1- The Fed is fighting deflationary forces because nature is trying to collapse unprofitable zombie companies that specialize in capital destruction. Since our monetary system is debt-based, a collapse of zombie companies creates a collapse in the money supply, i.e. deflation.
https://twitter.com/SantiagoAuFund/status/1314628414624604161
2- Deflation can feed on itself because it causes asset prices to fall. When asset prices fall, the asset side of companies’ balance sheets fall. But the liabilities side does not. So equities are wiped out.
3- The Fed is deathly frightened of deflation, which they think are falling prices, because they associate that with the Great Depression of the 1930’s. To offset falling prices they print massive amounts of currency and use it to buy everything in sight to lift asset prices.
4- But here’s the thing: money printing doesn’t solve the underlying rot—it just covers it up. And the more they cover it up the more the rot metastasizes throughout the economy. So every round of money printing must be larger than the previous since there’s more rot to cover up.
5- Obviously, so long as the Fed keeps playing this game, there can only be one outcome (which can take a long time to materialize)... hyperinflation of the currency.
6- Of course, there is another option... The Fed could do nothing.
If the Fed did nothing, nature would cull the corporate herd of the sick and dying until health is restored. It would be painful - as detox always is - but the pain would be worth the restoration of health.
If the Fed did nothing, nature would cull the corporate herd of the sick and dying until health is restored. It would be painful - as detox always is - but the pain would be worth the restoration of health.
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