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Not forcing the government to cut spending and allowing it to pile up massive debt can be seen as the Fed's biggest failure. The existing massive sovereign debt makes the Fed's path forward a matter of great debate. When describing its options, terms such as "painted itself in a corner" are used. This indicates many people understand the Fed is not limited in its options but will face great difficulty in arriving at a good outcome. 

Insanity and madness in the financial system and politics have reached the point where it has become normal. This is evident in many areas of our society. Little noticed was Jill Biden recently running a cabinet meeting like this was a normal part of the First Lady's role in Washington. This comes at the same time assassination attempts on Trump, a Presidential candidate and former President, are seen as no big deal. These dovetail with claims we need an interest rate cut when markets are making new highs. 

With equities, gold, and many other markets hitting all-time highs, the Fed cut rates 50 basis points. How do we reconcile the idea we must rapidly cut rates if the economy is doing so well? 

Circling back to economics, around six minutes into a recent video, Daniel Lacalle, author and professor of economics, mentions the unmentionable, unfunded liabilities. He also makes it clear that America is not alone or positioned as poorly as many other countries. Laccalle then moves into an in-depth discussion on shifts now occurring. Lacalle also covers much of the unfunded liabilities in a much shorter six-minute video that points to the debasement of currencies and more loss of purchasing power in the future. The link to that piece is; https://www.youtube.com/watch?v=PmUAxI_M9oE

Very troubling is his case that we have seen nothing yet. Lacalle claims we are on a course of “monetary destruction” that will get far worse as we move towards the 2030s. This has created a situation where some investors are already moving towards strategies that safeguard their wealth in uncertain times. This includes things such as negative interest rates, bank bail-ins, and the topic of de-dollarisation. Financial repression is not implemented to give us choices but is a tool to shift wealth away from the people and to the government.

As already noted, the Fed is not alone, central banks across the world have miserably failed to contain government expansion and spending. In the minds of many investors, it is odd that the price of Gold going higher at the same time many economic pundits talk about falling into a deflationary recession or worse. If gold and dollars rise together this is of course in relation to all other fiat currencies. Still, there is the problem that as the dollar rises in relationship to other currencies it creates havoc in global markets. 

The fact is, much of the power of central banks flows from being able to inject liquidity into the market during times of turmoil. Their Achilles heal or weakness, which many people have yet to understand, is their limited ability to control the long end of the rate curve. This refers to long-term interest rates, these rates are more dependent on investors' sentiment and views of currency debasement and inflation.

The recent volatility blamed on an unwinding of the Japanese carry trade highlights how the relationship in the value of fiat currencies can pack a wallop. Even as this is being written, we have economists and economic advisers pointing in all directions when it comes to where markets are going. Some are predicting a melt-up, some are declaring "clear skies ahead," and others that the economic wheels are about to fall off the bus. 

When it comes to those controlling the Central Banks making decisions that determine the course we take, it would be wise to remember they do not have total control of the situation. We may find they chose the wrong course, their tricks, or even changing the rules are ineffective. In a past posting, I pointed out that given enough pressure they might, even if it is a bad decision, again open the gates and flood the system with a plentiful supply of cheap money. 

We should marvel at how far Fedspeak, wordy, vague, and ambiguous statements, has gotten us so far. This is amazing considering how broken and dysfunctional the financial system has become. The crux of this post is that we live in unusual times and we should expect conditions around us to be both unpredictable and volatile. Factor in the coming election, the drumbeat of war, and what is happening in the area hit by Hurricane Helene, and it is clear, that we live in interesting times. With this in mind, it is difficult to envision the Fed will be able to continue successfully threading the needle.  

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