'The fight is on. Inflationary psychology is embedded.'
- Steve Blumenthal,
Inflationary Psychology is Embedded, June 3, 2022
'Surveys show that Americans see high inflation as the nation’s top problem..'
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(Global Stagflation)(Inflation out of control) - US inflation at new 40-year high as price increases spread .. well beyond energy'A new and notably hostile cycle is taking hold. The ECB was a leading proponent and participant in the great global central banking inflationist experiment. This exercise has failed – these days blowing up in faces in Washington, Tokyo, Frankfurt, and beyond. Inflation has become unhinged, while highly levered speculative market Bubbles are bursting. At this point, is it even feasible to contemplate giving the experiment yet another shot? Einstein’s definition of insanity.
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Inflation dynamics are complex. There are myriad facets to analyze and contemplate. Yet the key dynamic is rather straightforward: inflation is a monetary phenomenon. To help us better conceptualize how consumer price inflation could possibly reach a 41-year high of 8.6% last month, look no further than this week’s Federal Reserve Q1 2022 Z.1 “flow of funds” Credit report.
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There’s a reality that can’t be denied: The Fed’s aggressive accommodation of Washington’s historic $9.965 TN 33-month borrowing binge is directly responsible for epic monetary disorder - including historic speculative manias and 40-year-high consumer price inflation.''Surging global bond yields and acute currency market instability. Inflation fears. Rampant Credit growth and Acute Economic Imbalances. Policy paralysis and geopolitical tensions. Especially late in the week, I found myself reminiscing of days intensely following developments on a Telerate machine, Quotron and the Dow Jones Newswire - on the fixed-income trading desk at Toyota’s U.S. headquarters in Torrance, CA. It was the summer of 1987.
I place the start of today’s swiftly concluding cycle at Greenspan’s post “Black Monday” crash liquidity assurances. I found myself on Friday pondering how many Trillions of additional liquidity the world’s central bankers would be compelled to create these days in the event of a synchronized global crash – in yet another round of desperate measures to thwart financial collapse. Consequences? Could it even work?
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A new and notably hostile cycle is taking hold. The ECB was a leading proponent and participant in the great global central banking inflationist experiment. This exercise has failed – these days blowing up in faces in Washington, Tokyo, Frankfurt, and beyond. Inflation has become unhinged, while highly levered speculative market Bubbles are bursting. At this point, is it even feasible to contemplate giving the experiment yet another shot? Einstein’s definition of insanity.
For the first time in years, I’m seeing reference to Greece’s 200% of GDP debt load, as well as Italy’s 150%. Did these countries use the years of unlimited access to ultra-cheap finance to restructure their economies and get their fiscal houses in order? If not, they’re in some deep trouble.
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Inflation dynamics are complex. There are myriad facets to analyze and contemplate. Yet the key dynamic is rather straightforward: inflation is a monetary phenomenon. To help us better conceptualize how consumer price inflation could possibly reach a 41-year high of 8.6% last month, look no further than this week’s Federal Reserve Q1 2022 Z.1 “flow of funds” Credit report.
..
There’s a reality that can’t be denied: The Fed’s aggressive accommodation of Washington’s historic $9.965 TN 33-month borrowing binge is directly responsible for epic monetary disorder - including historic speculative manias and 40-year-high consumer price inflation.
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U.S. high-yield CDS prices surged 59 this week to 532 bps - the largest weekly increase since June 2020 – to the high since June ‘20. The U.S. has its own “periphery” debt issue. The collapse of the “periphery” telecom junk debt (i.e. Worldcom) Bubble certainly was a major factor in the bursting of the nineties “dot-com” Bubble. But it was too small to be systemic. Periphery mortgage Credit became systemic with the proliferation of subprime mortgages and derivatives.
Today, there’s a massive “periphery” loaded with “subprime” junk bonds, leveraged loans, buy-now-pay-later, auto, credit card, housing, and solar securitizations, franchise loans, private Credit, crypto Credit, DeFi, and on and on. A massive infrastructure has evolved over this long cycle to spur consumption for tens of millions, while financing thousands of uneconomic enterprises. The “periphery” has become systemic like never before. And things have started to Break.
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This week looked serious. It was another blow for leveraged finance. More hedge fund blood was spilled, with more pressure to de-risk and deleverage. A momentous cycle change in speculative leverage and financial flows has gained momentum. More corroboration of the bursting “tech” Bubble thesis. And markets now only appear liquid during the occasional bouts of short squeezes, the unwind of hedges, and resulting bear market rallies. And when markets reverse lower, rather quickly systemic fragilities are revealed.'
- Doug Noland,
Breaking and the Q1 2022 Z.1, June 11, 2022
Context '..a “monstrous” (according to Clemente de Diego) legal institution..'(Banking Reform - English/Dutch) '..a truly stable financial and monetary system for the twenty-first century..'Economists warn of [price] inflation inequality as poor get slammed by rising prices(Stagflation)(Real price-inflation at 15%) - '..inflation spiraling completely out of control.'