Paul Tudor Jones Buys Bitcoin As “Hedge Against Central-Bank Money Printing”
The unprecedented monetary stimulus unleashed by the Federal Reserve to help combat the economy-destroying coronavirus has revived worries about a hyperinflationary future where the dollar is worthless and popular inflation hedges like gold rule the day.
Adding even more clout to this thesis, on Thursday, famed macro investor Paul Tudor Jones said he’s buying Bitcoin as a hedge against the inflation he sees emerging from the Fed’s money-printing, even telling clients that bitcoin reminds him of “the role gold played in the 1970s”.
PTJ is betting on bitcoin because he believes the best profit-maximizing strategy is to “own the fastest horse,” according to Bloomberg, which cited a note to clients recently authored by PTJ, which he titled “The Great Monetary Inflation.”
“If I am forced to forecast, my bet is it will be Bitcoin.”
Jones said his Tudor BVI fund may hold as much as a low single-digit percentage of its assets in Bitcoin futures.
Jones isn’t the only one worried about the long-term ramifications of the Powell Fed’s actions.
Morgan Stanley expects the Fed balance sheet to hit $12 trillion by the end of 2021, nearly 3x its pre-corona peak.
Notably, PTJ’s play comes one week before ‘the halving’, an event that typically leads to an appreciation in the price of BTC/USD. Here’s a popular stock-to-flow model that HODLers use to forecast the price jumps typically precipitated by the quadrennial event (find more on that here)
If you are not familiar with the Stock-to-Flow model, we highly recommend reading the original article explaining the background and terminology.
And for those who might be unfamiliar with PTJ’s reference to “gold in the 1970s”, the FT recently published this column exploring how the central banks’ untrammeled money printing could spark an inflationary tidal wave and the return of 1070s-style “stagflation”.
We have been discussing the hypocritical positions of Democratic leaders ranging from Speaker Nancy Pelosi to Gov. Gretchen Whitmer in their response to the allegations of sexual assault by former Vice President Joe Biden.
Women’s rights attorney Lisa Bloom caused a stir this week however with a position that is at least honest, if chilling. Bloom stated that she believes that Biden did rape a female staffer but she is still going to endorse him for President of the United States. She tweeted “I believe you, Tara Reade… sorry.”
Once again, I continue to be baffled as to why this is so difficult. Biden insists that there is no prior allegation of sexual harassment or assault by anyone. However, he refuses to allow a search for any such allegations in his papers under lock and key at the University of Delaware. I still believe that Biden has the stronger case in this controversy, so I do not get why he resists total transparency on this or any such allegation.
I can see politicians saying that they believe Biden but also demand total transparency on any and all allegations of sexual harassment or assault. What is untenable is saying that you believe him but do not want to review the total record held in these different archives.
Bloom however is virtually unique in applying the same Kavanaugh standard of just accepting any allegation raised by victims of sexual assault. However, she then said she would still work to elect someone she believes is a rapist for president even thought it is not too late for the Democratic Party to select someone else.
Bloom tweeted
“I believe you, Tara Reade. You have people who remember you told them about this decades ago. We know he is ‘handsy.’ You’re not asking for $. You’ve obviously struggled mightily with this. I still have to fight Trump, so I will still support Joe. But I believe you. And I’m sorry.”
So just to unpack this…
Bloom believes Reade who says that Biden raped her when she was a staff member and then lied repeatedly to the public.
However, she still believes he should be the Democratic nominee – not sure if the apology really makes much of a difference.
Bloom noted that Trump also has been accused of assault. However, that does not excuse endorsing someone you believe is a rapist instead of demanding that the party pick a non-rapist as its nominee.
Historic Eurodollar Panic: Negative Rates Now Expected As Soon As November
We, as well as every Short-Term Interest Rate trader on Wall Street (or rather at home) is speechless at the insane action in the Eurodollar futures complex, where shortly after the Jan 2021 implied fed funds rate turned negative, the cascade of buying in ED futures has tripped above 100 in both Dec and moments ago, November 2020, meaning that the market is now expecting negative rates as soon as November.
And if one waits just a few more minutes, the Sept 2020 contract is about to flip negative too, as the market now expects the Fed to go NIRP in as soon a 4 months!
Needless to say, for ED traders to expect negative rates in months if not weeks, means that the economy is about to implode, and it appears bank stocks are starting to wake up to just how bad this news is…
How that is still positive for stocks we leave to Jerome Powell to explain who is about to have the worst summer/fall of his life.
YouTube Deletes Viral Video Claiming Dr. Fauci Spewing ‘Absolute Propaganda’ About COVID-19
One thing that should be abundantly clear by now is that any thoughts, opinions, or speculation which challenges the official narratives regarding COVID-19 will be promptly silenced by Silicon Valley, under the guise of protecting the public – which apparently can’t be trusted to absorb information and form their own opinions.
The most recent example of censored wrongthink is a new documentary, Plandemic, which features former chronic fatigue researcher Judy Milkovits, who claims that Dr. Anthony Fauci – head of the National Institute of Allergy and Infectious Diseases (NIAID) – is spewing ‘absolute propaganda’ about COVID-19.
In the video, Mikovits claimed Fauci perpetrated propaganda that led to the deaths of millions of people in the past. She also raised questions about how COVID-19 deaths are being counted.
However, one of her biggest beefs against Fauci dates to the battles for credit over the discovery of HIV in the early 1980s.
In the video, Mikovits claimed she isolated HIV from the saliva and blood of patients in France but that Fauci was involved in delaying research so a friend could take credit, which allowed the HIV virus to spread. These claims are not proven. They were also disseminated in April by Robert F. Kennedy Jr. Kennedy alleged on the Children’s Health Defense website (where he is chairman) –Heavy
Google’s YouTube is currently playing whack-a-mole with a 25 minute promotional vignette for the documentary which has gone viral – deleting new versions seemingly as fast as they pop up. The original version had over 1.6 million views when it was censored.
Facebook, however, hasn’t deleted it (yet):
As noted by Heavy‘s Jessica McBride, Mikovits has a new book out, Plague of Corrpution, which currently has 4.5 / 5 stars on Amazon.
Mikovits, who has a new book out, was featured in the first vignette released to promote the movie. Her controversial career in the scientific community has been punctuated by an arrest, lawsuit, retracted research study, allegations against Fauci and clashes with the founders of the Whittemore Peterson Institute for Neuro-Immune Disease, which is located in Reno, Nevada. -Heavy
Mikovits has claimed that she published a “blockbuster” study which revealed that “the common use of animal and human fetal tissues were unleashing devastating plagues of chronic diseases,” and that the “minions of Big Pharma” have been waging war against her to destroy her “good name, career and personal life.”
In the Plandemic video, Mikovits makes other claims, including that patents are a conflict of interest, and she criticizes the concept of mass vaccines. “They will kill millions, as they already have with their vaccines,” she said, stressing she was not anti-vaccine. She claims there is a financial incentive in COVID-19 strategies to not use natural remedies in order to push people to use vaccines.
Mikovits co-wrote a book called Plague: One Scientist’s Intrepid Search for the Truth about Human Retroviruses and Chronic Fatigue Syndrome (ME/CFS), Autism, and Other Diseasesand claims 30% of vaccines are contaminated with retroviruses. The book contains a forward from Robert F. Kennedy Jr. The book was No. 2 on the Amazon bestseller list on May 6. -Heavy
Plandemic has received both praise and criticism, however Google thinks it’s best if you leave the thinking to them.
US To Remove Patriot Missile Protection From Saudi Arabia Amid Oilpocalypse
Petrodollar panic?
As tensions between OPEC (cough – the Saudis – cough) and Washington rise over the supply (and price) of oil globally amid a pandemic-driven demand collapse, it would appears President Trump may have just gone ‘nuclear’.
“…there will be blood.”
The Wall Street Journal reports that The U.S. is removing Patriot anti-missile systems from Saudi Arabia and is considering reductions to other military capabilities – marking the end, for now, of a large-scale military buildup to counter Iran, according to U.S. officials.
As a reminder, OilPrice.com’s Simon Watkins warned last week that President Donald Trump was considering all options available to him to make the Saudis pay for the oil price war as the crash that followed has done significant damage to the U.S. oil industry.
With last month having seen the indignity of the principal U.S. oil benchmark, West Texas Intermediate (WTI), having fallen into negative pricing territory, U.S. President Donald Trump is considering all options available to him to make the Saudis pay for the oil price war that it started, according to senior figures close to the Presidential Administration spoken to by OilPrice.com last week. It is not just the likelihood that exactly the same price action will occur to each front-month WTI futures contract just before expiry until major new oil production cuts come from OPEC+ that incenses the U.S. nor the economic damage that is being done to its shale oil sector but also it is the fact that Saudi is widely seen in Washington as having betrayed the long-standing relationship between the two countries. Right now, many senior members on Trump’s closest advisory circle want the Saudis to pay for its actions, in every way, OilPrice.com understands.
This relationship was established in 1945 between the U.S. President Franklin D. Roosevelt and the Saudi King at the time, Abdulaziz, on board the U.S. Navy cruiser Quincy in the Great Bitter Lake segment of the Suez Canal and has defined the relationship between the two countries ever since.
As analysed in depth in my new book on the global oil markets, the deal that was struck between the two men at that time was that the U.S. would receive all of the oil supplies it needed for as long as Saudi Arabia had oil in place, in return for which the U.S. would guarantee the security of the ruling House of Saud.
The deal has altered slightly since the rise of the U.S. shale oil industry and Saudi Arabia’s attempt to destroy it from 2014 to 2016 in that the U.S. also expects the House of Saud to ensure that Saudi Arabia not only supplies the U.S. with whatever oil it needs for as long as it can but also that it also allows the U.S. shale industry to continue to function and to grow.
For the U.S., if this means that Saudi Arabia loses out to U.S. shale producers by keeping oil prices up but losing out on export opportunities to U.S. firms then that is just the price that the House of Saud must pay for the continued protection of the U.S. – politically, economically, and militarily.
And now, as The Journal reports, the U.S. is removing four Patriot missile batteries from Saudi Arabia along with dozens of military personnel sent following a series of attacks on the Saudi oil facilities last year, according to several U.S. officials. The attacks were part of hostilities that took place over several months.
President Donald Trump has made clear whenever he has sensed a lack of understanding on the part of Saudi Arabia for the huge benefit that the U.S. is doing the ruling family:
“He [Saudi King Salman] would not last in power for two weeks without the backing of the U.S. military.”
Trump has a very good point, as it is fair to say that without U.S. protection, either Israel or Iran and its proxy operatives and supporters would very soon indeed end the rule of the House of Saud, even though The Journal reports that The Pentagon’s removal of the Patriot antimissile batteries from Saudi Arabia, as well as the other reductions, are based on assessments by some officials that Tehran no longer poses an immediate threat to American strategic interests.
In a U.S. presidential election year, the last thing that a U.S. president wants is increasing diesel prices or shortages making a coronavirus-hit economy even worse. It is a fact that since the end of the First World War, the sitting U.S. president has won re-election 11 times out of 11 if the U.S. economy was not in recession within two calendar years ahead of an election whilst presidents who went into a re-election campaign with the economy in recession over the same time-frame won only once out of seven.
This said, it may be that Trump will use the threat of such military asset removals from Saudi Arabia, as his mercurial reputation may work to convince the Saudis that he is unpredictable enough to do just that, regardless of the short-term economic consequences.
There are two parts behind the inflation mongering. The first, noted yesterday, is the Fed’s balance sheet, particularly its supposedly monetary remainder called bank reserves. The central bank is busy doing something, a whole bunch of something, therefore how can it possibly turn out to be anything other than inflationary?
The answer: the Federal Reserve is not a central bank, not really. What it “prints” are, as Emil Kalinowski likes to call them, the equivalent of laundromat tokens (I wonder if they’re even that useful). Even Jay Powell knows this, but he’s absolutely thrilled that so many people believe otherwise.
When grasped by the dark specter of deflation, what better way (according to an Economist) to get out of it than to make people think you’re being monetarily reckless; therefore, he’s not about to correct the record as to what QE really is. As Paul Krugman once put it, credibly promise to be irresponsible.
It’s the “credible” part that goes lacking. Thus, the parade of counterexamples – “Japan 2001. America 2008. Japan 2013. Europe 2015” – each one unanswered by any inflationary breakout. Has the whole world just forgot about QQE? It’s still ongoing seven years later!
The other part or half of what’s driving fears is fiscal, governmental in general. Come hell or high water, it is told, the feds as opposed to the Fed are going to drive inflation. Why? Because, as legend has it, that’s the way you “pay down” massive debt loads. You go nuts borrowing and then, quietly, ambiguously, you screw your lenders (bond holders) by devaluing the currency.
Occasionally, as the kids say, they say the quiet part out loud.
A working paper just released (but not edited) by the Chicago branch of the Federal Reserve does just that. A taste:
The current low interest rate environment limits the Federal Reserve’s ability to stabilize the economy, while the large public debt curtails the efficacy of fiscal interventions by inducing expectations of costly fiscal adjustments. A solution to this impasse is a coordinated fiscal and monetary strategy aiming at creating a controlled rise of inflation to wear away a targeted fraction of debt. Under our coordinated strategy, the fiscal authority introduces an emergency budget with no provisions on how it will be balanced, while the monetary authority allows a temporary increase in inflation.
See!!, bond vigilantes will scream. We told you that’s what they’re up to!
Sorry, folks, this isn’t actually a surprise nor is it the matter for debate since everyone knows that’s what politicians want. It won’t make one bit of difference what authorities want to do, under cover or right out in the open, it’s what they actually can do.
And it’s just not all that much when it comes to the monetary system.
Controlled inflation, by the way, is not a new concept, either (obviously). Lost deep within the minutiae of the flurry of programs brought on by the Great Depression is something called the Thomas Amendment to FDR’s Agricultural Adjustment Act of 1933 (better known as the Farm Relief Bill).
Not just the Thomas Amendment, it was actually called the Thomas Inflation Amendment because it included a number of legal provisions which would force the costs of all manner of produce to be set (read: increased) by the diktat of federal government agencies. American farms and farmers had, like industry, been equally ravaged by deflationary prices.
But that wasn’t all, the amendment would have required the Federal Reserve to buy, at the President’s request, another $3 billion in federal government bonds (super QE) beyond those already purchased while also giving Roosevelt added authority to further lower the gold content of the dollar (statutory approval for official devaluation, meaning default, having been given just a few months earlier).
There was more: authority to put silver on par with gold, or at any ratio in between that possible extreme and where it was priced at the time; legal approval for the Fed to issue greenbacks, $3 billion of them, to finance the bond purchases rather than use reserve bank credit (bank reserves).
On May 13, 1933, in Britain’s The Economist these provisions were soundly condemned as going way too far:
The passage of the Thomas amendment by both houses of Congress has answered the question of whether we are going to have inflation. The only topic of conversation in New York during the past week has been ‘inflation.’ It is evident that the tide of inflationary sentiment is running at full flood.
Both The Economist article and one published in BusinessWeek four days later referred to “controlled inflation”, with the former quite negative on the theory, charging, “the country has exchanged a President with little effective power for a ‘currency dictator.’”
The latter, BusinessWeek, was far more sanguine:
This inflation is different. It contains controls that can be used to prevent a runaway…
Disagreement over the wisdom behind the amendment was fierce, but the foreseeable result, inflation, was widely viewed as a foregone conclusion.
As noted yesterday, on the contrary, there was none to be found anywhere – not until the mid-sixties under very different underlying (not deflationary) circumstances.
It wasn’t up to authorities to create it, no matter how much they wanted to or how willing they were to just tear up tradition and exceed political limits. The monetary power for inflation, or deflation, as the case would be, rested within the banking system which, contrary to “recovery” expectations, wasn’t recovering.
This undercurrent would persist for decades. Though the New Deal raised the budget deficit to extreme proportions, World War II would take them even further. And still no inflation.
Fearing it anyway, because central bankers through history have continuously proved how little they understand their jobs, the Federal Reserve by the time of America’s entry into WWII, wounded and weakened by its disastrous performance throughout the decade before, was made subservient to the Treasury Department. Its primary task had been whittled down to little more than bond market policeman; beginning in 1942, enforcing a ceiling on UST yields by promising to buy bonds at predetermined prices.
And yet, even that much was never required. Low interest rates persisted; the Fed, as I recalled a few years ago, never much more than a bystander and spectator as the banking system feared liquidity and deflation regardless of the government’s condition, intent, or disposition. You can’t credibly promise to be irresponsible when everyone, including Treasury, knows you’re toothless.
If you understand why interest rates had only gone lower in the thirties you can easily understand why they didn’t just surge one day in the forties or even fifties. Yes, the Fed kept a ceiling on long rates from ’42 to ’51, but in all that time the central bank rarely had to intervene in the market; none at all over the final years. There was no artificially constrained bond bear lurking underneath.
What ended this bond “bull” market was the same thing which would end up balancing the federal government’s books. Growth and opportunity, not inflation.
Thus, the question before us today isn’t really about inflation, either, it’s whether the debt being further piled on to defeat deflation (which has zero chance of succeeding at that) simply tightens the deflationary trap that much more.
Just like all these previous periods in history. “Japan 2001. America 2008. Japan 2013. Europe 2015.” Everyone 2020.
I’ll get to Japan in the nineties hopefully at some point this week. That’ll finish up the major episodes of this un-killable interest rate fallacy.
Database Of Wuhan’s ‘Batwoman’ Altered 48 Hours Before COVID-19 Samples Ordered Destroyed
As Western intelligence continues to investigate China’s handling of COVID-19 as it spread throughout Hubei province in December,disturbing evidence continues to emerge that the Chinese Communist Party (CCP) engaged in a massive cover-up of what was going on.
Now, we’ve learned that the Wuhan Institute of Virology – which was conducting controversial experiments into animal-to-human transmission of bat coronaviruses, altered their database in an apparent attempt to distance the lab from the outbreak.
“Days before the Wuhan wet market was bleached, whistleblowers were punished and virus samples were destroyed, someone at the high-security Wuhan Institute of Virology censored its virus database in an apparent attempt to disassociate the laboratory from a novel-coronavirus outbreak that would become a global pandemic,” reports the New York Post‘s Miranda Devine, citing a UK intelligence analyst who found the alterations via open-source methods.
Notably, the alteration occurred two days before a gene sequencing lab was reportedly ordered by the Health and Medical Commission of Hubei Province to destroy samplesof the new disease and withhold information.
According to the report, the alterations – conducted on the evening of Dec. 30 – were substantial, and occurred the day before the CCP notified the World Health Organization about the outbreak of a cluster of pneumonia cases in Wuhan.
The primary database contact is none other than Shi Zhengli – now known as “batwoman” for her controversial experiments, including the creation of a ‘chimeric’ coronavirus that can infect humans. According to the report, Zhengli was in Shanghai for a conference when she was summoned back to Wuhan to deal with the outbreak which had been detected in two pneumonia patients. While on the overnight train back to Wuhan, the database was altered.
Most of the changes were to delete the keywords “wildlife” or “wild animals.” This is significant, because global health researchers say the virus jumped from bats to humans via another wild animal — the crucial “missing link” in the COVID-19 transmission chain.
Shi used to boast that her bat-virus database was unique because it included data on virus variants in other wild animals.
Was her database censored to keep prying eyes away from references to cross-species transmission of viruses in wild animals?
For instance, the title of the database was changed that night from “Wildlife-borne viral pathogen database” to “Bat and rodent-borne viral pathogen database.”
“Wild animal” was replaced with “bat and rodent” or “bat and rat” at least 10 times in the database. Also, a reference to “arthropod vectors” was removed.
Keywords that might facilitate searches potentially connecting the database with the outbreak also were deleted. “Wild animal samples,” “viral pathogen data,” “emerging infectious diseases” and “cross-species infection” were keywords associated with the original version.
On Dec. 30 they were replaced with “bat,” “rodent” and “virus.” –New York Post
“It looks like a rushed, inconsistent effort to disassociate the project from the outbreak by rebranding it,” according to the UK intelligence analyst who discovered the alterations. “It’s a strange thing to do within hours of being informed of a novel-coronavirus outbreak.”
“If the WIV had found the missing link between bat virus RaTG13 and SARS-CoV-2 [the coronavirus that causes COVID-19] from an animal vector, it would have been in Shi’s database,” he added.
And Nordea’s simple OLS-model has even started to ponder whether negative long USD yields could be the name of the game. It both sounds and looks far-fetched and we don’t really trust the below signal, which to a large extent is the result of an unprecedented low in the Global PMI, but none the less it showcases the growth-based downside pressure that long bond yields face.
Overall, we tend to think that the Fed will have to re-increase the daily purchase tempo to really reignite the global credit cycle, since USD scarcity will remain an issue (in particular in the EM space) unless the Fed outprints the US Treasury issuance.
And as rates re-plunge and negative rates resurge, gold is bid…
It Begins: For The First Time Ever, US Fed Funds Price “Fatal” Negative Interest Rate Starting Jan 2021
Back in 2015, when the Fed set off on its first tightening cycle in a decade and was set to hike rates for the next three years, we wrote in an article that in retrospect would be proven 100% correct, in which we warned that by hiking rates the Fed is engaging in a massive policy error, because according to our calculations at the time, r* (r-star), or the natural rate of interest in an economy where total debt/GDP was 350% and rising, and where GDP was 2% and falling, the short-run equilibrium real interest rate was a paltry 0.57%…
… which also meant that any attempts to push rates notably higher would result in catastrophe (recall the Ghost of 1937 when the Fed engaged in an identical policy error), forcing the Fed to promptly cut rates, if not go negative.
Fast forward to today, when the US debt is far greater, while GDP growth is, well nobody really knows but as of this moment is imploding and deeply negative. Logically, that would mean that r* is far, far lower than it was back in 2015. And just last week, Deutsche Bank confirmed as much, when its credit strategists concluded that despite the massive intervention by the Fed to date, it will need to do more to catch down to r*.
As DB’s Stuart Sparks wrote on April 26, “there is ample evidence that policy must ease further in a variety of asset markets. One of these is the currency market. The trade weighted dollar is stronger than it was before the Covid-19 shock, and is stronger than it was when effective funds were more than 225 bp higher last year. Another clear reflection of further need for policy easing is in commodity markets. Oil has nearly monopolized commodityrelated headlines, but are only part of the story: agricultural commodities and metals are significantly lower on the year. We can see this in breakevens, where our model fair value is roughly 1% and clearly no where near the context of Fed policy objectives.“
As Sparks further explain, if indeed policy is not easy enough, precisely how easy should it be? What is the optimal level of real short rates, or r*? While market dynamics can suggest that policy remains too tight, r* is not directly observable in real time. We frame this discussion with an estimate of r* developed by our colleague Francis Yared in a recent piece in which he presents evidence from equity/fixed income correlations that suggests r*is approximately -1%.
As the DB strategist then concludes, “given observable correlations and Treasury yields, we can infer the level of r* implicit in market behavior.“
The conclusion is scary: despite everything the Fed has done – which includes trillions in explicit liquidity injections and implicit funding backstops – not only does the Fed need to do more, but it would in fact have to cut rates to negative to offset pent up market imbalances.
Deutsche Bank wasn’t alone in its dire assessment: in a report published today Nordea’s FX strategist Andreas Steno Larsen went even further than the German Bank, writing that according to the bank’s model, “negative long USD yields could be the name of the game” and references the following chart correlating 10Y Treasurys with its implied yield which uses inputs from the global business cycle, inflation, Fed Funds, and the Fed’s long-term dot.
Of course, earlier this week we got Ken Rogoff writing a Project Syndicate piece earlier this week, “The Case for Deeply Negative Interest Rates” in which he wrote “imagine that, rather than shoring up markets solely via guarantees, the Fed could push most short-term interest rates across the economy to near or below zero. Europe and Japan already have tiptoed into negative rate territory. Suppose central banks pushed back against today’s flight into government debt by going further, cutting short-term policy rates to, say, -3% or lower.“
Facing this barrage of negative rate commentary and forecasts, the market appears to have finally relented and moments ago the Bloomberg WIRP function showed something that has never happened before: the January 2021 implied rate is now a negative -0.02%…
… the first time this series has dipped into the negative!
Understandably, the volume of bets on NIRP by end of 2021 has been surging, and sure enough the market finally cracked in what is the most serious test of the Fed’s conviction to not impose negative rates.
What does a negative interest rate mean, aside from the obvious death sentence for banks? We have written thousands of articles (literally) why sliding into this monetary twilight zone – where both Japan and Europe already are to be found, frozen in monetary carbonite – means game over, but instead of recapping them all, we will give the final word to the bond king Jeff Gundlach himself, who conveniently summarized it best last night when he tweeted that a rate < 0 is "fatal".
These Trillions Treasury is borrowing is heavily in T-Bills. Chair Powell has stated in plain English he is opposed to negative interest rates. Yet the pressure to go negative on Fed Funds will build as short term borrowing explodes and dominates. Please, no. Rates < 0 = Fatal.
The Federal Reserve is creating a massive amount of money out of thin air and injecting it into the economy. Pretty much everybody believes this is the only choice given the economic emergency we face. But we’re told once the emergency is over, the Fed will take the excesses away. In his podcast, Peter Schiff explains why this will never happen. Once the drug addict is hooked, you can’t just take the drug away.
Peter started the podcast saying he thinks the bear market relief rally is coming to an end.
The Fed can only buy so much with its QE and rate cuts.”
The stock market rally in April created a lot of optimism about the economy. The prevailing mindset was “if we can turn it off, we can turn it back on.”
Peter said now that the fog is starting to lift a bit, people are starting to realize that narrative wasn’t true and that this is going to be a much deeper and protracted recession.
But people still don’t realize just how weak the economy was before the coronavirus pandemic. Now the government and the Federal Reserve are engaging in the same policies that undermined the economy in the first place.
Pundits and analysts keep talking about how the Fed is “injecting liquidity into the economy.” That translates to inflation. The Fed is creating money out of thin air and spending it into circulation.
But that does not help the economy. It’s never helped the economy. What it does do is help to sustain a bubble.”
During a recent interview, Fed Vice Chair Richard Clarida talked about how the Fed is supporting the economy through this pandemic. How does a central bank “support an economy?” Peter said it really can’t.
What can the Fed actually do? Just print money, right? That’s all they can do. They can artificially suppress interest rates so that we can take on more debt, and they can create money. They can rob people of their purchasing power through inflation and allow the government to spend that stolen purchasing power into the economy. But does that help the economy? No. The Fed has no tools to support the economy. You don’t support the economy by printing money. Now, the Fed could try to support the bubble. It can try to prevent the bubble from deflating or have it deflate more slowly. But that’s actually hurting the real economy.”
In a nutshell, by enabling the government to borrow and spend even more money, by monetizing the massive debt, the Fed is hurting the economy over the long-term. Peter said that there’s a lot the Fed can do to undermine the economy, but there’s nothing it can do to support the economy other than extracting themselves from interfering.
They have to undo the damage they’ve done. They have to allow interest rates to go up. They have to stop monetizing debt. That would help the economy only because they stopped hurting it. That’s what they could do to help – stop hurting!”
During that same interview, Clarida also claimed that the Fed would withdraw and remove all of the excesses it’s injecting into the economy. We’ve heard that promise before. When the Fed launched quantitative easing early in the 2008 financial crisis, Ben Bernanke told Congress it was temporary. He insisted the central bank was not monetizing the debt. He swore that the Fed would sell all of the bonds it was adding to the balance sheet.
It never happened.
Isn’t that the same BS line they fed us after the 2008 financial crisis? QE was a temporary emergency. They were going to eliminate it or unwind it as soon as the emergency was over. They weren’t monetizing the debt. It was all temporary. They were going to normalize rates, shrink the balance sheet. That’s what they said before. It was a lie before. I knew it was a lie before. I told everybody that would listen that the Fed was lying.”
Peter said this is an even bigger lie. It’s impossible for the central bank to remove the support from the economy.
They are basically giving a drug addict drugs. And if you’re high on drugs, you can’t say we’re going to take away the drugs when you don’t need it anymore when the drugs are the source of the high. When you’re high on drugs, you constantly need those drugs. You can’t take the drugs away. So, all the Federal Reserve does when it intervenes in the way that it has, and it comes in with all this cheap money — it can never take the cheap money away. Again, that’s the monetary roach motel that I’ve talked about.”
Peter said the reason gold didn’t go higher after the 2008 financial crisis is because the Fed managed to convince everybody that it wasn’t a monetary roach motel. People actually believe the extraordinary monetary policy in the wake of the crash was temporary, that the Fed could unwind its balance sheet and raise interest rates. That’s why gold had its big downward correction.
It was gold discounting the normalization process. All of the rate hikes, all of the quantitative tightening was priced into gold before the Fed even started.”
If you recall, gold’s decline ended at the same time the Fed raised rates for the first time.
It was a sell the rumor, buy the fact. They were selling gold for years based on the anticipation of the Fed returning to normal. And then the minute they took their first step on the road to normalcy, that’s when gold bottomed and they started buying gold. Except the Fed never completed the journey.”
Now the Fed is doing the same thing again. They are giving a bigger dose of the same drug that they couldn’t get the economy off before. Keep in mind, the Fed was cutting rates and doing QE before COVID-19.
This is like a rerun of a bad movie. We have Clarida tossing out the same old lines. “This is temporary — for the emergency.” When it’s no longer needed, we’ll take it away. But as Peter said, it’s always needed.
I mean, if you want to keep the bubble going. If you want to let the bubble pop, if you want to let the whole house of cards collapse, sure, you can remove the policy. But if you’re determined to keep the bubble going, which is what the Fed is, then you can never stop.”
Peter said the difference this time and the reason he thinks gold will keep going up is that nobody is going to believe the Fed this time.
They can’t fool anybody. Fool me once, shame on you. Fool me twice, shame on me. The market’s not going to get fooled again by the exact same lie. Especially on that is so much more preposterous now because the debt is so much bigger. The size of the monetary stimulus is so much larger. We have a much bigger drug habit than we ever had. And if we couldn’t kick the last drug habit, how are we going to kick this one?”
