Gold News

A Squall Hits the Metaverse

Is this a formula for success or what...?
A STORM passed over Ireland, reports Bill Bonner for his Diary of a Rogue Economist from his hideaway.
The power went off. Trees blew down. The roof of an old shed flew off.
Oh...if we could only live in the Metaverse...where the only things that happen are things we want to happen. If only we knew where to find it!
Here on Planet Earth, life goes on. And with so many many much brain power and capital applied to the fantasy world, it is not surprising that the real world feels a little neglected.
Here's the latest news from Breitbart:
"Productivity Crashes More Than Expected
"The productivity of US workers in the third quarter of 2021 dropped at a rate of 5.2 percent, the Department of Labor said Tuesday.
"Economists had forecast productivity would decline by 4.9 percent.
"Unit labor costs soared at an annual rate of 9.6 percent in the third quarter of 2021, reflecting a 3.9 percent increase in hourly compensation and the decline in productivity. 
"That was more than expected. Analysts polled by Econoday had forecast unit labor costs to rise 8.3 percent..."
Let's see...higher labor costs...less labor output. Is that a formula for success, or what?
But in the fantasy world, assets get more and more valuable...even though they don't produce any more wealth...
...houses go up so much that you can "take out" some of the value, without giving up floorspace...
..."crypto" stocks...NFTs...and money-losing companies can make you rich – even without sales, profits, goods or services, employees, skills, or tax bills.
What in the real world can compete with that?
Yes, we all live in a yellow submarine the deep calm of the metaversian cosmos.
But where did it come from?
An educated guess: from a flood of liquidity from the Federal Reserve, that buoyed up everything not firmly attached to the real world.
For the last 10 years, scarcely anyone's toes have been able to touch the bottom.
Even before the Wall Street bailout of 2008-2009, interest rates had been falsified by the Fed for many years. Cheap credit caused a bubble in the housing market that eventually cost up to 10 million American homeowners their homes.
Wall Street lenders, however, got off scot-free. They should have taken their losses (they lent far too much money with far too little collateral). And the stock market should have gained a solid footing, but at a much lower level.
Instead, the Fed lowered lending rates even further...and the water got deeper.
Today, the federal funds rate is all of 0.08% (essentially zero)...and inflation is running at 6.2%.
In other words, the Fed is lending to member banks at a MINUS 6% rate. And by our calculations last month, in order to get ahead of inflation – as Paul Volcker did in 1980 – the Fed would have to put its funds rate up to almost 10%.
Not going to happen.
Meanwhile, the most important credit in the world, the US 10-year bond, is trading at a nominal yield of 1.4%. But subtract the going inflation rate – 6.2% – and you see that the real yield is MINUS 4.8%.
And now, after lending money for years at yields below inflation, is it any wonder that people retreat to fantasyland...a submarine quietly navigating beneath the tempestuous waves?
It is a place where time has stopped...and the future holds no risk.
You will not age.
No storms will blow up.
No one will be shot or die of the omicron variant.
Yes, it is a fantasy world. A make-believe world. A world that exists...but only as a fleeting aberration.
And what's this?
SoftBank, the Japanese company that has funded many fantasy start-ups, lost nearly 16% last week. Cathie Wood's Ark Invest, that invested so much money in them, lost about the same.
And Bitcoin...the coin of the new fantasy realm...lost a quarter of its peak value in the last month.
How long before the fantasists need to come up for air?

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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