooses the economy with printing-press money and artificially low lending rates?
Tesla (TSLA) has been around for nearly 20 years. Cumulatively, it hasn't made a dime of profits from selling cars (it gets billions in government-ordered subsidies). Yet, its share price went up 1,270% since the beginning of Jan 2020.
Shiba Inu (SHIB), a comic coin, gained 84 million percent in the last year. It's now worth more than Japanese auto manufacturer Nissan (NSANY).
A non-fungible token (NFT) from a "digital artist" named Beeple sold for $69 million at British auction house Christie's. For reference, Vincent Van Gogh's Vase with Fifteen Sunflowers masterpiece sold for $96 million (in today's money) back in 1987.
Stocks soar, while the economy that supports them limps along. Members of Congress, Fed chiefs, Wall Street honchos, and insiders get rich...while the public struggles to get by.
The Fed's key lending rate has been below zero, inflation-adjusted, for almost all of the last 12 years.
And now, core consumer prices – measured by the Fed's "trimmed mean" gauge – are rising faster than at any time in the last 31 years. Here's the Breitbart report:
A measure of underlying inflationary pressure on the economy rose to its highest level since 1990 in September.
The Federal Reserve Bank of Dallas calculates that so-called Trimmed Mean Inflation rose at an annual rate of 5.1 percent in September, the fastest monthly pace of price acceleration in 31 years.
Just what you'd expect, in other words.
But some not-so-obvious things happen, too.
Politics – whether it concerns forced vaccinations, teaching Critical Race Theory to children, or trillion-Dollar boondoggles – has never been so vicious and divisive.
Why? Because, when the government controls who gets what, it becomes more important to control the controller.
More money is spent on political campaigns. And the other side is demonized, not as merely "wrong" or "misguided," but as a mortal enemy...
It's tempting to dismiss today's nuttiness with a simple explanation: People go crazy from time to time.
In St.Petersburg, Russia in Berlin in Peking in 1948 – it didn't matter who you were, what you thought, or who you voted was not likely to end well for you.
But there's more to it than that.
Human society is an intricate weave of "usual understandings," as Russian president Vladimir Putin put it. Pull on one single thread...and the whole fabric comes apart.
We've been tracing the yarn every day now for the last 22 years. And what we notice is that things that seem unconnected...or mere "acts of God"...are often woven together in braids of raw self-interest.
Yesterday, we looked at how the SCD (Supply Chain Disruptions) the media is hysterical about were the result of the feds' central planning.
An honest economy depends on millions of fast-moving "measures" – most important, how much someone wants a product and how much he is prepared to pay for it – that the feds can't possibly know. The more control they exert, the less well it works.
And on Monday, we saw how civil society becomes uncivil. There, the links are harder to see. But when you can no longer trust the money...or the government...the "usual understandings" in the rest of the society seem to give way, too.
In Russia, the Tsarist government multiplied the money supply by about 5 times (no one is sure) to pay for World War I. The ruble lost value. And war created severe supply chain disruptions, which led to shortages of food, especially in St. Petersburg.
By 1917, thousands of people were in the streets raising a ruckus. The Bolshevik Revolution followed.
In Germany, the hyperinflation of the early 1920s...along with supply chain disruptions caused by war, reparations, and the loss of the very productive Ruhr Valley...left Germans in a sour mood...easily exploited by left and right, with Hitler and his Nazis as the victors.
In 1937, a Dollar would buy you 3.4 Chinese Yuan. By the time Mao Tse-tung took over in 1949, it would buy 23 million Yuan.
Naturally, prices were all over the place during those years...with supply chain disruptions – caused by money printing and war – leading to shortages of just about everything.
So chaotic was the economic situation in China that most Chinese probably welcomed the Communist victory.
When the money goes, in other words, everything goes.
Because money determines not just your wealth, but your place in the world...your status...your power...whether you owe or are owed...whether you sell your time or buy others' time...
...whether you are a have...or a have-not.
But the amount hardly matters. What counts is how it is gotten. And the more the elite controls the distribution of money...the more of it ends up in the hands of the undeserving elite.
But wait...The Fed says it is going to back off. Jerome Powell says he is going to stop diddling the accounts that made him and the rest of the elite so wealthy.
Is that really going to happen? Are we going back to a less political world?

New York Times best-selling finance author Bill Bonner founded The Agora, a worldwide community for private researchers and publishers, in 1979. Financial analysts within the group exposed and predicted some of the world's biggest shifts since, starting with the fall of the Soviet Union back in the late 1980s, to the collapse of the Dot Com (2000) and then mortgage finance (2008) bubbles, and the election of President Trump (2016). Sharing his personal thoughts and opinions each day from 1999 in the globally successful Daily Reckoning and then his Diary of a Rogue Economist, Bonner now makes his views and ideas available alongside analysis from a small hand-picked team of specialists through Bonner Private Research.

See full archive of Bill Bonner articles

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