The FED is Cannibalizing the Global System
This 4th quarter is starting out with a bang and I think that we’re now nearing some of the most crucial days and weeks, which will shape the political, economic and social structure of the coming decade.
Truly, between 2020 and today, these past 2.5 years have been extraordinary times and now we’re going to see some very tough concessions being made; ideologies that seem firm will be relaxed to make way for compromise, and whoever plays the zero-sum game will learn a valuable lesson in the art of flexibility.
On a personal level, it’s time to face the music and make sure that your lifestyle needs are the right ones for the period we’ve entered, that of a lack of willingness by the central banks to extend credit and lower interest rates in the economy.
If you were a central banker right now, the last thing on your mind would be that you want to be the poster child of dovishness.
What I believe we should all be aware of is the idea that real estate prices have entered a correction period that may last a while longer, and that we must all understand that housing is the biggest employer in America, accounting for 15% of economic activity.
I’m not comparing today with the Great Financial Crisis of 2008 and 2009, because the cause of that was recklessness, both from the financial lenders, who owned the securitization of mortgage bundles, and the mortgage originators, who borrowed funds that posed as massive leverage to their daily lives.
In 2022, the problem is that the FED, in order to get under control a general inflationary crisis, is attacking housing as a means to an end, and by definition, is attempting to restrict the incentive for buying a home with the highest interest rates in 15 years!
Real estate impacts both Main Street and Wall Street, but the bombshell coming from the UNCTAD, the agency that the United Nations tasks with researching the health of trade on a global basis, shows that the central banks are now destroying their own, like a snake eating its own tail. This is because nations are suffering from a credit squeeze, particularly as bond vigilantes keep sending the dollar and dollar-denominated debt to levels not seen in over two decades.
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I read the UNCTAD report and some of the conclusions show that governments are stressed over supply chains and volatility in commodities, which means that we’ll likely get more of it, due to unintended consequences originating from future intervention.
WHY THE EPIC RALLY, THEN?
On Monday and Tuesday combined, we saw the biggest moves to the upside since April 2020, as well as a sharp fall in the dollar index, accompanied by a spike – one of the biggest I’ve ever seen – in silver.
So, how do we make sense of it all? How is it possible that the UK, one of the biggest economies in the world, is under the gun, causing its central bank to panic, the UN organization is screaming FED POLICY ERROR, and the markets are surging higher, when the chart is so eerily similar to that of the GFC?
Courtesy: Zerohedge.com, Bloomberg
I explained it to a friend in this way:
Imagine you had an over-hanging cloud, an issue that you classified as a severe crisis.
Worst yet, you were late to react to it.
Now, imagine you were able to turn that crisis into a mere problem.
I told my friend: You have a good life, a happy life, but you most likely have problems that you’re working to solve. One can have a good life and deal with problems at the same time, but no one has a good life when suffering from a crisis.
The global economy, in my opinion, is now dealing with problems, not with crises. While this is no reason to celebrate, it is also not the end of the world.
I remain convinced that the central banks have shelved QE programs and dovish policies for the years ahead.
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