Many months ago – we all heard “the fed is trapped!”. I believe it – I still do, to an extent, but I think many people predicated this on the cost of interest on the debt going sky high, leaving the Fed little choice but to back off of rates. However, I think many aren’t correctly interpreting the landscape we are in. I’m not writing this to say “I was right, he was wrong”. This isn’t about any of that. It’s trying to evaluate where we are in the game, understand the pieces on the board, and correctly try and anticipate the moves to come.
I recently wrote about the Rousseau Gambit in chess. Something I had never seen before, but at the ripe age of 46, I learned something new yesterday in a video with a GM that could have been devastating in my playing days going back to the World Open in my teens.
Without going into the nuances and variations here – it LOOKS to be a rather puzzled move, and somewhat innocuous. But every move I would have played as white ends up being a trap of sorts. Even the BEST move to play against this ends up with black down two pawns, but has a superior position. Meaning – white THINKS they know the board, and someone comes in and does something innocuous, and puts you into a trap – despite you knowing the best moves available.
The gambit played
Fed Chair Powell had been talking about raising rates (pawn to F5) and everyone balked. They all KNEW that he could not raise rates, or at least to any degree for any period of time, or they would crash the economy – or worse, create a situation where higher rates would make borrowing costs alone to service the debt at $1.5T. Surely, we cannot afford that.
But this gambit now appears to be a duel, which you see above. Powell has said our current spending is unsustainable. Yellen has seemed to have said we will never see a recession ever again (using Magic Money Tree economics) and with this, you now are at a stand off where the costs to service the debt are spiraling out of control. Of COURSE the Fed MUST draw back as to not bankrupt the government!
Or must he?
To me, it seems apparent the central bank of the US is attempting to have a Volcker moment. Not against inflation, mind you, but against our legislature. If they cannot curb spending, then costs to service the debt go much higher, and with this, deficits continue on a Weimar-like path.
In January, I wrote an article about how indeed the Fed could raise rates. I did NOT call for this. My money was with the guys above here calling for the pivot. It still is, with a caveat – that even if the pivot does NOT happen, I feel that conditions could get so bad, it would trigger a risk off fear play we haven’t seen since the 1930s.
White’s counter moves
Remember what I said about the Rousseau Gambit above? Every legitimate move ends in a trap. However, our rulers (yes, they are at this point) are very quick to talk more and more rhetoric to gaslight you into believing whatever it is they want you to believe.
And this is where this is going.
See – the Fed is about to burn shit to the ground in a stand off. Likewise, our lawmakers have counter moves. Here’s what I can see as possible counter moves.
Deficit Spending – They simply do not care about deficits anymore. They twist the fact that you spent $1T more than you took in as “long term deficit reduction” and “investing in infrastructure which will reduce the deficit $1T over 10 years”. But they fail to attack the DEBT. That is, the year after year deficits which keep adding up. They completely talk about this stuff with a straight face. Meanwhile, the east is like….
The East must be like, “how dumb are these idiot Americans to believe the utterances that come out of these politicians’ mouths about deficit spending”?
All in all, it doesn’t matter who is in office anymore. I will equally offend. No one elected anymore to office can ever get elected with the talk of reducing the debt. It cannot happen. Why? Because politicians promised so much to so many people, that the people see this money coming in as a right, not temporary. Meaning, we promise more than we can afford. This is how politicians get elected, and this is how virtually every major empire falls.
Collect more taxes – in case you missed it, the genius people we have running our government voted to spend $400B more to fight inflation with money they don’t have, paid for by selling bonds at a rate they cannot afford without….financializing the debt. One item in here was 87,000 more IRS agents. My guess is they all aren’t going after the 300 billionaires out there. They “promise” it’s going to after rich people. You are fools. All of you. This is going to inspect your colon for every nickel, and they will increase taxes more to pay for things like “free tuition”.
Make them pay “fair share” – the latest trend in socialist tax fairy tale land is taxing property in a “wealth” tax. So you bought your house at $300,000 and it is now worth $600,000. You have $300,000 in equity. You must now be “rich”. So you have $300,000 to tax. We will tax you 2% on that. You owe $6,000 this year because you are now rich. Da fuq? They are coming for everyone. Tax schemes START with demonizing the rich. Then, they see how well it works, and expand it more. Eventually, everyone is under the umbrella. The bottom 50% may rent or not have property that appreciates, so they would not be snared by this – which makes it a tax on those wealthier than them, so they don’t care. You are taking from someone else to give to you. Consider this – with an MMT and high inflation environment, ALL assets get bid up. ALL of them. However, your wages don’t necessarily go up in tandem. This means over time, you hollow out a middle class. Which is exactly what has happened over 40 years.
CBDCs – they are talking about rolling this out, and soon. Think about how you might use cash. Pay for a tip on pizza. Go to a local garage sale and buy gym equipment and toys for your kids. Perhaps you want to buy silver at a coin dealer and don’t want to pay 3% service charges on your credit card. What about for you guys who are loose with the law and want a weekend in Vegas with coke and hookers? What about pretty much anyone that lives in the shadows with the vices? This can promise a “cashless” society, but this also means pretty much ANY transaction MUST go through this system. Cash would be worthless. If you go to that garage sale and pay – it would have to be electronically, and taxes are taken at point of sale. In the casino, you came in with $100, left with $400 – you will be taxed on that gain. Try to tip a pizza delivery guy $5? That’s taxed. In a sense, this could expose an underworld that cannot sell guns or drugs – or perhaps reveal alternate payment methods that go around CBDCs. However, consider I saw that LEGOS are a black market payment method. I have read how they sell them by the pound as they can then be sold on ebay by the pound as a rather liquid commodity.
I think it was happy who wrote yesterday something like – he can see them raising 100 points, but taking a pause, or using language that would indicate a pause during the election which could be positive, and then hammer after the election. Someone else said it seems like they want to grind sentiment to dust to deflate asset prices and crush the market – but Happy then said something like, “it makes sense IF they can reduce inflation and NOT kill the stock market”. I think there’s value in that assessment as a legitimate way this could go. The Fed has a mandate of low unemployment – and if you take a nuke to the stock market, you could CAUSE 7-10% inflation inside of a year. That being said, the Fed seemed to indicate that they are willing to accept the price of a recession as a cost to fight inflation.
No one knows where this is going. It is more likely than not at some point the Fed may pause raising rates to let some of this digest before proceeding. They have been very aggressive, and it takes a lot of months for the first rate raise to work through the system. And then they go and change the definition of recession to suit the narrative. One then has to ask how many quarters of negative GDP does one need to be a recession?
I can see the Fed continuing to raise to FORCE congress into reducing spending – but that is also a fools’ errand. Instead of reducing spending, the fuckers went out and fought the inflation fire with a fire hose filled with gasoline. To me, that was showing Powell that they will spend until their hearts are content, because honestly, they have no choice. Debt ceilings are going to come and go, almost quarterly. The days of politicking over that debt limit are over due to how both parties are now committed to the cesspool of spending.
I am a social liberal and a fiscal conservative. This has led me to align centralist my whole life and with this, I have been more or less in the libertarian camps of thought of recent years. No one in that party can get elected as a dog catcher – why? Because all they do is want to reduce government and spending, and too many people rely on Medicare, social Security, WIC, and 500 other million means of assistance and will never vote in one of those guys.
To me….we are in a debt spiral. You have the Fed raising rates to force reduce spending, and drunken sailors spending with the promise of going up J Powell’s colon to take part of his $50m wealth yearly to pay for their fantasy land.
My money went with the pivot promise. I feel it is there because at some point, shit is going to get so bad, that a pivot will get factored into gold with a fear trade. When there is market capitulation that may come, I can see gold being the ONLY place to put your money. Why would you buy a 30 year for 3.58 when a 10 year is 3.57? The Australians fleeced people recently with a 100 year bond. Why would I buy ANY of this debt if I can see 7-10% inflation for years to come? Would I have to see “inflation expectations” at 3% in order to then move money into a 3.5% bond?
You then have to question the people who are running the show. None of them seemed to see inflation coming. None seemed to think it was anything more than a few months in duration. None of them accurately communicated what was happening. None of them acted quickly enough to stop it. None of them proactively prevented it.
What makes you think any of them are choosing the right path now, which would be to pause and hold for 6 months to let things cook, then perhaps raise 25 points a quarter indefinitely? Argentina is now at what, 75% interest rates and that hasn’t stopped their inflation? What makes you think 4% is going to stop inflation here? What about the $17T parked overseas in cash that can flood back to our shores when the threat of loss of purchasing power to it becomes evident, and these owners of this cash unload this cash to buy “goods” and “things”? Would it not stand to reason that no tool the Fed has, nor any tool Congress has can stop this entity from bidding things of value up?
There will be a realization at some point that this cannot be controlled by rate hikes – but in the next few months, they will be slow to realize this and cause devastating impacts to the markets. I believe the “fear play” is coming first. After that, when some form of pivot comes, this is when there is an admittance the Fed does not have the tools to fight inflation. Those overseas with $17T in cash see 7-8% inflation that cannot be stopped, and this is when those USD start then transferring into real estate, strong US-based cash flow stocks, gold, and other “things that make things” for the green world, like copper and silver.
It will also be apparent that in order to try and fight high energy prices – rather than perhaps tapping existing sources of energy, a form of UBI is created to print money to hand that over to the higher costs of energy production. This also then creates a doom loop of higher prices as they feel they can print energy with handing out cash. This is a fallacy, as the price is reflective of short supply. By printing cash to pay for this, you are simply not putting a cork on demand, and thus supply gets far more tight and price then goes vertical. It is apparent to me that our leaders are very average intelligence people these days. Many appear to be smart with law degrees, but have no concept of economics, physics, or supply chains.
To me – I’ll take whatever the hell short pain you want to give me in gold and silver. Deal it. I’m in this for the long haul as all roads point to prices of everything going vertical, given a long enough timeline. I’ve played an 8 hour game of chess in the World Open, and have the patience to wait. You paper hands do what paper hands do. You look for a 2000% return in a month, and if it doesn’t happen, you whine and bitch. C’est la vie. This isn’t a game of IF, but WHEN.
The only real risk I see to my scenario is if/when the CBDCs are rolled out, that powers that be in the West outlaw gold and silver in personal possession – you would need to apply for a special license to own these metals, and you would either need to be a factory who needs them to make things (like solar panels) or perhaps a coin dealer for numismatics. This is the only real risk I can see to PMs in the West, with FDR making a precedent in 1933. The East, on the other hand, has championed gold and silver for 5,000 years and this is embedded in their economies. One could see how the price of gold could remain somewhat stable in rubles or yuan, but the price in dollars would go vertical as the exchange rates of the yuan/ruble strengthen infinitely against the dollar as these $17T dollars come home to the US to bid everything up. People will not be selling to get INTO USD, but rather trying to get OUT of USD which is why prices will go vertical.
In that scenario, having fixed cost debt – like houses at low fixed interest rates could be the next tech bubble 10 years down the road. Think about owning a house which costs you $500 per month in a mortgage, but every month the rent goes up 1% and you are making $5,000 a month on it? In a high-hyper inflationary scenario, your best bet is to take on cheap debt and pay off with inflated income that can go vertical. This is also the play of the US government right now – but the problem is, they are essentially on an ARM with how they have to rollover debt. The BEST play for the US right now is to finance as much debt in 30 year bonds at 4% and inflate their way out of it with holding 5-6% inflation.
To me, all paths lead to the yellow brick road. Even the ones that BAN gold, owning gold in Kinesis or miners in non-US jurisdictions is far superior than owning a treasury at 3%.