An Epic Folly for the Ages
Today we begin with a list. A partial list. And in no particular order…
Angela Merkel. Donald Tusk. Mario Draghi. Donald Trump. Jerome Powell. Shinzo Abe. Haruhiko Kuroda. Theresa May. Boris Johnson. Mark Carney. Xi Jinping. Emmanuel Macron. Vladimir Putin. Justin Trudeau. Juan Trump. And many, many more…
These central planners – though they may not know it – are facing a no-win situation. They have extrapolated the past and are attempting to preserve the status quo into the future. Yet their efforts to perpetuate the upward growth curve of their countries and unions are useless against the relentless turn of history.
The political, financial, economic, and social foundations that have been in place over the last 75 years – and perhaps, over the last 220 years – are breaking down. And no policy directive, no interest rate adjustment, no trade tariff, no five year plan, no extraordinary measures, no green new deal, and no technocratic prevarication is going to stop it. Big Government doesn’t stand a chance.
The entire apparatus, from social welfare programs to a ridiculously complex capital structure, is based on perpetual growth. But growth, as we are all presently discovering, is ephemeral. The rapid creation of fake money by central planners may be able to forestall the downside that follows a mega-growth cycle. But it cannot avert it.
Still, the central planners are doing anything and everything to resist the downside. They are taking emergency actions. They are employing extreme currency debasement. They are slapping price controls across the economic landscape. They are starting wars. They are harnessing populism. They are doing all of these – and more.
They are also slipping and sliding and falling and flailing. Indeed, this is an epic folly for the ages. With this as context, what follows are several of this week’s choice proceedings…
On Tuesday, German Chancellor Angela Merkel suffered visible tremors while listening to the German national anthem. She was standing next to Ukrainian President Volodymyr Zelensky at a welcome ceremony in Berlin when the heat and stress got to her. Can you blame her?
Angela Merkel trembles through the national anthem [PT]
Merkel has spent 14 years in office, toiling to keep the European project from fragmenting. That’s a long time for anyone to stare down doom on a daily basis. Fortunately, after consuming three glasses of water, Merkel was doing much better.
On the same day, European Central Bank President Mario “whatever it takes” Draghi reaffirmed his commitment to currency debasement. His objective is to, somehow,provide perpetual stimulus to the euro zone economy. Much like Elizabeth Warren’s Economic Patriotism plan, Draghi aims to boost exports via the destruction of money.
Following Draghi’s utterances, the great European bond bubble expanded into the outer stratosphere. The yield on the German 10-year Bund dropped to a record negative 32 basis points. What’s more, the yield on the 10-year French OAT briefly slipped into negative territory for the first time in recorded history. But that is not all…
Europe’s chief monetary crank Mario Draghi promises to implement an even looser monetary policy and sends German 10-year Bund yields tumbling further into the nether region of negative yields-to-maturity. This is insanity writ large. [PT]
Draghi’s utterances stimulated President Trump to fire the following Twitter shot:
“Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA. They have getting away with this for years, along with China and others.”
Of course, Trump’s intended recipient of this tweet wasn’t Draghi; it was Fed Chair Jerome Powell…
Feeling the Heat of a Civilization on the Downside
On Wednesday, as fate would have it, Powell took his turn feeling the heat of a civilization on the downside. Trump, no doubt, wants Powell to debase the dollar and engineer a cheap credit induced economic boom and stock market bubble to coincide with election day on November 3, 2020. He has been publicly ridiculing Powell’s monetary tightening policies for months.
Powell’s mandate coming out of the June FOMC meeting this week was to appease Trump while pretending the economy is doing just great. Hence, as Powell prepared to release the Fed’s FOMC statement, he registered a Pucker Factor 9 (PF9) out of 10 on the military’s Pucker Factor scale. However, he did manage complete his task without succumbing to visible tremors.
So far, Powell appears to have achieved his mandate. The central planners at the Fed held their licked fingers up to the wind and concluded they’ll continue fixing the federal funds rate between 2.25 and 2.5 percent. And to appease Trump, Powell included following in his opening remarks:
“The case for additional accommodation has strengthened.”
The credit market and the stock market both celebrated the Fed’s assurance of future currency debasement. The yield on the 10-year Treasury note fell below 2 percent. Then, on Thursday, the S&P 500 Index clinched a new closing high of 2,954. The Dow Jones Industrial Average also made another run at 27,000.
You see, with enough monetary gas, and misplaced confidence, financial markets can go vertical. But what good is it if the actual economy is left behind?
The stock market is hurrying toward new all time high territory, celebrating a string of recent weak economic date releases which have kindled hopes for more monetary pumping from the Fed. Bizarrely, the Fed seems eager to oblige. If anyone had told us a year ago that the Fed would seriously contemplate rate cuts with the unemployment rate at 3.6% and the S&P 500 Index at an all time high, we would never have believed it. And yet, that is where we are now. [PT]
Remember, it takes prudence, wisdom, and industry to acquire and build wealth. The fact that central planners are attempting to circumvent these steps by issuing gobs of fake money is confirmation of a degraded human mind.
At this point, you can practically count the days until we suffer the ruin of their folly.
Charts by: BigCharts, StockCharts
Chart and image captions by PT
MN Gordon is President and Founder of Direct Expressions LLC, an independent publishing company. He is the Editorial Director and Publisher of the Economic Prism – an E-Newsletter that tries to bring clarity to the muddy waters of economic policy and discusses interesting investment opportunities.