Trump & The Currency Reset: How The US Money Trail Leads To The Dark Death Ship of Debt? - financialanalysis


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Saturday, December 21, 2019

Trump & The Currency Reset: How The US Money Trail Leads To The Dark Death Ship of Debt?

How the US Money Trail Leads to the Dark Death Ship of Debt.When the money goes, everything goes. Last week brought more evidence.

America’s late, crony capitalist empire is sinking into corruption, incompetence and debt.

But first, a bold prediction …Zero-Sum Game.You’ll recall that we predicted that the Federal Reserve would never “normalize” interest rates. Well, the Fed never even came close. And now it’s once again doing all it can to inflate the nation’s money system.

Last week, we learned that it would add about half a trillion new dollars over the next four weeks. Funding the short-term lending markets with that kind of cash suggests to us that other lenders — big banks — don’t want to put their own money at risk. Clearly, the Fed is desperately trying to stop something from happening. What it is, exactly, we don’t know.

Meanwhile, another of our predictions was confirmed last week: The Trump team announced a major trade deal with the Chinese. In other words, it did not go full crazy yesterday, as scheduled, with additional tariffs.

Trump has an election to win. The trade war may have brought smiles to his base of supporters a year ago. Now, it threatens to cost him votes. He had to settle … on almost any terms.

And the main term he settled on was the Chinese pledge to buy a huge amount of U.S. farm exports in 2020.

We’ve seen the number reported as $50 billion and $40 billion. According to Mr. Trump, that was a victory equal to the Battle of Midway.

Our prediction (in which we have 100% confidence): It won’t happen. The Chinese will not buy $50 billion worth of American wheat, corn and other farm-belt output. Or $40 billion. Most likely, they won’t even buy half that much.

The most they’ve ever bought in a single year was $26 billion. And that was before they hated us. Buying $50 billion would force the Chinese to dump the trade deals they just worked out with Brazil and Argentina … and bid against the EU, Mexico, and Japan for higher-priced U.S. output.

Not going to happen. And even if it did happen, it wouldn’t make any difference. Every bushel of wheat bought by the Chinese is simply not bought by Canada or Japan. Rearranging the world’s trade deals is a zero sum game, in other words.

Creeping Degeneracy
This trade deal, whatever it turns out to be, is just one of many symptoms of creeping degeneracy. There is no reason for the federal government to butt into trade. It’s none of its business how much wheat the Chinese buy.

But last week, on display were more examples of how the system and its major institutions have been corrupted. The Deep State gets deeper:

The FBI, for example, is supposed to make sure the laws of the land are respected. But the Horowitz Report tells us that the agency turned itself into a clandestine arm of the Democratic Party, lying to the courts and the public in order to tag Trump team hanger-on Carter Page as a Russian spy.

And more recently, Hillary Clinton tried to expand the balderdash by claiming that Tulsi Gabbard was a “Russian asset.”

Ms. Gabbard is the only candidate with any real knowledge of the War in Afghanistan; she was sent there as a soldier. She knows it’s a scam.

Which brings us to the Washington Post’s “Afghanistan Papers.” They came out last week, too. And there, too, we see the military arm of the Deep State clumsily bumbling along with no idea of where it was going … and misleading the public every step of the way.

Deep State PR
The Afghanistan war was a war the feds never intended to win; they had no idea what winning would mean, and no plan to achieve it.

Yet, Bush (who started it), Obama (who approved the dopey “surge”), and Trump (who sent even more soldiers) all let young Americans kill and get killed … and spent $2 trillion … only to transfer more wealth and power to the Deep State and its crony contractors, such as Erik Prince (also in the news last week).

The Inspector General’s report further reveals that the media — which is supposed to be speaking “truth to power,” was actually blabbing like a PR agency for the Deep State. It merely passed along the lies.

Whether it was the “Russia stole the election” fantasy or the “fighting terrorism in Afghanistan” propaganda, the press was complicit. And for credibility, it paid “retired” generals and incompetent security officials to repeat the claptrap.

Death Ship of Debt
But, here at the Diary, we follow the money. That is where the corruption began, we believe … and where it becomes more and more costly. And while the nation’s attention was distracted by the Impeachment Show, the financial Dark Death Ship of Debt drew closer.

The Fed pledged to pump as much as half a trillion more in funny money into the markets. Not over the next year, but over the next four weeks.

The Financial Times wondered what it meant:

One striking aspect of 2019 is that it marks the fastest pace of central bank easing since the financial crisis. This support has crushed government bond yields and cushioned the blow of contracting global manufacturing activity, faltering business confidence and falling capital investment.

But we’ve read this chapter before. A friend from Argentina put it in perspective:

It’s kind of amusing to see the U.S. doing the same things we’ve been doing in Argentina. Here it is a cyclical thing. In order to get elected, the politicians make promises. Then, in order to keep the promises, they have to print money. And, of course, they do all kinds of dopey things, too — you know, price fixing, exchange controls, trade barriers, corrupt contracts. And then we can’t pay our debts. We default. Inflation goes up.

Americans squawk when mortgage rates go over 5%. But in Argentina, you can’t get a mortgage at all. If you buy property, you pay cash. And I mean cash. You go to settlement with a paper bag full of money.

We’re used to it in Argentina. People know they can’t trust the government or its money. Americans have a lot to learn …

The laws of nature apply to the Northern Hemisphere as well as below the equator. And if there were any trick that would save a nation from the effects of overspending, corruption and “printing” money to cover its debts, the gauchos would have discovered it long ago.

More to come…Nobody — Especially the Feds — Should Manipulate Interest Rates..There are two sides to this debate. On one side are those few, lonely, marginalized fuddy-duddies — such as your editor — who think the human race is still subject to sin and error …

… and that every generation has its fads and follies that it takes for eternal truths.

(We feel entitled to speak for this group since the others are mostly either panhandling in lower Manhattan or confined to mental institutions …)On the other side, well, are Nobel prize winners … New York Times columnists … future perfectionists … dreamers, schemers and just about everyone else. They think we’ve entered a glorious New Era with no more need of honest money, free markets or balanced budgets.Giant Scam
Here at the Diary, we think nobody should be manipulating interest rates. Nor should the feds be allowed to counterfeit money … or manage the economy in any way.

We further believe that the whole financial experiment, beginning in 1971, in which fake money was substituted for real, gold-backed money … and all the manipulations and management gimmicks since then … will turn out to be nothing more than a giant scam.

But that’s not all. We also think that the nation’s economy is racing down that long, lost highway to Hell. And neither the technological wonders of the last 20 years, nor those of the future will meaningfully change the outcome.

Wait … We’re not finished.

It is the speed of these technological whizzes … and the regular innovations of a capitalist economy … that lead even sober, sensible, intelligent people to fantasize that negative rates … and huge debts … now “make sense.”

Writes economist Gale Pooley:

Negative nominal internet rates could be perfectly rational.

If this is so … what is the cost of carrying debt? Zero? No … It’s negative. In other words, who cares if you owe $40 trillion? In a negative interest world you get paid for borrowing. The more you borrow, the more you make!

Or, to put it another way … The risk of lending money out is greater than the risk of holding it in your own hot little hand.

Wait … You’re probably thinking, “This is just another sterile, theoretical squabble … Who cares?”

But don’t touch that dial. Because this goes to the heart of what’s happening right now. And it prefigures either a Brave New World of abundance … or, the same old world of ignorance and wickedness …

Conniving With Wall Street
So, let’s pick up where we left off Thursday … with Paul Volcker’s departure from the Federal Reserve in 1987. His work done, and inflation tamed, Ronald Reagan replaced him as Fed chair with Alan Greenspan. Only a few months later, the stock market crashed.

Greenspan might have stood up straight, like Volcker, and let the chips fall where they may. Instead, he stooped to connive with Wall Street.

Greenspan made it clear that there was not only a new man at the Fed, but a new policy.

Henceforth, stock market corrections were forbidden. The Fed would fight every one with lower rates. And then, when those weren’t enough, it would roll out the heavy guns — quantitative easing (QE) … and now Repo Madness.

That is the current state of U.S. monetary policy. It’s “Inflate-or-Die.”

The more the feds pump up the economy with fake money lent out at fake rates, the more the economy needs more and more fake money and more and more fake rates just to keep going.

That’s why the Fed has flooded the repo (very short-term speculative finance) market with at least $200 billion in fresh funds since mid-September.

Inflation on Main Street
We remind readers that “inflation” refers to this increase in the money supply. It may or may not show up in consumer prices.

For the last 40 years, for example, it has mostly gone into stock and bond prices.

Take the Dow. It has gone up some 27 times, making the rich — who own more than 80% of the stock market — richer. The New York Times:

A whopping 84 percent of all stocks owned by Americans belong to the wealthiest 10 percent of households. And that includes everyone’s stakes in pension plans, 401(k)’s and individual retirement accounts, as well as trust funds, mutual funds and college savings programs like 529 plans.

“For the vast majority of Americans, fluctuations in the stock market have relatively little effect on their wealth, or well-being, for that matter,” said Edward N. Wolff, an economist at New York University who recently published new research on the topic.

If we’re right, “inflation” will continue … and eventually roll over, from Wall Street to Main Street.

Then, ordinary households will face not just relatively lower incomes … but higher consumer prices too.

Hot Debate
Donald Trump has already increased spending (inflationary) more than any president in the last 50 years. His deficits are roughly twice as big as those of Bush or Obama (inflationary). He insists on lower interest rates (inflationary). He promotes trade wars and trade barriers (inflationary). And he says he wants another tax cut (inflationary).

And the Democrats are no better. Some estimates of Elizabeth Warren’s Healthcare for All program, for example, top $50 trillion over the next 10 years.

Where would that money come from? It would have to be “printed.”

So, no matter who wins the next election, you can expect super-low (perhaps even negative) interest rates, super-high deficits, record levels of debt and a growing Fed balance sheet (as they inflate the money supply by buying bonds … and maybe stocks … with money they create for that sole purpose).

The administration expects the national debt to hit $30 trillion by the end of the ’20s. Our own guess is that it will be more like $40 trillion.

Which brings us back to our debate: Brave New World … or Winter Is Coming?

Tune in next week …

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