All over the US, fights are breaking out. In the kitchen. In the bedroom. All over the place.
‘Do we have to go to such an expensive restaurant’, asks the head of the household. ‘Couldn’t we stick with Mickey D?’.
‘I just wanted to try something different…a place where we can sit down.’
‘Uh…I don’t think we can afford to sit down.’
CNBC reports: ‘Nearly half of all Americans are falling deeper in debt as inflation continues to boost costs’:
‘Nearly 40% of consumers cannot put any money at all into savings, according to a recent analysis of household financial health and readiness by the American Consumer Credit Counseling, while about 19% said they had to reduce their savings rate.’
The poor family dog. He hears the shouting and cursing…the wife yelling…and the husband using four-letter words. He sees the lamp hit the wall. But he really doesn’t know what to make of it.
Maybe she’s right; her husband is a tightwad bore. Or maybe he has a point: his wife is a spendthrift flibbertigibbet. He doesn’t know. Neither do we.
Where the buck stops
But we know who to blame. Thanks to the Fed, the poor couple has had nearly 10% of its income pruned off by inflation. And now it faces a recession. Can it refinance its house? Forget it. Can it get better jobs at higher wages? Where? Will it get another round of stimmies to fatten its accounts? Don’t count on it.
GM ‘curbs some hiring’ as profits fall by 40%.
Spotify says it’s laying off 10% of its staff.
Employers all over the country are looking carefully at their payrolls…
…while consumer prices rise.
‘Major brands keep raising prices as their costs grow’, says The Wall Street Journal. Coca-Cola, Huggies, Dove, and Big Macs — all going up ‘as costs increase for everything from wood pulp to wages’.
Meanwhile, we also discover — on the front page of the WSJ — that a ‘Beijing Spy Campaign Targeted the Fed’…what a waste of time that was. The Fed is no master mechanic, no magician, no expert technician. It knows nothing worth knowing. It produces nothing worth producing. It has no secrets nor ‘sensitive information’ worth protecting. It offers no services. It has no skill…no expertise…no insight.
Every projection it makes turns out to be wrong. Inflation, for example, turns out not to be ‘transitory’…and nowhere near the Fed’s prediction. Every idea it has — from its 2% inflation target…to its ‘neutral rate’ — is foolish. And everything it does (mostly, inflating the economy with fake money) is essentially fraudulent.
Apart from that, it is a fine organisation of wonderful people who only have the best interests of all of us at heart. And what a swell haircut Jay Powell has!
Dust to dust
The Fed has only one real tool — liquidity (cash or credit) — and only one real decision to make: add to it or subtract from it. Either pour some more liquor into the punchbowl or take the punchbowl away. Either inflate the economy with more credit (by lowering interest rates and ‘printing’ more money) or kill the credit-based expansion that has been going on for the last 40 years.
After 12 years of heavy inflating, the stock market hit an all-time high in November of last year. But then consumer prices began to rise. ‘Who could have seen that coming?’ asked the Fed. And all of a sudden, the Fed had to stop inflating. And that meant it couldn’t backstop the stock market. Instead of lowering rates, it had to raise them.
The Fed quickly realised — about five years too late — that it was ‘way behind the curve’, with its key lending rate far below actual inflation (CPI). It has been trying to catch up ever since.
The flow of money and credit is getting pinched off. Slowly. But relentlessly. Naturally, asset prices are falling…and the black crepe is coming out. Bells are ringing. Mourners are gathering. And trillions of dollars’ worth of assets have already been buried.
But it has much further to go. So as long as the Fed stays on course — with its ‘tightening cycle’ — the ‘primary trend’ will be down. And a lot of ‘wealth’ will drop dead. Stocks have further to fall. Bonds will probably go down over the next 20 years. And the real estate downturn has barely begun.
Meanwhile, inflation cuts into family budgets and sets off the aforementioned arguments. The typical household doesn’t notice or care that stocks are falling. It relies on income for its wealth, not capital gains. And incomes are falling along with asset prices.
Note to the Chinese: it’s ‘Inflate or die’. Everything else is detail.
For The Daily Reckoning Australia