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Knucklehead Fed

Truly leading the world...
 
WHAT a delight it is to be an American! What a spectacle! gasps Bill Bonner, reporting from Argentina for his Diary of a Rogue Economist.
 
No matter how stupid, malignant, ignorant, or evil you are...there's always someone – a member of Congress, a Nobel Prize-winning economist, or the president himself – who is an even bigger jackass than you are.
 
And no matter how dumb any idea you may have...there's always a large part of the public that will believe it.
 
Human history is largely a story of myths, lies, and delusions. They made possible some of our greatest achievements...and our biggest disasters.
 
The Egyptian pyramids wouldn't exist, for example, if large groups of people had not believed something that was untrue. They thought Pharaoh was divine...and that they should build monuments to him.
 
As it happened, they devoted nearly the entire economic surplus of the rich Nile Delta to putting up huge piles of stone in his honor.
 
And would civilization ever have reached such giddy heights as it did before the French Revolution...had not the masses accepted "aristocratic privilege" as a fact of life?
 
Then again, World War II wouldn't have happened without Hitler's "Übermensch" delusion. It proved to be great fodder for the History Channel, but resulted in a world war with 60 million dead. And it left Germany in cinders...and the master race crushed under the heel of Untermensch foreigners.
 
We are always asked to believe what isn't true. Though rarely have we been asked to believe so many knucklehead ideas all at once.
 
But here at the Diary, money is our beat...so let's stick with that.
 
In response to the hysteria over the coronavirus, the authorities shut down the economy. And now, they say they can "throw the switch" and turn it back on again...and things will go back to "normal" in a matter of weeks...
 
Stocks were already at all-time highs in January 2020, when the virus arrived on the scene. In the panic that ensued when the virus spread around the world, they sold off. And for good reason – companies are not worth as much when the revenues stop coming in.
 
But then, the feds were on the case...with a $2.2 trillion bailout bill...nearly $3 trillion in new money-printing...a $4 trillion national debt increase...and, coming soon – another $1 trillion in "stimulus" spending.
 
The stock market soared, rising 45% from its bottom in March. Investors said they were "looking through" the horrible news – 20% unemployment...a federal deficit at 20% of GDP...20,000 business failures...rents unpaid...mortgages in default – to the bright future on the other side.
 
A "V"-shaped comeback is on the way, or so they say. It will be like a "rocket ship," says POTUS.
 
In other words, they were buying the dip based on the idea – obviously fraudulent – that Federal Reserve governors can deftly guide the economy to a prompt, full recovery...and that printing-press money will make assets more valuable.
 
The trick, of course, is to keep a clear head about it. Some myths are useful. Some are sinister, even lethal.
 
And some myths, no matter how absurd, can be played for profit. Some people must have prospered from building the pyramids, for example, even if it meant a lifetime of hard labor for the common man.
 
And many people made money in World War II, too, even while millions of common soldiers were shot to bits when they went "over the top."
 
Today, a shrewd speculator might think he is one of the lucky ones. He might anticipate the flood of money coming into the stock market from the Federal Reserve. He might figure he can catch the rising tide.
 
But watch out. Last week the water level dropped suddenly. Then the sell-off reversed, only to worsen before returning and then rebounding again today.
 
Tomorrow, who knows?
 
But some things are more predictable than others. As the situation on Main Street worsens (bankruptcy filings are becoming more frequent than new Covid-19 cases), the Federal Reserve will surely double down on its hallucinations.
 
The gambler might confidently expect the Fed to open its floodgates once more – with even more trillions of fake money. Here's Reuters:
 
"The US Federal Reserve on Wednesday signaled it plans years of extraordinary support for an economy facing a torturous slog back from the coronavirus pandemic, with policymakers projecting the economy to shrink 6.5% in 2020 and the unemployment rate to be 9.3% at year's end."
 
Stocks go down; the Fed prints more money. Simple enough.
 
"Buying the dip," could turn out to be a good strategy.
 
But...our hypothesis is that the myth of money-printing is ruining the US economy, undermining its social stability, and corrupting its government. Today, people in the Wall Street economy have the Federal Reserve to thank for much of their wealth. Like French aristocrats before the Revolution, they're happy with the two-system system.
 
And while quick-witted speculators might be able to turn a profit by gaming the system and front-running the Fed, we urge caution.
 
Eventually, if we're right...there will be Hell to pay. There will be no monuments – like Cheops or the Sphinx – for tourists to admire 1,000 years from now.
 
Instead, there will just be the sordid, sorry history of a gigantic fraud...
 
...the chaos, destruction, and poverty...
 
...and the sad stories of the speculators who forgot to leave town before the tumbrils started to roll.

Bill Bonner has co-authored a number of New York Times Bestsellers including Financial Reckoning Day, Empire of Debt and Mobs, Markets and Messiahs. In his own opinion, Bill's most recent title, A Modest Theory of Civilization: Win-Win or Lose, is his best work yet. Bill also founded The Agora, a worldwide community for private researchers and publishers, in 1979. Financial analysts within the group have exposed and predicted some of the world's biggest shifts since that time, 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 more recently the election of President Trump.

See full archive of Bill Bonner articles

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