Oct 112018
 
 October 11, 2018  Posted by at 1:22 pm Finance Tagged with: , , , , , , , , , , , ,


Pieter Bruegel the Elder The Triumph of Death 1562

 

Finally financial ‘markets’ go through a substantial dip, which Steve Mnuchin claims is just temporary and Donald Trump says is caused by the fact that the Fed is ‘loco’. Mnuchin may well be right, but it won’t be because he knows something you don’t.

And Trump is certainly right, but in reality the Fed has been loco for many years, so why be surprised if it acts crazy now? The reason Mnuchin and a million other ‘experts’ may be right without realizing it is that the Fed has been crazy enough to kill the financial markets.

Or at least killed what made the markets functional, and beneficial to society. And that may well be exactly what Jay Powell is trying to repair, but he may well not be aware of that either. Looked at from a ‘benign’ angle, Powell is perhaps raising rates so people can regain insight into what they’re buying.

The pre-Powell Fed pushed up asset prices (don’t let’s say ‘values’) to such heights nobody has any insight anymore into what anything is truly worth. And in what was formerly known as the financial markets that was not important, because what were formerly known as investors were making heaps of money regardless.

Surely they must all have known that this wouldn’t continue?! That it’s just a matter of timing, of knowing when it would end? Oh, but that’s not really possible, is it, without the very price discovery process the Fed successfully strangulated?

Still, there must also be tons of people left thinking the Fed can kick that can six times to the moon and back, or sixty. If only because they’ve never bothered to think about price discovery, and what role it plays in the very ‘markets’ they volunteer to spend their money in.

And along those same lines, many acknowledge housing bubbles in Sydney and Vancouver but think the US has learned its lesson a decade ago. And the loco Fed plays its role there too: mortgage rates have been ultra-low, enticing the last left batch of greater fools not mortally wounded by the last fire to jump in this time. Wolf Richter’s Case-Shiller graph says plenty in that regard:

 

 

But of course things tend back to normalcy, and it doesn’t take all the overleveraged stock- and home buyers longing for price discovery; it takes just a few to get the engine started. And then everyone will be along for the ride. So from that angle Jay Powell looks anything but crazy raising rates, we just can’t be sure if he knows what the consequences will be.

Not that it matters all that much what he does or does not know. What was formerly the market is like a pendulum swung so far out of balance that it costs ever more effort and money to keep it from moving towards equilibrium, and that process has only one possible outcome.

For mortgage rates, it looks something like this, and to make anyone able to buy any home at all higher rates will of necessity mean lower prices. You can’t, nobody can, not the Fed or the government can, keep that pendulum away from its tendency towards equilibrium forever.

 

 

For stocks it looks much the same. So why try, you’d think?! To prevent incumbents and ruling classes from being exposed as swimming naked, that’s why. They invented a way to make the entire nation swim naked, thinking they’d never be found out because the water levels were so high.

Whether yesterday’s 831-point Dow dip is temporary or not is of little interest. Much more important is that the entire asset prices situation is temporary. It doesn’t matter if the Fed pumps $1, $10, or $100 trillion into what once were markets, in the end it all comes down to how many people can pay how much money for the assets.

And since there is never an unending supply of greater fools, we know where this is going. The easy money and low rates and asset purchases at central banks and stock buybacks by companies can and will result only in more profits and more wealth for a few, and sheer endlessly less for the many.

Inequality in the US has now reached such extremities that the country’s AAA rating threatens to be taken away –as Moody’s indicated-; the government has so many people it must support financially (or let perish) that its financial position comes under pressure. Which is, again, negative for the many, for the few; they don’t care about that rating.

Yes, too many people are on some form of welfare in America. And Washington would love to throw many of them off of it. The many have no representation on Capitol Hill anymore. Just about any senator and congress(wo)man is a millionaire or certainly well-off.

 

How can the country get its rating back, or at least not lose it due to its increasing inequality? There seem to be two ways: let the 80 million now on welfare die by the side of the road, or provide them with jobs that allow them a fruitful life. That may sound like socialism or something, but it’s really the exact opposite.

It’s not the government’s role to give people jobs, but it is its role to make sure conditions are in place for the private sector to provide them. Trump’s ‘trade wars’ look crazy to many, but the intent is to get jobs back to the US. But there is much more.

America was once prosperous. What changed?

Here’s one thing: In what was -arguably?- America’s wealthiest time as a nation, the post-World War II period, income taxes for the richest were as high as 90% (1952: 92%); they were slowly brought down towards 70%. Only when Ronald Reagan took over in 1980 did they really fall (1982: 50%). This was ‘justified’ by lowering the highest income bracket (1982: $85,600, it had been between $200,000 and $400,000 for years).

In 1988, the top rate plunged to 28%, and the highest bracket to $29,750. Today, the top rate is 39.6% and the high bracket $400,000. In a graph, the consequences look like this:

 

 

The corporate tax rate, meanwhile, pulled this one, and don’t get started on tax havens etc.:

 

 

And that situation has led to a huge financial crisis, to the Fed going crazy and handing out trillions to the exact wrong part of society, those who already have a lot of money, and the result has been an absolute disaster, at least for the country; not so much for its elites.

But as even Moody’s now recognizes, you can’t run an AAA-rated country on elites alone. Despite the crazy Fed trillions, the US has achieved negative growth (imagine where it would be without):

 

 

Something must be done. Problem is, with only those millionaires in charge in the House and Senate, the likelihood of boosting income tax levels up to where they were when America was most prosperous is extremely low. And Trump’s tariffs are not on their own going to bring back the jobs; they can’t rebuild the lost infrastructure, for one thing.

Something must be done, and it’s entirely unclear what, or rather, who’s going to do it. The Democrats have nothing, or nothing but frustrated millionaires and Bernie Sanders. The GOP has only Trump. None of these people are going to vote to double their income taxes.

Much of what needs to be done will be classified as socialism, ridiculed and thrown out the window, even if the country was anything but socialist under Eisenhower and Kennedy, during its -at least economic- Golden Age.

It’s a nice puzzle, isn’t it? Well, maybe not so nice after all.

 

 

Home Forums Of Course The Fed Is Crazy

This topic contains 6 replies, has 4 voices, and was last updated by  TheTrivium4TW 2 months ago.

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  • #43310

    Pieter Bruegel the Elder The Triumph of Death 1562   Finally financial ‘markets’ go through a substantial dip, which Steve Mnuchin claims is just
    [See the full post at: Of Course The Fed Is Crazy]

    #43313

    seychelles
    Participant

    Most people cannot conceive how devastating the next economic downturn is going to be at its perigee. The tide is going to be extremely low. Many baby boomers will find that their pensions, largely invested in stocks and bonds, will not be there. Savings in personal domestic real estate will likewise evaporate. “Investors” in things such as long-term care insurance will find that they have wasted their money. As the government attempts to suppress social unrest, taxes will increase to keep up with welfare assistance costs. The 1% will be relatively unaffected: losing 90% of a net worth of 10 milllion is not as devastating as losing 90% of an estate which nets at 100,000. Commentators are already mentioning stock losses of 45% near term and hinting at mortgages rates of 8.5% medium term. As the world political stage reverts to a more usual multipolar and nationalistic persona, I expect repayments of sovereign debt to be increasingly selective and conditional, with concomitant huge increases in yield to cover the increased risk of default in repayments of interest and principal. Any attempt to bail out financial institutions during the downturn as in 2008 will result in severe social upheaval. Interest in the stock market will be severely diminished for generations and central banking will probably be abolished. Some new or revived system of money will be initiated and work until it, too, becomes corrupted. All governments should be trying to repatriate untaxed income of any stripe that is sequestered in offshore tax havens. A one-time nationalization of any household net wealth over 5 million would be highly beneficial as would initiation of severe criminal and financial penalties for any major mainstream news medium or educational system which censors alternative views to sculpture a monolithic social mindset. Lack of variety causes lack of resilience which lowers survivability in all living systems, including human societies.

    #43314

    TheTrivium4TW
    Participant

    Seychelles, all by design. A Rothschild explains much of the plan in a Q&A thread he started on another forum. And yes, I read the whole thing, and he knows too much erudite information to not be a Rothschild or someone **really** high up in their “food chain.”

    https://ia802300.us.archive.org/8/items/rofschildv1/IAmARofschildAxeMeAQuestion.html

    What most don’t know is that our property tax authority is contractually obligated to hold anything it taxes (our homes, our property) as COLLATERAL AGAINST THE INEXTINGUISHABLE GOVERNMENT DEBT.
    Given all you outlines above, imagine having an extra $200k tax levy added to the value of your home. If you don’t pay it as prescribed, well, you lose your home, even if it is “paid off.”
    If it isn’t paid off, you lose your home, you keep the mortgage, and by the time this all goes down, if you don’t pay the mortgage as a homeless person, you will probably be incarcerated in some kind of work camp. Who knows, but it won’t be good.
    The strong allusion to the fact our homes are COLLATERAL FOR GOVERNMENT DEBT is found in the last 10% of the Rothschild thread.

    #43315

    seychelles
    Participant

    Seychelles, all by design.

    I am not going to argue with you on this point.

    #43319

    Dr. D
    Participant

    Snappy and well-written. Cutting to the real point that the single purpose for markets is price discovery. Without price discovery, we have a soviet system of central planning, but worse. Worse because we can’t see that’s what happens, and worse because the system isn’t asking for more tractors we can need, the inputs just cascade mindlessly, demanding more houses in S.F. and more government debt. –You get what you subsidize and not what you tax, no surprise.

    Seychelles, that’s what history says alright, and it’s a hard taskmaster. However, it’s hard to be sure. The market was supposed to crash and the bonds fail, housing drop to cash income, and say metals and wheat rise 20 years ago. Or 40 years ago, in 1979, yet they keep the plate spinning, and, to my amazement, people just keep loving ever-further lies and frauds. If you’re off by 20 years, or even say 4 years, it can have big consequences. That’s why so many are in the market, trained to risk all for those 4, 10, 20 years. What else can they do? When markets are rigged, that is to say, there’s no price discovery, things that are in shortage get cheaper, and stocks that are bankrupt get richer. Hard to rest on the sidelines in the general madness.

    P.S. if you’re into the elite insider theory, 10/10/18 was a magic date for them, the window they wanted to kick off the big wars and troubles, before their plan went off the rails. That being the day they hit the market going into a midterm election is just another big coincidence, I’m sure. But history is riding them now too instead of the other way ‘round.

    #43327

    seychelles
    Participant

    But history is riding them now too instead of the other way ‘round.

    That SEEMS to be true, but they are in apparent denial.

    Hard to rest on the sidelines in the general madness.

    Yes, but when holdouts like us start getting tempted the cliff edge is much closer.

    #43332

    TheTrivium4TW
    Participant

    Hi Dr. D,

    >> Cutting to the real point that the single purpose for markets is price discovery.<<

    Not from the perspective of the Money Power Monopolists, it isn’t.

    “Look at the stock market. The objective is to get the worthless fiat out of the serfs hands, not make a profit!

    Why would those who own the fiat creation have to work to get more! Silly!

    The market exists to get worthless fiat out of the hands of the little people, and for no other reason. And it is very easy to do. Think about how the markets work!”
    ~An Unnamed Rothschild
    https://ia802300.us.archive.org/8/items/rofschildv1/IAmARofschildAxeMeAQuestion.html

    That thread is probably the single most important data point leading towards anagnorisis, and then the realization of what the denouement might manifest as.

    But most people will ignore it…

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