China’s factory-gate prices grew at the fastest pace in almost 26 years in September, adding to global inflation risks and putting pressure on local businesses to start passing on higher costs to consumers.
Inflation? Deflation? Stagflation? Consecutively? Concurrently?… or from a great height.
We’ve reached a pivotal moment where all of the narratives of what is actually happening have come together. And it feels confusing. But it really isn’t.
How can we stuff fake money onto more fake balance sheets to maintain the illusion of price stability?
The consequences of this coordinated policy to save the banking system from itself has resulted in massive populist uprisings around the world thanks to a hollowing out of the middle class to pay for it all.
The central banks’ only move here is to inflate to the high heavens, because the civil unrest from a massive deflation would sweep them from power quicker.
For all of their faults leaders like Donald Trump, Matteo Salvini and even Boris Johnson understand that to regain the confidence of the people they will have to wrest control of their governments from the central banks and the technocratic institutions that back them.
That fear will keep the central banks from deflating the global money supply because politicians like Trump and Salvini understand that their central banks are enemies of the people. As populists this would feed their domestic reform agendas.
So, the central banks will do what they’ve always done — protect the banks and that means inflation, bailouts and the rest.
At the same time the powers that be, whom I like to call The Davos Crowd, are dead set on completing their journey to the Dark Side and create their transnational superstructure of treaties and corporate informational hegemony which they ironically call The Open Society.
This means continuing to use whatever powers are at their disposal to marginalize, silence and outright kill anyone who gets in their way, c.f. Jeffrey Epstein.
But all of this is a consequence of the faulty foundation of the global financial system built on fraud, Ponzi schemes and debt leverage… but I repeat myself.
And once the Ponzi scheme reaches its terminal state, once there are no more containers to stuff more fake money into the virtual mattresses nominally known as banks, confidence in the entire system collapses.
It’s staring us in the face every day. The markets keep telling us this. Oil can’t rally on war threats. Equity markets tread water violently as currencies break down technically. Gold is in a bull market. Billions flow through Bitcoin to avoid insane capital controls.
Any existential threat to the current order is to be squashed. It’s reflexive behavior at this point. But, as the Epstein murder spotlights so brilliantly, this reflexive behavior is now a Hobson’s Choice.
They either kill Epstein or he cuts a deal or stands trial and hundreds of very powerful people are exposed along with the honeypot programs that are the source of so much of the bad policy we all live with every day.
These operations are the lifeblood of the power structure, without it glitches in the Matrix occur. People get elected to power who can’t be easily controlled.
The central banks are faced with the same problem. To deflate is worse than inflating therefore there is no real choice. So, inflation it is. Inflation extends their control another day, another week.
Whenever I analyze situations like this I think of a man falling out of a building. In that state he will do anything to find a solution to his problem, grasp onto any hope and use that as a means to prolong his life and avoid hitting the ground for as long as possible.
Desperate people do desperate and stupid things. So as the mother of all Battles of the ‘Flations unfolds over the next two years, remember it’s not your job to take sides because they will take you with them.
This is not a battle you win, but rather survive. Like Godzilla and Mothra destroying the city. If Epstein’s murder tells you anything, there’s a war going on for control of what’s left of the crumbling power structure.
And since inflation is the only choice that choice will undermine what little faith there is in the current crop of institutions we’ve charged with maintaining societal order.
As those crumble that feeds the inflation to be unleashed.
For the smart investor, the best choice is not to play. Wealth preservation is the key to survival. That means holding assets whose value may fluctuate but which cannot be taken from you during a crisis.
It means having productive assets and being efficient with your time.
It means minimizing your counter-party risk. Getting out of debt. Buying gold and cryptos on program or on pullbacks. Most importantly, it means keeping your skills up to date and your value to your employer(s) high.
And if you’re really smart, diversifying your income streams to keep your options open.
Deflation and inflation are two sides of the same coin (or the same side of two coins). Both are just as destructive.
Yellen Says Caution in Raising Rates Is ‘Especially Warranted’ … Fed Chair makes case for go-slow changes with rate near zero … Janet Yellen said it is appropriate for U.S. central bankers to “proceed cautiously” in raising interest rates because the global economy presents heightened risks. The speech to the Economic Club of New York made a strong case for running the economy hot to push away from the zero boundary for the Federal Open Market Committee’s target rate. –Bloomberg
Janet Yellen was back at it yesterday, talking down the need for a rate hike.
She is comfortable with the economy running “hot.”
After a year or more of explaining why rate hikes were necessary, up to four or more of them in 2016, Ms. Yellen has now begun speechifying about how rate hikes are not a good idea.
It’s enough to give you whiplash.
It sets the stage for increased stagflation in the US and increased price inflation in China. More in a moment.
Here’s the real story. At the last G20 meeting in February, secret agreements were made between the most powerful economies to lift both the US and Chinese economy.
The details of these deals have been leaked on the Internet over the past few weeks and supported by the actions of central bankers involved.
It is what The Daily Reckoning last week called “The most important financial development of 2016, with enormous implications for you and your portfolio.”
The Fed and other members of the G20, which met in February, intend to maintain the current Chinese system.
They want China to stay strong economically.
The antidote to China’s misery, according to the Keynsian-poisoned G20, is more yuan printing. More liquidity that will supposedly boost the Chinese economy.
As a further, formal yuan loosening would yield a negative impact felt round the world, other countries agreed to tighten instead.
This is why Mario Draghi suddenly announced that he was ceasing his much asserted loose-euro program. No one could figure out why but now it’s obvious.
Same thing in Japan, where central bank support for aggressive loosening has suddenly diminished.
The US situation is more complicated. The dollar’s strength is now seen as a negative by central bankers and thus efforts are underway to weaken the currency.
A weaker dollar and a weaker yen supposedly create the best scenario for a renewed economic resurgence worldwide.
The euro and the yen rose recently against the dollar after it became clear that their central banks had disavowed further loosening.
Now Janet Yellen is now coming up with numbers and statistics to justify backing away from further tightening.
None of these machinations are going to work in the long term. And even in the short term, such currency gamesmanship is questionable in the extreme, as the Daily Reckoning and other publications have pointed out when commenting on this latest development.
In China, a weaker yuan will create stronger price inflation. In the US, a weaker dollar will boost stagflation.
We’ve often made a further point: Everything central bankers do is counterproductive on purpose.
The real idea is to make people so miserable that they will accede to further plans for increased centralization of monetary and governmental authority.
Slow growth or no growth in Japan and Europe, supported by monetary tightening, are certainly misery-making.
Stagflation in the US and Canada is similarly misery-provoking, as is price-inflation in China.
Nothing is what it seems in the economic major leagues.
Central banks are actually mandated to act as a secret monopoly, supervised by the Bank for International Settlements and assisted by the International Monetary Fund.
Deceit is mandated. As with law enforcement, central bankers are instructed to lie and dissemble for the “greater good.”
It’s dangerous too.
The Fed along with other central banks have jammed tens of trillions into the global economy over the past seven years. Up to US$100 trillion or more.
They’ve been using Keynesian monetary theories to try to stimulate global growth.
It hasn’t worked of course because money is no substitute for human action. If people don’t want to invest, they won’t.
In the US, the combination of low growth and continual price inflation creates a combination called “stagflation.”
It appeared in its most serious form in the 1970s but it is a problem in the 2000s as well.
According to non-government sources like ShadowStats, Inflation is running between four and eight percent in the US while formal unemployment continues to affect an astonishing 90 million workers.
US consumers on average are said to be living from paycheck to paycheck (if they’ve even got one) with almost no savings.
Some 40 million or more are on foodstamps.
Many workers in the US are probably engaged in some kind of off-the-books work and are concealing revenue from taxation as well.
As US economic dysfunction continues and expands, people grow more alienated and angry. This is one big reason for the current political season with its surprising dislocation of the established political system.
But Yellen has made a deal with the rest of the G20 to goose the US economy, or at least to avoid the further shocks of another 25 basis point rate hike in the near future.
Take their decisions at face value, and these bankers are too smart for their own good.
Expanding US growth via monetary means has created asset bubbles in the US but not much real economic growth.
And piling more yuan on the fire in China is only going to make Chinese problems worse in the long term. More resources misdirected into empty cities and vacant skyscrapers – all to hold off the economic day of reckoning that will arrive nonetheless.
Conclusion: As we have suggested before, the reality for the US going forward is increased and significant stagflation. Low employment, high price inflation. On the bright side, this will push up the prices of precious metals and real estate. Consider appropriate action.