Doug Casey calls it The Greater Depression. I prefer The Greatest Depression humankind will have seen to date. And assuredly, it's on the way. Let's start with the why: to begin, if this ongoing financial crisis has taught us anything, it's that you can't deflate the debt with unlimited QE, Yield-Curve Control, MMT, dropping interest rates, negative interest rates or reducing the velocity of money to zero. None of that works, period.
So the debate right now is on whether we are still in deflation or in an escalading inflationary period where prices are steadily rising along with capital input costs. Central banks are pushing for two percent inflation -- all the while they are cooking the inflation books -- not to mention the actual nominal value of how much QE they have already spent since this crisis began. Here's a hint: ultimately, it will be way beyond the few trillions of dollars they'd like us to believe. Just look at 2008: One estimate calculates that The Fed and the federal government spent a combined 498 Billion, with The Fed's portion being 21 Billion. But reality is even more crushing: The Fed actually spent 29 Trillion on Wall Street banks' trading houses and lending money to other national central banks and foreign banks.
In that sense, today's financial crisis is but an extension of the last one, where in the intervening years, nothing was done to address debt and deficits, banking and corporate investment practices nor the canary in the coal mine known as derivatives and junk bonds-- the satanic instruments of the financial services industry across the globe. In 2008, they pedaled and pushed garbage as it related to mortgages and other securities and they are doing the same now. All that counts for them is greed. They don't give a tinker's damn about the soundness of the American economy, much less the economic welfare of the American people. In a more just society, we would remedy these deliberate deficiencies either with a jail cell or at least on a theoretical plane, a firing squad. Nothing like concentrating a few minds on Wall Street and breaking longstanding investment patterns for the greater good.
And then there's the question of arguing about or ignoring legitimate facts, none of which is greater than the absolute insolvency of the investment and money-center banking community. Its most recent roots can be traced back to September 2019 when The Repo Crisis took shape with The Fed coming in on a white horse to avert disaster. IMHO, that was the beginning of the end if you will, the execution date, largely postponed by Fed monetary clemency.
Powell's initial instincts were at least in partial terms on target: if you're talking about a world that has sound economic, market and money policy. He started to increase interest rates but then was quietly persuaded by the political powers that be to change course, not to mention The New York Federal Reserve, which now, as in 2008, actually runs the show. Three guesses who owns The New York Fed... To put it another way: like in 2008, QE was and is the appropriate mitigating instrument but it's definitely not the cure-all. Rather, in the long-term, it only kicks the can further down the road and intensifies the economic calamity that ultimately and inevitably comes to pass. But there comes a point where QE deliberately intertwined with a steady reduction of interest rates become at best, counterproductive and at worst, increasingly ineffective. In short, the longer QE is in place, the less bang for the buck you get with an inevitable cut-off date in the offing.
When Biden takes office, he will simply rubber-stamp present monetary policy and call for ever increasing QE, along with further reducing interest rates to net zero. He's won't pursue a policy of negative rates. Thank God.
What the United States needs is increased inflation, a return to a gradual growing of money velocity and slow and steady interest rate increases. Those are the signs of a healing and growing economy. So, you have to think out of the box: you keep QE in place for now and adjust it according to the underlying strength of the economy. In short, you take the economic poison pill now, post-election for two reasons: a) to avert an even greater economic disaster by punting the crash down the road and b) you adjust QE as necessary to buoy an economy that is finally going through hell-rehab but well on its way to growing eventual green shoots of a base for recovery. Like I said, Powell's initial instincts were correct to normalize the economy as fast and as humanly as possible. Help Joe and Jane stay afloat economically but get back to true capitalism, at least as it relates to a market economy, as soon as possible.
Sadly, politicians live in a world of less pain even at the cost of economic gain. That's where the United States is going with an economy that's already DOA and with capitalism long flushed down the dumper. Today's it's only and all about crony capitalism as the top gets richer and the bottom suffers horribly over a record and protracted period of time.
It could have been otherwise. The days of soft economic landings are now nothing but a pipe dream.
