Over the past year, the S&P500 has become an unstoppable force, soaring 12% in less than six months, and smashing the long-term 10% annual average out of the park. But even though stocks have provided stellar returns, they have not been the outperformer. Commodities have stolen the show, with corn, soybean, and lumber prices ripping higher, roughly 25 to 50% in less than a month. In other words, global commodity prices have started to experience rampant hyperinflation.
Yet the monetary elites at the Federal Reserve and the U.S. Treasury continue to assure us that this is normal and healthy. Because paying exceedingly higher food prices while watching your purchasing power decline is exactly what citizens signed up for during a global economic depression. Just learn to live with a lower standard of living. Quit complaining.
This inflation circus, however, has not only come to town in America but worldwide. Since other countries must follow the U.S. financial hegemony’s every move to avoid facing a debt crisis or economic sanctions, rampant inflation has spread worldwide. As a result, interest rates have also risen globally, which now threatens to destabilize the cheap money status quo and turn the calm market environment we’ve embraced over the past year into a volatile frenzy.
As we found out in late 2018, when yields rise too far, too fast — only by 1 or 2% — the global financial system starts to feel the pain. But since rates have already surpassed pre-pandemic levels, this has forced the monetary elites to come out and announce that everything is okay. Of course, by now we know this implies that the opposite is true. They have probably started preparing a list of solutions to suppress interest rates: yield curve control, perpetual bonds, even a debt jubilee; whatever they need to prevent a debt crisis if — more like when — one emerges.
In a sound economy without massive intervention, rising rates will eliminate all the unprofitable —aka bad — ideas in society. But because the monetary elites prefer to bail out the worst of these bad ideas — the megabanks who created the 2008 subprime crisis, the asset managers who handle the elite’s insolvent investments, and any other entity that threatens the cheap money status quo — they continue to finance enormous amounts of debt at zero interest rates, propping up corrupt institutions and profitless corporations — and doing “whatever it takes” to make that happen.
We have entered the economic insanity era, and the phony economy that the elites regard as ordinary and natural keeps crushing our souls. COVID-19 exposed everyone to the elite’s corruption and special interests. It was the Big Reveal, but it changed nothing. They bailed out airlines, corporations that spent $45 billion on share buybacks, while leaving small businesses out in the cold. Who could have predicted that the CEO of a sports betting company, who had lost millions day-trading the stock market, would come to the rescue instead? Yet Barstool Sport’s Dave Portnoy did just that, and with the Barstool Fund, he’s helped over 350 small businesses stay afloat during the pandemic.
For a second, imagine a real, booming economy where the average person thrives and has a decent standard of living. Well, we can’t have that now, can we? Plutocrats run the show, and their main goal is wealth preservation, not for us, but for them and the ruling class. They will do anything to influence and mislead the public to maintain their power and wealth. They will strive to keep the rich wealthy and poor unhealthy, make sure Wall Street bonuses rise while average income stays the same, and prop up asset prices to exacerbate the wealth divide. That’s what happens when democracy becomes a plutocracy and capitalism turns into crony capitalism.
But for the elites to preserve their dominance this time, they must, once again, continue to maintain the cheap money status quo through financial alchemy and perception management. Otherwise, it’s a collapse not just for the American plutocracy but for the global economic order. The global financial system is now “too interconnected to fail” — soon-to-be-famous last words.
The monetary elites responsible for maintaining this order happen to be the most clueless, U.S. Treasury officials and central bankers who both have no idea what’s going on in the financial system and have lost all understanding of modern money. But somehow, they have managed to dupe most market participants into believing they have power and authority over the financial system.
After returning from her tour of corruption, pocketing millions in speeches from the firms she helped bailout, U.S. Treasury Secretary Yellen said “interest rates will have to rise somewhat to make sure that our economy doesn’t overheat,” while Fed Chair Powell, who recently bailed out his buddies in private equity during COVID-19, also joined in the monetary theatrics with the usual statements that bore no resemblance to reality. Powell espoused the classic “we’ll use our full range of tools to support the economic expansion” line —which is Fed-speak for “we’ll invent new words, create new programs, institutions, or whatever else it takes to convince the people that we’re still in control, and have totally not preserved a failing economic system that will fail if we leave it alone.”
After successfully bailing out the financial system multiple times in the last few decades, Yellen and Powell face their hardest challenge to date. If rates continue to rise sharply, Wall Street and the U.S. government won’t be able to finance and pay off trillions in cheap debt, eventually bringing down the global financial system with them. Of course, as we mentioned, they will try to suppress yields to prevent a catastrophe, but this could cause the monetary elites to create another scenario that could destabilize the whole financial order. It’s one they haven’t had to face since the 1970s: a long-lasting inflationary regime.
Because the real economy has been asleep for decades, the system has remained stable. Monetary velocity, the rate we exchange cash in the real economy, and one of two components inflation needs to stay constant, has plummeted, which shows just how bad shape the real economy is in and explains why we have not even come close to persistent inflation.
But that could change. If they suppress rates to prop up the system, there’s a chance that when the real economy opens post-COVID, this will create rampant inflation or, even worse, an economic doom loop that will produce hyperinflation.
The monetary elites face the ultimate monetary dilemma: How do they curb inflation when they also need rates at near-zero levels to finance debt and grow the “economy” further? How ironic would it be if an economic recovery caused the mother of all bubbles to burst?
It’s a myth that the monetary elites want inflation. It’s the only way for them to lose their power and for the U.S. Dollar hegemony to have any chance of failing. Instead, they want a weak inflationary or deflationary environment, which allows them to maintain the Great Moderation: They pump asset prices to oblivion, turn off the money printer, wait for its effects to fade, then use the crash in asset prices as a justification to fire up the money printer once again. And the cycle starts over.
Every time they maintain control while repeating this sequence, inequality increases, the rich get richer, and “the economy” grows more artificial. For the plutocrats, this is the most desirable outcome. The only threat now is it could cause a debt unwind of epic proportions. The system has never been so leveraged in market history, and the quality of financial derivatives holding Wall Street’s daisy chains together has never been such low quality. But short-term pain for long-term gain is the best solution. In this scenario, they will likely report that the economy has “recovered”, remove supportive policies, and wait for the right opportunity to restart the money printer. If they don’t turn it off in time, it could be a disaster waiting to happen. We could move into a Great Inflation-style scenario that we’ve not seen since the 1970s.
But whatever happens, this demonstrates how absurd our situation has become: a real economic recovery with rising monetary velocity and interest rates will destabilize the system, but a perpetual economic depression will keep the financial system “stable” and the cheap money status quo intact.
Since the Great Moderation has become the norm with no fathomable alternative, when shit hits the fan in either direction, we’ll let the financial elites commit economic suicide to prop up the cheap money status quo once again. Only this time they will need a lot more firepower. To curb even a 10% drop — or a hyperinflationary rise — in asset prices, the monetary elites will have to embark on an epic debt binge, the biggest in U.S. history, turning the money printer up to the max, providing maximum “brrr”. If you thought the elite’s response to COVID-19 was colossal, think again. If history repeats itself, and we see another round of the Great Moderation, we’re going to witness the greatest debt expansion in human history.