SC215-9

http://www.informationclearinghouse.info/55348.htm

Will the Federal Reserve Cause the Next Riots?

Federal Reserve Chair Jerome Powell and San Francisco Fed President Mary Daly both recently denied that the Federal Reserve’s policies create economic inequality. Unfortunately for Powell, Daly, and other Fed promoters, a cursory look at the Fed’s operations shows that the central bank is the leading cause of economic inequality.

The Federal Reserve manipulates the money supply by buying and selling government securities. This means that when the Fed decides to pump money into the economy, it does so by putting it in the pockets of wealthy, and oftentimes politically-connected, investors who are able to spend the new money before the Fed’s actions result in widespread inflation. Wealthy individuals also tend to be among the first to invest in the bubbles that form when the Fed distorts interest rates, which are the price of money. These investors may lose some money when the bubble bursts, but these losses are usually outweighed by their gains, so they end up profiting from the Fed-created boom-bubble-bust cycle.

In contrast, middle-class Americans lose jobs as well as savings, houses, and other assets when bubbles burst. They will also not benefit as much as the rich and well-connected from government bailouts and stimulus schemes. Middle- and working-class Americans also suffer from a steady erosion of their standard of living because of the Fed’s devaluation of the currency. This is the reason why so many Americans rely on credit cards to cover routine expenses. The Federal Reserve is thus the reason why total US credit card debt is almost one trillion dollars.

Big-spending politicians are also beneficiaries of the fiat money system. The Fed’s purchases of US debt enable Congress to massively increase welfare and warfare spending without increasing taxes to politically unacceptable levels. The people pay for the welfare-warfare state via the Fed’s hidden and regressive inflation tax.

Low interest rates also benefit politicians by keeping the federal government’s interest payments low. This is an unstated reason why the Fed will keep interest rates near zero or even lower interest rates below zero.

In response to the government-caused economic collapse, the Federal Reserve increased the money supply by about a trillion dollars from mid-April to early June. In contrast, it took the Fed all of 2019 to grow the money supply by 921 billion dollars. Even before the lockdown, the Fed was massively intervening in the economy in a futile attempt to prevent economic crisis.

A coming crisis will likely be triggered by a collapse in the dollar’s value and a rejection of the dollar’s world reserve currency status. The economic collapse will be worse than the Great Depression. This will result in widespread violence along with government crackdowns on liberties, accelerating the US slide into authoritarianism. The only way to avoid this is for Congress to make drastic cuts in spending — starting with defunding the military-industrial complex — and to audit then end the Fed.

....

http://charleshughsmith.blogspot.com/2020/07/this-is-financial-extinction-event.html

This Is a Financial Extinction Event

Though under pressure from climate change, the dinosaurs were still dominant 65 million year ago--until the meteor struck, creating a global "nuclear winter" that darkened the atmosphere for months, killing off most of the food chain that the dinosaurs depended on. (See chart below.)

The ancestors of modern birds were one of the few dinosaur species to survive the extinction event, which took months to play out.

It wasn't the impact and shock wave that killed off dinosaurs globally--it was the "nuclear winter" that doomed them to extinction. As plants withered, the plant-eating dinosaurs expired, depriving the predator dinosaurs of their food supply.

This is a precise analogy for the global economy, which is entering a financial "nuclear winter" extinction event. As I've been discussing for the past few months, costs are sticky but revenues and profits are on a slippery slope.
Businesses still have all the high fixed costs of 2019 but their revenues are sliding as the "nuclear winter" weakens consumer spending, investment in new capacity, etc.

Despite all the hoopla about a potential vaccine, no vaccine can change four realities: one, consumer sentiment has shifted from confidence to caution and from spending freely to saving. This is the financial equivalent of "nuclear winter": there is no way to return to the pre-impact environment.

Two, uncertainty cannot be dissipated, either. There are no guarantees a vaccine will be 99% effective, that it will last more than a few months, that it won't have side-effects, etc. There are also no guarantees that consumers will resume their care-free spending ways as credit tightens, incomes decline, risks emerge and the need for savings becomes more compelling.

Three, consumer behavior and uncertainty have already changed, and so businesses that cannot survive on much lower revenues won't last long enough to emerge from the "nuclear winter" of uncertainty and a shift in sentiment.
Four, assets based on 2019 revenues, profits and demand are now horrendously overvalued, and the repricing of all assets will bring down the predators, i.e. the banks.

As I've noted here before, the top 10% of households account for almost 50% of consumer spending. These households are older, and own the majority of assets --between 80% and 90% of stocks, bonds, business equity, rental real estate, etc. This is the demographic with the most to lose in returning to care-free air travel, jamming into crowded venues and cafes, etc.

This demographic has "been there, done that" and foregoing fine dining, sports events, concerts, cruises, etc. is not much a burden and may actually be a relief.

Meanwhile, the entire food chain of landlords, banks, local government, employees, etc. depends on enterprises returning to 100% of 2019 revenues. As tenants stop paying rent, landlords default on mortgages, sending banks into insolvency, leaving local government with less tax revenues and employees with fewer job prospects.

To a degree few appreciate, the "recovery" since 2009 has been dependent on over-spending, over-borrowing and over-speculating: as spending, borrowing and speculation all pull back to what would have been "normal" levels two generations ago, the economy collapses because it's become completely dependent on over-spending, over-borrowing and over-speculating.

As consumers and businesses retrench, borrowing declines while defaults and bankruptcies eviscerate bank profits and balance sheets. As spending declines, businesses with high fixed costs and pre-pandemic business models (crowding people together in close quarters, etc.) cannot generate enough revenues to survive. As the collateral of commercial real estate and profit streams collapse, assets are repriced all down the food chain, reversing the wealth effect: as people feel poorer, they borrow and spend less, creating a feedback loop of lower valuations, lower spending, lower profits, lower borrowing all of which feed back into each other, pushing everything lower.

The lower reaches of the financial food chain are already dying, and every entity that depended on that layer is doomed: the small business die-off will bring down distributors, banks, landlords, and employment, and as the layer collapses then the top predators will starve to death as well: Big Tech, healthcare, higher education, tourism, local tax revenues, etc.

The clouds are spreading and thickening, and the dawn sky is tinted an ominous red. This is a financial extinction event, and the Fed's pathetic shamans can't reverse history.