Addiction is deadly, and no amount of artifice can obscure that this monetary addiction and collapse is the result of one Pusher: the Federal Reserve.
To talk about the Federal Reserve raising rates and reducing “easing” as a policy error is like saying the fentanyl addict who reduces his daily dose is making a policy error. In today’s absurd extreme of denial, pundits never talk about starting the addiction as a policy error; only ending the addiction is a policy error.
In other words, that the American economy is addicted to monetary smack is just fine; it’s the withdrawal from addiction that terrifies all the addicts. The financial punditry is beside itself with terror at the prospect that the staggering amount of monetary fentanyl being injected into the addiction-addled financial system might decline a tiny bit; oh please, Mr. Pusher (the Fed), give us a bit more smack every day, every week, every month, so we can feel the wonderful high of asset bubbles forever and ever.
Alas, just as the addict’s shattered body eventually gives out as the Pusher increases the daily dose, the American economy is collapsing under the addiction stoked by the system’s Pusher, the Federal Reserve. Whether the system is nominally “capitalist,” “socialist” or “theocratic,” capital must earn a yield above the rate of inflation.
If capital earns a yield less than inflation, the purchasing power of that capital trends toward zero as it loses value every hour of every day. When the capital has been eroded by inflation long enough, the system collapses, regardless of what label you slap on it.
The entire point of the Pusher / Fed’s monetary addiction is to reduce small-scale capital’s yield to less than zero, i.e. a yield less than inflation. Faced with savings losing value every day, the owners of small-scale capital are then forced to either spend the capital on consumption or place it on the gambling tables in the stock market casino, where the House always wins.
Large-scale capital wins big in the Pusher / Fed’s addictive scheme: corporations can borrow billions for next to nothing and use the Fed’s free money for financiers to buy back their shares, boosting the wealth of insiders and major shareholders.
Financiers can borrow billions at rates lower than inflation and use the billions to take over companies, break them up, sell off the pieces, take some chunks private and then take those pieces public, reaping huge gains for doing nothing but using the Pusher / Fed’s free money for financiers.
Banks and lenders make out like bandits, creating money at near-zero cost and loaning it to debt-serfs for student loans, auto loans and credit card debt at high rates of interest. Thanks to the Pusher / Fed, large-scale capital can borrow billions at 1% (lower than inflation) and then buy bonds yielding far more.
With 30-year fixed conventional mortgage rates close to 4%, we have to ask: if real-world (i.e. un-gamed) inflation exceeds 4%, then why would capital accept a yield lower than inflation?
The answer is the Pusher / Fed’s monetary fentanyl. Now that the Pusher / Fed has completely distorted risk, yield and asset valuations, assessments of risk are no longer connected to reality, and neither is the cost of capital (yields).
