Wednesday, March 2, 2022

Living Large In Artificial Paradise

This society strives for artificial happiness, and wonders why no one is happy...

Globalization is on the ropes. First came 2008 and the Global Financial Crisis. What followed was a decade of continual monetary bailouts for the ultra-wealthy. That gambit led directly to Trump and Brexit at the forefront of the new Anti-Globalization movement. Then came the pandemic. At each stage, political acrimony has increased and the "system" has grown weaker. What we learn from democracy is that it works great until you need leadership. Two opposing forces in a political civil war are anything but leadership. At the State of the Union, half the audience were giving a standing ovation, while the other half were fuming. None of our larger problems will get addressed at the ballot box. Which is why the competing political news stations have turned into a Roman spectacle.

The main problem is that this ad-sponsored society can't tell good change from bad change anymore. For that we can thank corporate CEOs whose sole job is to inform us that ALL change is "good". Unfortunately, that is far from the truth. Most change is highly profitable but far from good for society. Case in point this Tech oligarchy which has given us artificial intelligence in exchange for the real one, rendering society as dumb as a brick. Or the boxes of frankenfood on sale while the cost of real food goes up 5x. Opioids to euthanize a lifetime of bad health choices. 

And yet despite being the prime beneficiaries of their global monopoly, the CEOs and their corporations get a free pass under this current model. Until that monopoly is broken, nothing will get better whether on the economy or the environment. It's far too easy for corporations to move from one country to the next arbitraging differentials in employee wages, taxes, and environmental/trade laws. Demolishing small businesses and employees as they go.

All of which results in increasing stagnation at the zero bound. 

Structural DEFLATION.

What we are witnessing at the moment is end of cycle inflation cleverly disguising secular Global deflation. A collapsed middle class leveraged to the maximum struggling with a post-pandemic supply chain bottleneck. It's only sustainable if one believes that wages will continue rising. If not, then it will all turn back into a pumpkin at the zero bound deja vu of 2008.

The conservative business news can take FULL credit for spreading inflation hysteria far and wide. As Biden said last night, we want higher wages not higher costs. Unfortunately, for CEOs, wages ARE higher costs. We cannot continue to increase corporate profit margins to record levels if we're paying higher wages. Hence, J. Powell is tasked right now to solely focus on inflation while ignoring the record risks accumulating in the background.

The Fed is making the EXACT same mistake they made in September 2008 when they ignored the burgeoning banking meltdown and instead focused solely on inflation.

Oil volatility in this rally is now the highest since September 2008.


To up the ante even more, there are now home bidding wars in my neighbourhood for the first time since 2007. Far too long ago for people to remember how that ended. Once the sheeple heard that interest rates are rising, they were told they better buy a house NOW before rates go up. And that set off another epic home buying spree. I could throw up some charts on the topic, but the National Association of Realtors locked down their historical database. You can't get data further back than 2020 because they don't want us to see how far today's hockey stick in home sales is above the historical trendline. 

No discussion of Globalization would be complete without mention of the nascent WWIII taking place in Ukraine. Russia has now been effectively cut off from the global financial system. Which means that the dollar-based global trading system just took another step lower in terms of its long-term viability. What country that might in the future run afoul of the U.S. and its vassal allies would now trust the dollar reserve system? No one. 

Not to say I support this invasion of Ukraine by any means. However, if the standard for financial cut-off was based solely upon illegal invasions, the U.S. would have been cut-off decades ago.

Be that as it may, I am not predicting the dollar is at risk of imminent demise, however the global trading system backing the dollar IS at danger of imminent dislocation. And when that happens there will be a long-term re-evaluation as to the value of printed money as foreign exchange reserves. 

Needless to say, those who have grown comfortable with the current paradigm will find this to be a "jarring" event, to say the least.

Their wellspring of artificial happiness is set to explode. 

We have now entered the no bailout zone. And contrary to ubiquitous belief in the Fed and Congress and Faux News, it's not 1979 anymore.