The Fed Is A “Pickle”

WHAT DO WE KNOW ABOUT GAMBLERS?

A few thrive. Most lose money. Some lose jobs, savings, health, marriages, and their lives. Businesses built Las Vegas casinos from profits generated by customer losses. Many people dumped a huge number of dollars to create and maintain that monument to wishful thinking and hopium.

Las Vegas sounds like the Federal Reserve—a monument to wishful thinking, hopium, greed, and lobbying power.

GAMBLERS ANONYMOUS or GA helps compulsive gamblers. A few clichés from GA:

  • If nothing changes, nothing changes. [If the Fed continues “printing,” the devaluation consequences of printing will persist.]
  • Once a cucumber becomes a pickle, it can never be a cucumber again. [The Fed has passed the point of no return; it is a pickle.]
  • If a gambler holds a shovel, he will dig himself a deeper hole. If he puts the shovel down, it’s possible to climb out. [The Fed will not drop their shovel. Their “hole” will get bigger.]

There are two kinds of gamblers. A “cucumber” gambles and quits. A “pickle” gambles, loses too much and moves to Las Vegas to dig a deeper hole and gamble more. A pickle’s life usually ends badly.

The Fed is a pickle. It has transformed from an occasional gambler, a cucumber, into a pickle, an incorrigible gambler making bigger bets and blowing larger bubbles every decade. Cucumbers can become pickles, but once a pickle, always a pickle.

SO WHAT? WHO CARES ABOUT VEGETABLES AND FED GAMBLING?

  • The Fed gambled that lower interest rates (near zero) would “stimulate” the economy and bail out Wall Street’s bad bets. The cost for “Main Street” was large. We should care.
  • But low-interest rates made government debt less costly to refinance. This encouraged the government to spend even more and create massive debts. Ugly consequences must occur.
  • And low-interest rates allowed corporations to borrow inexpensively, buyback stock and levitate stock prices to unsustainable heights. The stock market downdraft will hurt many people.
  • Low-interest rates minimized income from savings. To get income, low-interest rates forced people to invest in risky vehicles, such as overvalued stocks. Total risk increased. The stock market soared, thanks to Fed intrusions, but most profits went to the upper 10%.
  • Governments, individuals and corporations borrowed and created excessive debt. That excessive debt is leverage, which makes the economy more fragile. A credit crunch, higher interest rates, a pandemic, war or other shock will devastate the economy, cash flow, profits, savings, investments, available credit, and the purchasing power of the currency.
  • The Fed’s market manipulations and interest rate controls encouraged malinvestments and bad decisions. The next recession will be worse than if the Fed had intervened less.
  • The Fed claims they saved the global economy in 2008 with at least $16 trillion in below-market loans, swaps, QE and more. The next crisis will encourage the Fed to double down. It worked once, so expect a repeat performance.
  • The Fed created easy credit and expanded bubbles in sovereign debt, stock markets, and real estate. The next correction or crash will remove $trillions in equity from the stock and bond markets. Real estate may crash again. Bet on the Fed to implement QE4ever. Inflate or die!
  • How do we know a recession, correction or crash is coming? Because bubbles always burst, and recessions follow booms, regardless of what politicians and Fed Chairmen want. This is a bursting bubble.
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