A Major Contraction in Jobs

By: George Friedman

Some 140,000 Americans lost their jobs last month, the largest decline in employment since last April. Yet, the unemployment rate stayed at roughly 6.7 percent. 

The job losses were attributed to restaurants, travel, entertainment, governments and schools, according to the Wall Street Journal. That explains who cut the jobs but not why the unemployment rate remained unchanged. 

One answer is the jobs cut were already factored in, say, if employees were let go in previous months. Another is that workers found new jobs, difficult as that may be. 

The third possibility is that those who lost their jobs dropped out of the workforce, accepting the unlikelihood of finding something new. 

The cuts are unsurprising, given the intensifying lockdown measures originally imposed last year. The first casualties are always the places that cannot be enjoyed while wearing a mask. 

Topping the list are bars and restaurants, whose employees often lack the resources salaried workers have and are less likely to find a similar job in their field. 

In schools, many cuts likely targeted the custodial and lunchroom staff, who are less urgently needed as many schools are closed anyway.

Job losses give us a sense of what will happen once the pandemic is brought under control. I have written before that I regard a recession as a financial event that leaves most of the economic infrastructure intact. 

A depression is an event in which that infrastructure is destroyed. 

Unable to sell to a public without money and unable to pay their lenders, many businesses find their only option is bankruptcy. 

They close their doors and walk away, never to reopen. 

In a true depression, business failures become bank failures as banks fail to recoup their loans. 

That, in turn, makes capital harder to come by. 

A central bank can always print money and recapitalize the banks, but insufficient demand (that is, money) makes it irrational for a business to assume debt. 

Getting out of a depression is hard.

My view last spring was that we had until late fall to deal with COVID-19 and restart the economy without risking depression. We are therefore now in a period of risk. 

The idea that we are at risk of a depression right now may seem preposterous. 

The banking system appears to be robust, the rate of bankruptcies is not surging excessively, and unemployment is relatively low, so demand is intact. 

There are problems in certain sectors, of course, but industries such as airlines appear to have weathered the crisis, and brick and mortar retail trade has demonstrated that there can be life after bankruptcy.

It is reasonable to assume that we have economically routinized the pandemic and that we have room to maneuver until we are vaccinated (or choose not to be). 

But the 140,000 jobs lost in December were decisions businesses made about what they expect to happen in 2021. 

Leaving aside schools and government agencies (and restaurants and bars, which have been the long-running victims of social distancing), there are certainly other businesses, and more than a minority, making job cuts. 

The travel industry has already been cut to the bone, and other businesses can let some but not most employees go if they are to continue functioning.

Those 140,000 cuts were made largely by businesses that have a profound understanding of the business they are in and of the appetite of their customers for what they sell. 

Most businesses have always controlled the number of people they employ – that is, not maintaining a mass of disposable staff. So when they cut jobs, they cut deep, and if they are cutting to the bone they are seeing something unpleasant coming. 

The cuts will not show up in unemployment figures, nor in banking numbers, nor most certainly in the stock markets.

I think these businesses are seeing two uncertainties. 

The first is that the efforts of the government to defer an economic crisis have succeeded, but that deferral is not the same as prevention. Deferment makes it likely that as the pressures build, a crisis is coming sooner rather than later. 

Failures in various economic sectors can emerge suddenly, and those deferrals can sweep into other sectors. When facing a troubling future, the rational move of any business is to cut expenses. 

And since most viable businesses already control costs vigorously, the only defensive move possible is to cut jobs. Cutting staff just before the new year is an indicator that those who know the economy at its detailed best are very worried.

The second uncertainty is the vaccination program. To be sure, vaccinating 330 million people in the United States is a daunting task, but the fact that we do not know when we will return to normal life, with all its predictability, creates a level of uncertainty that requires defensive action. 

Being concerned about when this will be over is gauche to some, but time is the essence of business, and at this point the only timeline for a return to normal I have seen is from Dr. Anthony Fauci, who predicted the latter half of 2021. For all we know, it could be longer.

I am not saying that anyone has failed. We have never been in this situation, so it’s understandable that the end game is unclear. But the businesses that have recently had to cut jobs must make decisions on unclear data. 

They can’t wait patiently for revelation. They don’t know when the government will lose the ability or desire to defer the crisis, nor do they know when the current crisis will end. 

So it seems to me that a lot of businesses, looking into a forest – dark, uncertain and with little light to reveal anything – have chosen to move into a crouch, in order to survive the uncertainty. 

At this point, it is not the virus that scares them; it is the fact that there is no way to grasp the amount of time it will take to get past it. 

And that is the major pressure weighing on the economy.

The surge in job losses can be interpreted in many ways, and the concerns I have expressed may not come to pass. Nevertheless, they can’t be ignored, nor can it be reasonably assumed that the measures being taken to fight COVID-19 won’t have an even longer tail. 

Economic pressures can continue to mount without showing themselves. My argument is that the pressure is mounting but being contained. 

That may not be much comfort, since mounting pressures can explode unexpectedly.

Bitcoin has ambitions for gold’s role

After years of hostility t o cryptocurrencies, central banks will permit them a limited role

Gavyn Davies 

The total stock of gold is estimated to be worth about $17tn in today’s prices, while the latest market value of bitcoin is about $0.6tn © David Gray/Bloomberg

Investors in bitcoin and other cryptocurrencies have enjoyed a phenomenal run, but they are now worried that Janet Yellen’s arrival as US Treasury secretary may herald a new era of hostility from regulators and central banks towards what boosters call “libertarian” forms of digital money.

In her last press conference as chair of the Federal Reserve in 2017, Ms Yellen said bitcoin was a “highly speculative asset” and “not a stable store of value”. 

These dismissive remarks were echoed by many other public officials at the time. Since then, however, the market value of bitcoin has roughly doubled. 

Digital currencies are here to stay.

In the first crypto frenzy of 2017-18, comedian John Oliver described bitcoin as “everything you don’t understand about money combined with everything you don’t understand about computers”. 

The technology aspects, particularly the blockchain network of digital ledgers that are used to record transactions, have not really lived up to the initial hype, but they are beginning to make progress. 

The issuance of $20bn in “initial coin offerings” seemed to contain elements of a speculative bubble, but the funds raised are now being used to launch projects broadly similar to other IT ventures in Silicon Valley.

Jay Clayton’s recent departure from the chair of the US Securities and Exchange Commission may result in less hostile regulatory scrutiny of these activities, especially if Gary Gensler, who teaches about digital currencies, replaces him.

However, resistance to digital currencies as payments and transfer vehicles is likely to remain. Partly because of high transaction costs, bitcoin is not widely used for payments, and its future role seems limited.

The outgoing Treasury secretary Steven Mnuchin has been working on new regulations to increase transparency in bitcoin transfers and reduce the scope for money laundering. Ms Yellen, in conjunction with the Fed, is likely to adopt an even more orthodox approach, treating the payments system as a quintessential public good.

The Fed is collaborating with foreign counterparts in investigating the development of central bank digital currencies. It is almost certain that CBDCs will eventually be issued in the major jurisdictions, following China’s lead. 

However, they will be denominated in national currencies, not crypto.

Private competitors denominated in genuinely new currencies, such as bitcoin, will be heavily regulated or actively discouraged. 

Hybrid stablecoins, such as Facebook’s libra, that are pegged to a single currency or other real assets may be more welcomed by central banks, if they were directly transferable into traditional currencies. 

Furthermore, they may not be powered by blockchain. Each of the major central banks may develop its own distributed ledger technology.

That still leaves a role for crypto as an investment vehicle and store of value. Can bitcoin seriously compete with gold as a safe asset for the largest investors? 

History, regulation and market volatility make that seem improbable, but it is beginning to develop a more important role. 

Many big hedge funds and some conventional asset managers have followed Paul Tudor Jones in adopting bitcoin as a core hedge against inflation. While this may have seemed attractive when central banks were in effect creating money by buying up government debt last year, there are few signs of inflation on the imminent horizon.

Yet bitcoin prices have continued to rise, apparently driven by a narrative that holds that a privately created asset, which in theory has a finite supply, cannot be “printed” like the “legacy” fiat currencies.

According to Gold Hub, gold stocks held above ground amounted to 198,000 tonnes at the end of 2019, with about 57,000 tonnes of proven reserves below ground. 

This total stock would be valued at about $17tn in today’s prices. 

The latest market value of bitcoin is about $0.6tn — bitcoin bulls see this as a gauge of how much further its price could rise.

There seems little reason on monetary policy or financial stability grounds why regulators should be worried about cryptocurrencies competing with gold as a store of value.

The crypto world is currently in a frenzy of short-term speculation. 

However, if investors continue to buy into the dubious narrative that these private currencies are “safer” than those controlled by the central banks, they could rise much further in market value in coming years.

Stranger things have certainly happened in financial markets.

The writer is chairman of Fulcrum Asset Management

The City on a Hill Besieged

The storming of the US Capitol by a mob egged on by President Donald Trump was a violent bid to disrupt the world's oldest democracy. But while it made for a truly dark day in US history, it need not become a defining day.

Ana Palacio

MADRID – In 1940, with Europe gripped by a war from which the United States remained aloof, US President Franklin Delano Roosevelt declared that the country needed to be “the great arsenal of democracy.” 

He meant it literally: he was appealing to Americans to “put every ounce of effort” into producing arms for European democracies, especially the United Kingdom, in their fight against fascism. 

But his words also carried powerful symbolic significance, positioning the US as the world’s leading democratic bulwark.

Fortunately, Joe Biden will assume the US presidency on January 20. 

But, as the shocking events of January 6 showed, it will take more than one person – and more than one presidential term – to overcome America’s longstanding challenges. 

On January 6, that stronghold was breached by a mob of Donald Trump’s supporters. 

Egged on by the president himself, they stormed the US Capitol, desecrating one of the greatest monuments to democracy, and forced Congress to halt the vote to certify President-elect Joe Biden’s Electoral College victory. 

It was the clearest manifestation yet of the malignancy of Trump’s presidency – and the threat its legacy poses to the American democratic experiment.

That experiment’s success has, historically, been based on three qualities, which Alexis de Tocqueville identified some 185 years ago: the vibrancy of its society, its citizens’ trust in and respect for institutions, and a forward-looking perspective that encouraged risk-taking and innovation. 

These qualities were lacking in Europe, which was weighed down by long and fraught history.

The erosion of these pillars of American democracy has been discussed extensively and often, especially since Trump’s election in 2016, to the point that all the attention devoted to it could sometimes seem excessive, even trite. 

But the events of January 6 show just how weak those pillars have become – jeopardizing the entire edifice.

In recent years, a steady stream of lies and misinformation has divided and dulled American society, and weakened respect for institutions. Under Trump, these trends went into overdrive. 

Unlike his predecessors, Trump never sought to inspire hope. Instead, he stoked and exploited people’s frustration and anger (partly driven by legitimate grievances).

With his famous slogan, “Make America Great Again,” Trump conjured a vision of a future that looked much like the past.

By labeling all criticism “fake news” and lying about voter fraud in the recent election, he decimated trust in US institutions, setting the stage for civil unrest.

Today, a stable democracy has become a chaotic and conflicted one, with a significant minority convinced of their exclusive right to govern. 

Members of this group claim to be “patriots” reclaiming a corrupted system. 

As they smashed the Capitol building’s windows, defaced offices, and stole property, they cried, “This is our house.”

But their actions were anything but patriotic. 

They certainly do not represent the forward-looking perspective that has long defined the American spirit. 

The waving of American flags sullied with pro-Trump messages (a violation of America’s “respect for flag” code) and even Confederate flags make that painfully clear.

In reality, the insurgents were seeking to prevent their duly elected representatives from doing their jobs. 

This was not “democracy at work.” 

It was a violent bid to disrupt the world’s oldest democratic republic. 

And it made for a truly dark day in US history. But it need not become a defining day.

After the Capitol was cleared and the mob dispersed, Congress reconvened to resume the certification process. 

When Senate Minority Leader Chuck Schumer took the floor, he recalled FDR’s description of December 7, 1941 – when Japan attacked Pearl Harbor – as a day that would “live in infamy,” adding that, “we can now add January 6, 2021.”

But Pearl Harbor didn’t break the US. 

On the contrary, it galvanized the country, spurring it to engage directly in WWII. 

“No matter how long it may take us to overcome this premeditated invasion,” FDR declared, “the American people in their righteous might will win through to absolute victory.”

The insurrection at the Capitol could be another such galvanizing moment. 

Leaders can no longer ignore the costs and risks of short-term thinking and political cynicism. 

On behalf of – and alongside – the American people, they must protect and fortify democratic institutions from subversive figures like Trump. 

As president, Biden, like FDR, must issue that call and lead the charge.

The US remains a great country – and I don’t mean by Trump’s definition. 

It is rich in ingenuity and admirably resilient. And its society remains committed to progress – and willing to fight for it. 

The latest sign of that came the day before Trump’s failed putsch, with the victory in runoff Senate elections in Georgia – a traditionally conservative state – of two Democrats, Raphael Warnock, an African-American pastor, and Jon Ossoff, a Jew, over Republican incumbents who sought to discredit Biden’s victory.

Restoring faith in democratic institutions must be among Biden’s top priorities, and not only for the sake of the US. Countries worldwide still need the US to act as an arsenal of democracy and a source of inspiration and guidance. 

If Biden embraces that cause, the disgraceful assault on the Capitol could be remembered as a turning point for democracy, rather than a harbinger of its terminal decline.

Ana Palacio, a former minister of foreign affairs of Spain and former senior vice president and general counsel of the World Bank Group, is a visiting lecturer at Georgetown University. 

The Dollar’s Decline in Global Reserves: Fact or Fiction?

Greenback’s share of foreign-exchange reserves has slipped, but there are reasons to believe it will bounce back

By Mike Bird

The real dollar exposure of major central banks is likely higher than it looks. / PHOTO: GARY CAMERON/REUTERS

In the third quarter of 2020, the dollar’s share of global foreign-exchange reserves slipped to its lowest level in almost a quarter of a century. ´

But don’t let the figures fool you: The greenback is as central to the global financial system as it has ever been.

International Monetary Fund data shows the dollar’s share of reported reserves fell to 60.5% in September. 

The drop has been magnified in nominal terms due to the currency’s depreciation over the past year. 

But even accounting for that, the real dollar exposure of major central banks is likely higher than it looks.

What’s more, that exposure likely rose again in the fourth quarter.

After adjusting for currency-market movements, Goldman Sachs notes that dollar holdings actually rose more than euro, Japanese yen, Chinese yuan or British pound holdings in the third quarter.

At 5.9% of global reserves, the share of the yen is high compared with recent decades. But that increase actually disguises dollar demand. 

Many large yen holders are trying to acquire more dollars through currency swaps. 

That popular trade has led to a surge in foreign purchases of short-term Japanese government bonds.

Most central banks don’t break down their holdings in depth, but the unusually transparent Reserve Bank of Australia does. 

It held around $6.8 billion in U.S. dollar-denominated securities as of June, an amount that almost triples when its derivatives exposure is taken into account. 

Its roughly $3.7 billion in yen reserves is cut in half after the same calculus.

Asian central banks were also vacuuming up foreign exchange in the fourth quarter of 2020. 

China’s and South Korea’s reserves rose at the fastest rate in seven and 10 years, respectively. 

Taiwan’s rose at the fastest rate on record in November—and then again in December.

We don’t know exactly how much of that is dollar-denominated, but the greenback will probably be well represented. 

The increase in purchases is likely meant to counteract a rally in their currencies, primarily against the dollar. 

Research by Exante Data shows central banks were already purchasing more dollars than other currencies as the year came to a close.

Narratives suggesting the dollar declined in importance last year after the Federal Reserve’s actions in February and March played the central role in preventing global financial meltdown are suspect. 

The dollar’s share in reserves is likely to recover to reflect that reality.

Short-Term Unsustainable 

Doug Nolan

Outstanding Treasury Securities began 2008 at $6.051 TN, or 41% of GDP. 

Treasuries ended 2019 at $19.019 TN, or 87% of GDP. 

And then, in only three quarters, Treasuries surged another $3.882 TN to $22.900 TN, or 108% of GDP. 

We must wait a few weeks for the Fed’s Q4’s Z.1 report, but the federal government posted a fiscal deficit of $573 billion during this period, likely pushing outstanding Treasuries to near $23.5 TN, or about 110% of GDP. 

Since the end of 2007, Treasuries have inflated around $17.5 TN – approaching a three-fold increase.

For years now, I’ve listened as Washington politicians and central bankers admit to the obvious – that the trajectory of our federal debt is unsustainable – while invariably arguing it was not the time to be concerned or address it. 

With Treasuries blowing right through the 100% of GDP milepost – and likely poised to reach 125% within the next year or two – there’s no time like the present to recognize our nation is in serious fiscal trouble.

Senator John Thune (from Yellen’s confirmation hearing): 

“I’m going to try and roll a lot of thoughts and questions into sort of one big package here. 

But the one thing that concerns me that nobody seems to be talking about anymore is the massive amount of debt that we continue to rack up as a nation. 

And, in fact, the President elect has proposed a couple trillion dollar fiscal plan on top of that which we’ve already done - which would add somewhere on the order of about $5.3 trillion to deficits and that’s according to the committee for responsible budget of which you have been a board member.

That’s 25% of GDP, and it would move the additional debt above 100% debt to GDP - which is a category that we haven’t been in literally since the 1940s. 

And, so, what I’m concerned about is we seem to have no concern now about borrowing money in the short-term, and the argument is that interest rates are low. It’s like free money. 

It’s not. It has to be paid back.

And at some point, the risk/return ratio, that people who are lending us money are going to say, is not sufficient for the risk, and they’re going to demand a higher interest rate. 

That will happen at some point. Interest rates will start to normalize, and we have to refinance at a higher interest rate. And pretty soon the interest on the debt exceeds what we spend on even national security for our country.

Republicans traditionally have believed that we ought to reduce spending, we need to reform entitlement programs, that we need to have policies in place that create greater growth in the economy. All of which make the debt look smaller by comparison. Democrats have argued we need more revenue, more taxes…

But I just want to know what you think. Because I know in the past you’ve expressed concerns about the debt and the deficit. 

The two previous administrations have not been very interested in entitlement reform. We have not only the debt that we’re adding in the short-term because of the pandemic, but we have structural problems that are long-term that are going to continue to drive that debt higher in the future.

What your thoughts are with respect to reforming entitlements? 

With respect to the amount of the debt situation that we find ourselves in right now? And when is it enough? When is it too much? 

When do we hit that point where the thing starts to collapse? 

That’s what really concerns me. 

And nobody is talking about it really in either party anymore. It was something that used to occupy a lot of our discussions in the past, but nobody seems to care much about it.

And, for me, that is a huge warning sign on the horizon. The fact that we have an ever-growing deficit, an ever-growing debt and no apparent interest in taking the steps that are necessary to address it.”

Janet Yellen: 

“Senator, I agree with you that it’s essential that we put the federal budget on a path that’s sustainable. 

And that we’re responsible and make sure that what we do with respect to deficits and debt leave future generations better off. 

But the most important thing, in my view, that we can do today to put us on a path of fiscal sustainability is to defeat the pandemic, to provide relief to American people. 

And then to make long-term investments that will help the economy grow and benefit future generations.

To avoid doing what we need to do now to address the pandemic and the economic damage that it’s causing would likely leave us in a worse place fiscally and with respect to our debt situation than taking the steps that are necessary and doing that through deficit finance. 

We really have to worry about scarring due to this pandemic, of workers and the loss of small businesses that can really harm the long-run potential productivity of our economy and leave us with long run problems that would make it difficult to get back on the growth path that we were on.

And it’s really critically important to provide this relief now. And I believe it would be a false economy to stint. 

But over the longer term, I would agree with you that the long-term fiscal trajectory is a cause for concern. 

It’s something we will eventually need to attend to, but it’s also important for America to invest and invest in our infrastructure, invest in our workers, invest in R&D. 

The things that make our economy grow faster and make it more competitive and it’s important to remember that we’re in a very low interest rate environment. And that’s something that existed before the pandemic hit: interest rates were low even before the financial crisis of 2008. 

This has been a trend in developed economies, you can see it across the developed world, and it represents structural shifts that are likely to be with us a long time.

So, although the debt to GDP ratio has increased, it’s important to note that the interest burden of the debt - interest as a share of GDP - is no higher now than it was before the financial crisis in 2008 in spite of the fact that our debt has escalated. 

And, of course, interest rates can increase. Eventually we have to make sure that primary deficits in the budget are sufficiently small - that were on a sustainable path. But right now, our challenge is to get America back to work and to defeat the pandemic.”

The new administration’s view that Washington needs to be “on war footing” to win the battle over a once-in-a-century pandemic is understandable. 

The unemployment rate is currently 6.7%, businesses are failing, and there is even serious food insecurity in the U.S. For some perspective, the unemployment rate averaged 6.5% during the 20-year period 1980 to 1999. 

This has been a terrible human tragedy, though there is light at the end of the tunnel. 

Millions of individuals and businesses are suffering mightily for no fault of their own. 

It’s terribly unfair, it sickens us, and as a nation we want to do what we can to rectify this injustice. Meanwhile, we are on trajectories that ensure a future crisis will see an even greater percentage of our population suffering mightily for no fault of their own. 

Dismissive talk of an unsustainable long-term debt trajectory disregards myriad frightening short-term trajectories – Fed assets, federal debt, system Credit, “money” supply, stock prices, option trading volume, etc.

The pandemic is not close to my greatest worry. 

These days I have greater fear for the runaway Credit Bubble. 

I worry about the mania that has enveloped the stock market. I fear consequences of a historic debt crisis in already contentious social and geopolitical backdrops.

February 2, 2012 – Politico (Josh Boak): 

“Federal Reserve Chairman Ben Bernanke told a congressional panel Thursday that shrinking the deficit ‘should be a top priority,’ saying that spending projections over the next decade are ‘clearly unsustainable.’ 

Stressing that the budgetary threat did not emerge from the past three years alone of $1 trillion-plus budget deficits — with a fourth expected for 2012 — meant to ease the recession and aid the recovery, Bernanke warned the debt could explode over the next 20 to 30 years to levels that could paralyze the economy. 

The government faces an aging population, fast-rising health care costs, and a failure to close the gap between taxes and spending.”

Between Bernanke’s 2012 “clearly unsustainable” comment and the end of his chairmanship in early 2014, the Fed expanded its balance sheet by over $1TN. 

The Yellen Fed added another $1 TN in 2014 – to $4.47 TN – fateful monetization in a non-crisis environment. Importantly, the Fed and global central bankers fundamentally altered market function. 

Treasury yields, for example, became divorced from expanding federal deficits. 

The Federal Reserve essentially granted Congress a blank checkbook, and the world will never be the same.

A critical issue gets zero attention these days: The pandemic struck as our nation – much of the world – was at a dangerous late-stage in a historic Bubble. 

We could not have been more poorly positioned. 

Washington will add in the neighborhood of $6 TN of debt over a couple years – part pandemic but much in response to Bubble Economy structural fragility. The Fed will expand its balance sheet upwards of $5 TN in a two-year period - part pandemic but more to sustain an increasingly erratic financial bubble. 

Egregious Monetary Inflation ensures Financial Bubble and Bubble Economy fragilities grow only more acute.

We’re in the throes of the greatest monetary inflation in U.S. history. 

Things have come home to roost – we just haven’t realized it yet. 

Fed liquidity is masking deep structural impairment, while Trillions necessary to stabilize a fragile Bubble Economy only push the runaway financial Bubble to more precarious extremes. 

Traditionally, it was Federal Reserve doctrine to “lean against the wind” to at least ensure monetary policy was not exacerbating excess. 

The Fed some years back proclaimed it would not use rate policy to contain asset inflation and bubbles, choosing instead so-called macro-prudential measures. 

So how is our central bank reacting these days to such conspicuous excess: Well, it’s radio silence as they continue to pump $120bn of new liquidity monthly.

For too many years the Fed was content to disregard asset inflation and bubble dynamics. 

The fixation on tepid consumer price inflation has lacked credibility. 

The reemergence of “global savings glut” nonsense has been pathetic “analysis,” especially as unparalleled speculative leverage ballooned around the globe. 

The Fed was determined to sit back and keep financial conditions ultra-loose year after year, as if this would not promote historic debt growth, speculative excess and structural impairment.

Comments from Yellen and others suggest that low rates conveniently push potential issues far out into the future. 

Yet the problem is here and now; it’s acute – and the coronavirus is not the most pressing problem. 

The stock market mania is raging out of control. Debt growth is spiraling out of control. 

The Fed and global central banks are trapped in desperate inflationism. 

The Fed is poised to expand its balance sheet – add liquidity – to the tune of $1.5 TN this year with no regard for rampant asset price inflation and Bubbles. 

The trajectory of too many key metrics has gone parabolic, ensuring tremendous systemic damage is inflicted in a short period of time. And now the new administration has control of the blank checkbook and is determined to us it.

A day trader's mentality has taken over our nation. There’s no long-term thinking or planning; everything is short-term focused. 

Ultra-loose financial conditions are supporting economic recovery. 

And while there are superficial short-term benefits, the costs to longer-term system stability are momentous. 

Washington is gambling with our nation’s future.

We’re witnessing today the consequence of the Fed and Washington’s disregard for asset inflation and Bubbles. 

At this point, aggressive stimulus is self-defeating. Zero rates stoke speculative excess in equities and corporate Credit. 

QE feeds liquidity into market Bubbles. 

Massive fiscal deficits inflate corporate earnings (and traders’ on-line accounts), while becoming instrumental to the bullish narrative and mania. 

I wish the Biden administration nothing but success. 

I hope Yellen is right, because the next four years are critical for our nation. 

Our government today confronts major crises – the pandemic, unemployment, inequality, divisiveness and social instability, global competitiveness, climate change, mounting geopolitical risk and more. 

They have an aggressive agenda, and I would expect nothing less. 

And I don’t fault the administration for believing they will operate free of fiscal constraints. 

I just can’t get over my fear that Washington is exacerbating the greatest risk to our nation’s future. 

M2 “money” supply has inflated a shocking $4.0 TN in 46 weeks – or 32% annualized. 

We’re witnessing the greatest monetary inflation the country has ever suffered – with nary a protest. 

The Credit Bubble is inflating the fastest ever. 

Arguably, stock market speculation is the most precarious since 1929. 

We’re witnessing the greatest redistribution of wealth in our nation’s history.

And when this Bubble eventually bursts, we’ll confront the terrible reality that the greatest expansion of non-productive debt ever fueled history’s greatest destruction of wealth. 

Yellen: “The smartest thing we can do is act big. In the long run, I believe the benefits will far outweigh the costs.”

I hate being this pessimistic. 

But in no way do the long-term benefits of massive deficit spending today outweigh the cost. 

Current market and economic structures ensure resources are poorly utilized. 

The securities markets are today a powerful mechanism for resource misallocation and wealth-destruction. 

And I see Trillions of deficit spending generating limited sustainable economic benefit. 

Meanwhile, “acting big” will further fuel “Terminal Phase” excess, with terrible long-term consequences.


“Well before COVID-19 infected a single American, we were living in a K-shaped economy, one where wealth built upon wealth while working families fell farther and farther behind.”

This “K-shape” is fundamental to Bubble Economy structure and a key manifestation of inflationism and resulting Monetary Disorder. 

As we’ve witnessed now for going on 10 months, throwing massive stimulus at the current structure exacerbates both Bubble excess and inequality.”


“The world has changed. In a very low interest-rate environment like we’re in, what we’re seeing is that even though the amount of debt relative to the economy has gone up, the interest burden hasn’t.”

History will not be kind. 

A $3 TN plus annual deficit in the past would have been recognized as foolhardy if not negligent. 

It’s playing with fire. 

Washington has pushed things much too far – the most extreme debt growth and the most extreme Federal Reserve debt monetization. 

We’re witnessing an unprecedented late-cycle runaway expansion of risky non-productive debt – too much of it held by leveraged speculators. 

Market backlash is inevitable and overdue. 

I just don’t see market forces remaining inoperative indefinitely - supply and demand will matter again. 

The quantity and quality of system credit will prove momentously important.


“‘The most important thing we can do is to defeat the pandemic, to provide relief to American people and to make long-term investments that make the economy grow and benefit future generations,’ said Yellen… Failure to address the crisis now ‘would likely leave us in a worse place fiscally,’ she said.”

The most important thing for our nation is to see a return to some semblance of fiscal and monetary sanity. 

I’m all for sound long-term investment, something our nation desperately needs. 

I’m not sure what we have to show for the $17 TN of Treasury debt accumulated since the last crisis. 

And it’s inexcusable that we came into the pandemic in such a fragile position – fiscally and in terms of the financial Bubble. 

My biggest fear is materializing. 

When this historic Bubble bursts, a major crisis will unfold with our nation’s finances in complete shambles. 

The Fed’s “money printing” operation has gone parabolic as it desperately attempts to sustain an unsustainable Bubble. 

Treasury debt growth has gone parabolic as Washington tries to sustain an unsustainable economic structure. 

The system is on a trajectory that ensures a crisis of confidence – and I don’t see this as some long-term concern. 

This is an issue of short-term unsustainability. 

Washington has employed massive fiscal and monetary stimulus despite ultra-loose financial conditions and booming markets. 

The big crisis commences – the unsustainable is no longer sustained - when financial conditions tighten and the financial Bubble bursts. 

The time for “acting big” is in a post-Bubble backdrop and definitely not while the Bubble is inflating madly.