'..financial markets are slow to appreciate momentous longer-term ramifications .. The Federal Reserve has certainly done about everything possible to corrode confidence in a public institution of such vital importance. Waning confidence in Beijing is at this point almost palpable. In Europe, the ECB’s stubborn dovish stance on inflation is almost laughable – and certainly pathetic. Moreover, the world today faces perhaps the greatest geopolitical crisis since WWII. Trying to be objective, it sure appears things are coming to a head.''The Big Test is coming, and there are many reasons why this Test is fraught with extraordinary risks. First of all, this will be the first Test where consumer price inflation is a serious concern. At this stage of a protracted Bubble cycle, only the Fed’s balance sheet has the capacity to operate as “buyer of last resort” in the event of serious de-risking/deleveraging. But with today’s powerful inflationary biases in consumer and producer prices, wages, and energy, food and global commodities markets, another bout of monetary inflation risks general inflation spiraling completely out of control.
The Big Test will come with a high-risk geopolitical backdrop, unlike anything experienced during previous Tests. Importantly, the confluence of global conflict, financial and economic insecurities, manias and market Bubbles, and surging inflation and commodities prices is no coincidence. They are all manifestations of decades of escalating Credit Inflation and resulting Monetary Disorder.
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Between real estate stress, Covid lockdowns, waning economic vigor, and China’s partner’s ruthless invasion of Ukraine, Chinese households have good reason to question whether Beijing’s competence and capabilities have been blown out of proportion for too long.
The Russia/Ukraine War is in ways reminiscent of the early pandemic days: clearly history-changing with far-reaching but unknowable ramifications. Beijing will feign the middle road for as long as possible, but I’m skeptical China gets through this unscathed. The world is now hastily repositioning for the new “Iron Curtain” global backdrop. At the minimum, nations will be forced to respond to potentially highly problematic disruptions to energy and food supplies. The likelihood of panic buying and broad-based supply issues throughout the commodities complex is not low. And it’s difficult to see how already troubled global supply chain issues don’t get even worse – even if geopolitical conflicts don’t escalate.
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While commodities markets have quickly begun to adapt to new realities, financial markets are slow to appreciate momentous longer-term ramifications. “Russia’s total debt owed to foreigners stood at $490bn…” So far, Russia appears to prefer keeping its options open (making some debt payments). But expect a furious Russian leadership to resolutely exact revenge – in any way it can.
It’s difficult to envisage a higher risk backdrop for The Big Test. Not surprisingly, the highly speculative stock market is struggling to effectively adjust to the rapidly deteriorating backdrop (i.e. tightening cycle, fragile Bubbles, geopolitical risk, China, etc.), only raising the risk of disorderly adjustment/dislocation.
Over the past decade, Bubble Dynamics enveloped the world – in a blow-off dynamic to conclude a multi-decade experiment in unfettered global Credit and central bank inflationism, along with market and economic structure. As such, it’s a distinct possibility that The Big Test will be more globally systemic – the U.S., China, Europe and EM all succumbing simultaneously to Crisis Dynamics.
I see The Big Test denoting the “official” conclusion to a multi-decade boom period. From my analytical perspective, it has always been a case of a historic “global government finance Bubble” eventually culminating in a crisis of confidence in government finance and policymaking. Most regrettably, there will be an unavoidable day of reckoning for such reckless inflation of perceived financial wealth. The Federal Reserve has certainly done about everything possible to corrode confidence in a public institution of such vital importance. Waning confidence in Beijing is at this point almost palpable. In Europe, the ECB’s stubborn dovish stance on inflation is almost laughable – and certainly pathetic. Moreover, the world today faces perhaps the greatest geopolitical crisis since WWII. Trying to be objective, it sure appears things are coming to a head.'
- Doug Noland,
The Big Test, March 25, 2022
Context (Banking Reform - English/Dutch) '..a truly stable financial and monetary system for the twenty-first century..'Inflation is really 15%, highest since 1947; Why is government 'suppressing' data? John Williams, February 1, 2022
Economists warn of [price] inflation inequality as poor get slammed by rising prices(Stagflation) - 'U.S. Inflation Storm..''..a “monstrous” (according to Clemente de Diego) legal institution..'