“Speaker Pelosi’s Bottom” Is The Sweet Spot, For “Just In Case” “Friend Shoring”, “Just In Time” For Mary Daly’s Yield Curve Bull Flattening
“My mentality was to go out and win at any cost.” (Michael Jordan)
Summary:
· Fed Governor Christopher Waller defines “Patriotic Monetary Policymaking” as an unconditional commitment to be conditional on the President’s financial stability policy problems.
· The Summers’ (Hard) Soft-Landing may become the Biden Soft Landing.
· The conspiracy of “Friend Shoring” doctrine is being nudged into the public domain by San Franciscans.
· President Biden is bidin’ his “Slam Dunk” until the next G7 Summit.
· The “Just in Case” “Friend Shoring” business model is replacing the Oligopolists’ version of “Just In Time” inflation mining.
· “Speaker Pelosi’s Bottom” is the Sweet Spot for the “Just in Case” “Friend Shoring” investment thesis.
· Thomas Barkin presents the convergence of monetary policy with financial stability policy.
· Chairman Powell reprises Greenspan’s 1994 vintage in his Humphrey Hawkins prepared testimony.
· Chairman Powell confirms the thesis that monetary policy will be framed as creating a disinflationary base for the Biden “Slam Dunk”.
· Chairman Powell partially confirms that a new definition of full employment is pending.
· Mary Daly’s Long Duration trade thesis/guidance puts the Chateau Greenspan ’94 Bull Flattening vintage on ice in “Speaker Pelosi’s Bottom”.
· The Fed will stop tightening, and then expand bank reserves “Just in Time”, and “Just in Case”, there is a recession.
· “Livestreamin’ Jim” Bullard confirms that the Fed intends to create a disinflationary base, at metonymic “Speaker Pelosi’s Bottom”, for President Biden to “Slam Dunk” on.
· “Slam Dunk” Fiscal Policy, in the form of “Macklem Doctrine”, will provide the balance sheet collateral for the Fed to rebalance reserve expansion, with balance sheet assets, “Just in Case” of, and “Just in Time” for, the next recession.
· The Commonwealth Lambada is the UK PM’s Vitai Lampada.
Blink! How can you miss it?
It is commonly believed that inflection points are only visible with hindsight. This one isn’t.
· A Key Signals proprietary indicator signals that the FOMC is, once again, totally off with its timing, this time, on monetary policy tightening.
(Source and caption by Key Signals)
It was seen coming, in the first week of May.
A “Just in Case” inflection point is now happening “Just in Time”.
“Just in Time”, and “Just in Case”, a crime has been committed ….
There is, however, a way for the uniquely unfortunate President-Colonel/Brigadier-General in Chief to avoid the Hague, if he is deemed to be too ill to stand trial. Incarceration, and ostracism, in a sanatorium, would be the sentence; thereby leaving the exonerated chain of command upwards to negotiate peace with honor. Strangely enough, this sentencing is already taking place in the criminal court of the public domain.
(Source: the Author)
Whilst President Putin remotely disported his virility, and, hence, political longevity, at the latest virtual BRICS summit, preparations for his legal posterity were reaching an advanced stage in the West.
The remote nature, of the virtual summit, only seemed to heighten questions, about the Russian President’s health, and, the real intentions and capabilities of President Xi Jinping’s “COVID-Zero” strategy.
Ukraine has simultaneously made its deposition, of alleged Russian war crimes, at the Court of Human Rights. The application of Ukraine to become an EU member has, simultaneously, also accelerated. As the author and prosecutor of war crimes, momentum is building to put President Putin on the stand. The Russian President is, simultaneously, demonstrating that he may not be fit enough to stand trial. A virtual trial in absentia may follow.
· Sanitization efforts are turning towards China, even before Russia has been sanitized.
(Source: the Author)
The unfolding Putin endgame scenario is hastening the transition, of the West, to engage with China as the next significant threat to the global polity.
Crouching Biden Hidden Dragon ….
· Biden Yin is in conflict with Xi Jinping Yang.
· “COVID-Zero” is a strategic policy tool, which suggests that COVID-19 is a strategic weapon.
· “COVID-Zero” is entering a multi-year rolling lockdown phase that will obstruct Chinese investment and trade flows.
· The “Biden Bi-decennial Slam Dunk of the Millennium” is enabled by the lethal potential of “COVID-Zero”.
· The Ukraine war is a wargame for the Taiwan war.
· The MSP and the Biden G7 “Slam Dunk” “Friend Shoring” G7 Infrastructure Plan are Vinod Khosla’s “Techno-Economic War”.
(Source: the Author)
The last report made some bold assumptions, and equally sweeping assertions, about the alleged, causal relationships involving “Xi Jinping Thought”, “COVID-Zero”, “COVID-19”, the Ukraine War, Vinod Khosla’s “Techno-Economic War”, the Taiwan situation, “MAPA/MAGA”, “Biden’s Slam Dunk”, Macklem Doctrine, “Friend Shoring”, “Patriotic Monetary Policymaking” and “Speaker Pelosi’s Bottom”.
This thesis must now be tested against incoming information, and data, going forward.
Initial testing shows a developing pattern that confirms the thesis and, hence, the unfolding chain reaction process.
The last report explained how President Xi Jinping was “COVID-Zeroing” in response to President Biden’s “Slam Dunk”. This ritual dance is a clean break, between the two nations, leading to the creation of rival poles in the global polity. President Xi recently signaled that his next move would be a complete annexation of Hong Kong with the euphemism of “creating closer emotional ties” with the annexed. Vae victis.
(Source: the Author)
“COVID-Zero” was viewed as the strategic enabler of the Hong Kong Anschluss fait accompli.
In this context, the recent staunch defense of “COVID-Zero”, by Hong Kong’s new Chief Health Officer (and Politburo Commissar), should raise eyebrows that portend deeper strategic scrutiny. In a similar context, the rising “COVID-Zero” body count, in Macao, suggests the next intended full annexation target.
The Hong Kong Dollar peg is also, significantly, under attack. When the treasury of the Hong Kong Monetary Authority (HKMA) is exhausted, defending the peg, it will be a formality for it to cede full control, by way of a bailout, to the PBOC. Thence, goes political autonomy with ceded control of the currency.
The author’s thesis has, also, been provided with context by the recent news of China’s “constrained” oil refining capacity.
Allegedly, one-third of Chinese refining capacity is currently constrained by “COVID-Zero” protocols. This does not, however, translate into domestic inflation because (a) folks are locked down, so they don’t need to travel, and (b) fuel prices are controlled, so that if they were to travel it would not cost them an arm and a leg.
The global impact, of this Chinese refining capacity constraint, is higher prices and economic headwinds. Said headwinds, thereby, constrain the capacity of the West to interdict Chinese (and Russian) moves on the global chessboard.
From this author’s perspective, China is on a wartime political and economic footing. Domestic prices are controlled, and economic resources are rationed so that they are not squandered on exports to adversaries. The economies of said adversaries, and, by default, their political systems, are, thereby, weakened in the process.
COVID-19, and President Putin, are convenient distractions, and useful idiots, behind which to hide Chinese strategic intentions and capabilities. Said strategic intentions and capabilities are the themes, of “Xi Jinping Thought”, which he calls “Common Prosperity”.
The West has hastily, and unintendedly, complied, with China’s rules of engagement, thereby, providing China with a victory in terms of choosing the timing and the rules. The West is now trying to change the rules of engagement, in order, to seize an initiative. US Trade Representative Katherine Tai has recently made it clear that America will not let high inflation allow it to be blackmailed by China. High tariffs on Chinese goods, and services, will remain, therefore, as leverage, for strategic political rather than economic objectives.
Readers will also have noted the recent escalation in the belligerent rhetoric, and actions, from China, in the Straits of Taiwan. President Xi Jinping recently signed into law the authority for “special military operations”, so beloved by President Putin, to be undertaken in these waters. Chinese law judges that military operations rank ceteris paribus with commercial shipping and are, therefore, legitimate and in compliance with the international maritime laws which apply to these waters. This author would suggest that this is causal support of his thesis.
“Doing whatever it takes”, taken at face value, is often misleading ….
Legally speaking, the Fed recently purported, to Congress, that its commitment to fight inflation is, now, allegedly, “unconditional”. This recent declaration, of intentions and capabilities, is a semi-annual ritual. On the eve, of the latest ritual performance, the FOMC had previously ritually hiked interest rates by 75-Basis points, so the need for clarity and consistency, in the following ritual declaration, was of the utmost importance. The apparent de facto “unconditional” FOMC consensus is, henceforth, being extensively forward guided into the ensuing commentary.
· Bostic also confirms that the FOMC is primarily fighting inflation, with the risky mismatched tool of financial stability policy, since supply-side inflation is beyond the Fed’s monetary policymaking reach.
(Source: the Author)
Atlanta Fed president Raphael Bostic has recently imbued, this “unconditional” commitment, in the spirit of Mario Draghi’s incantation to “do whatever it takes”.
Looks, and words, can be deceiving, however.
The Fed derives, and devolves, its authority and legitimacy from Congress.
Fed Governors, Chairpersons, and Vice-Chairpersons derive their pecuniary franchises from the President of the United States.
Fed Regional Presidents derive their pecuniary franchises from the Federal Reserve member commercial banks in their manor.
What, at first glance, looks like a good governance structure quickly then becomes conflicted interest and a source of internal monetary policymaking conflict.
Furthermore, since there are only four (rotating) regional Fed FOMC members voting, at any meeting, in a fully quorate FOMC, the dice would seem to be loaded in the President’s favor structurally franchise speaking.
To be fair, Congress does get to vet the Presidential Fed Board nominations but assuming that the Electoral College is working, as it is supposed to, the President will get his way. Looked at another way, one could say that there is a structurally “patriotic” bias in monetary policymaking, assuming that the President is a patriot and not a stooge for some foreign power.
· “Cold Amazon” Vice Chair Brainard reminds that Fed monetary policymaking will always put patriotism before the dual mandate.
(Source: the Author)
As noted, some time ago, Chairman Powell is acutely aware of all the internal and external conflicts, influencing the Fed, and has prepared his defense well in advance.
“Patriotic Monetary Policymaking” Defined: An unconditional monetary policy commitment to be conditional on financial stability policy considerations ….
· Inflation is being primarily fought with financial stability policy tightening rather than monetary policy tightening.
(Source: the Author)
Fed Governor Christopher Waller understands “unconditional” as a commitment to go “all-in”. Since Waller will only go as far as 75-basis points “all-in”, for fear of a Mr. Market “heart attack”, at a 1% hike, the alleged unconditionality looks innately conditional upon financial stability policy concern.
· The “Waller Put” signals that the FOMC will not kill the “Build Back Better” and “Make More In America” booms.
(Source: the Author)
The “Waller Put”, in the form of a commitment not to trigger a recession, therefore, continues to resonate, equivocally, through his “all-in” un-equivocation. The continued presence of this Put, thereby, signals the innate commitment of Fed Governors to what this author calls “Patriotic Monetary Policymaking”.
· Patriotic monetary policymaking may soon be framed as the creation of a stable disinflationary foundation on which the President can Slam Dunk.
(Source: the Author)
This form of monetary policymaking can be understood as a commitment not to conflict, with the POTUS agenda, in times of national security threats. After all, Fed Governors are nominated by POTUS, hence, they must give unto POTUS what is POTUS’s, on the basis of their devolved franchise.
Cleveland Fed President Loretta Mester purports to, be committed to, maintaining tight monetary policy conditions for the next two years. She sees inflation, remaining above target until 2024, and appears to be overjoyed with the growing economic weakness currently unfolding.
Former Chair of Republicans Abroad UK, Trump nominee, and Fed Board Governor Michelle Bowman is more than happy to inflict a recession, on the economy, in time for the Mid-Terms. Consequently, she would vote to go 75-Basis points, at the next FOMC meeting, subsequently, followed by at least two more 50-Basis points hikes.
The Alchemy of Finance: Conjuring up memories of 1994 ….
· James Bullard attempts alchemy to conjure the Soft Landing.
· The Fed is trying to reprise Alan Greenspan’s 1994 vintage as it hurriedly plays catch up.
(Source: the Author)
The last report discussed the Fed’s application of the new monetary policy tool, Alchemy through guidance, in the hope of engineering a 1994 Greenspan-style economic landing. St Louis Fed president James Bullard seems, particularly, well versed in this dark art.
Bullard was, recently, in Barcelona waving his magic wand and incanting the 1994 spell. Sotto Voce, he was heard to murmur: “I (Bullard)have always felt that (1994) set up the U.S. economy for a stellar performance in the second half of the 1990s ... I hope we can get something like that this time.”
Strong words, indeed, from Bullard.
Larry Summers’ beaming smile, of late, definitely isn’t cursed. If anything, it is vindicated. Perhaps it is even a little vindictive, like Old MacHeath Dear.
(Source: the Author)
Even stronger words from the Fed’s most vocal American nemesis, however.
Larry’s (Hard) Soft-Landing ….
The “Summer’s Curse” was, initially, irritating for the Fed. It has since become an obstacle. It may become a self-fulfilling prophecy if its author continues to be ignored.
· Disinflation price discovery by Cancel Culture is on the global commodity and capital markets agenda.
(Source: the Author)
In true Don Corleone style, President Biden has interdicted the threat, and its author, by bringing Risus Sardonicus into the policymaking circle. Who knows, if/when Chairman Powell and/or Secretary Yellen hang up their spurs and, assuming that Biden is still President, there may be a position, in high office, for Summers if he agrees to stop throwing stones. POTUS may even give Summers the credit, for the Soft Landing, assuming the latter agrees to proselytize one.
The President recently let it be known that he has spoken with Summers. Apparently, the two have a cunning plan to fix prices to make it look like there is no inflation. Once this filters through, to the data, the Fed can cease and desist from strangling the economy, with tight monetary policy, so that victory over inflation and the Summers’ Soft Landing can be declared.
Since Biden reached out to Summers, in actual fact, it will be Biden’s Soft Landing should this chain of events transpire.
Summers hasn’t, yet, fallen for the President’s charm offensive. Neither does he believe in the artifice of price controls. Rather, he is playing cute. Cute means either a painful hard landing, with an unemployment spike, or a slow death through prolonged Stagflation.
Cute means Summers wants more than a phone call with POTUS. He wants game time on the team. What Summers is saying is that to play ball, he needs to be given the ball and an executive role. Will his presence overload the bench and disturb the team? Some of the playaaz may need to be traded to make room for his ego and his policies.
One instinctively feels for the hapless Chairman Powell, and Secretary Yellen, but hey it’s only politics.
In response, Yellen has doubled down on her home-invented mantra of “Friend Shoring”. And who could blame her? It was her gig until Summers, sussed it out, and then butted in, in an attempt to steal her valor. Economists all want to be the next Keynes, and don’t care who they stab in the back in their quest for glory. It’s a dirty business, but someone has to do it.
It’s coming home ….
Slam Dunk, Incoming!
This author has also noted the synchronous timing of a leak about President Biden’s global “Slam Dunk”. The coincident timing with the MSP signing, is, in fact, not a coincidence. It is a fanfare.
(Source: the Author)
The last report theorized that the Biden “Slam Dunk” speech was imminent, based on a confluence of “Friend Shoring” events that had been noted.
President Biden’s continued dismal polling, by Gallup, needs to be addressed before it turns into Midterm defeat and re-election failure. Republican dissatisfaction can be explained away, in partisan terms, but the insidious loss of faith of Democrats should be most troubling for POTUS and his advisers.
Congress doesn’t exactly come out well, in the Gallup polls, either. One can conclude that there is a general dissatisfaction with policies and policymakers, on both sides of the aisle. One can also conclude that there is a general lack of charisma and winningness in the current political milieu, on either side of the aisle, although there are some emerging contenders.
What needs rebranding, and reselling, is the social contract that binds the nation together. Patriots, and tyrants, should beware. Progressive should step up.
· Make America Progressive Again (MAPA) is the new MAGA.
(Source: the Author)
To restore the faith, within the party, and boost its appeal to the dissatisfied, it may also be time to big up the charismatic John Fetterman and invoke the “Make America Progressive Again” (MAPA) mantra that goes with him.
This author suggests that Biden is bidin’ his “Slam Dunk” timing until the next G7 Summit. Trade Secretary Tai’s signal, that tariffs will remain in place on China, hints that the “Slam Dunk” will involve other inflation mitigation components than free trade per se. Combined with Secretary Yellen’s recent signals, the inflation will be conflated with a strategy to reduce dependence on, and hence, the influence of China.
Evidently, Secretary Yellen is preparing the public domain for a major policy initiative. Her latest speech warned of America’s current “enormous” dependence on China. She also suggested that an alternative solution is coming that, whilst relocating productive capacity away from China, does not go the whole way to dangerous and “expensive” protectionism.
Whenever a major policy initiative is imminent, trusted broadcast channels are enlisted, in proselytizing the agenda, in the public domain, by way of framing perceptions and gilding the halo effect. This is commonly known as Nudge Theory. This specific nudge involves the publishing, and syndication, of “Friend Shoring” guides for the perplexed. The “Friend Shoring” nudge is now picking up steam, for those not fortunate enough to be following the Key Signals Report.
The “Friend Shoring” nudge is, evidently, being coordinated by Janet Yellen’s trusted San Francisco Fed team and former known associates.
· “Speaker Pelosi’s Bottom” is firmly supported by Vinod Khosla.
· The Fed is in a hurry to catch up with America’s bi-decennial “Techno-Economic War” curve.
(Source: the Author)
This team may also involve the odd one or two Silicon Valley Titans. Since the Federal Reserve district of San Francisco accounts for approximately 25% of US GDP and generally votes Democrat, it’s a significant nudge. This GDP share is likely to get much larger if Biden’s Green Agenda makes it into legislation. It’s, practically, a conspiracy. The conspirators are also lazy, however, because they duplicate their nudging paraphernalia, thereby, drawing attention to the conspiracy itself rather than the message.
The San Francisco Fed recently published an empirical nudge that unequivocally concluded that supply-side issues are the main drivers of the lion’s share (=/> 2/3rds) of America’s inflation. The intellectual and empirical basis for “Friend Shoring” has, thus, been established in the public domain.
The Fed can only influence the demand side of the economy with monetary policy. So, if a supply-side solution is required, for supply-driven inflation, it’s over to you elected policymakers.
If Yellen is really smart, she will cover her tracks, and the conspiracy, with, at more than arm’s length, objective, evidence, and support from other equally esteemed sources.
This author suggests that Yellen should also try to keep San Franciscan native Speaker Pelosi out of the conspiracy, because the pecunious instinct, and behavior, of Madam Speaker, is giving the game away through her trading positions.
Supply chain companies, and manufacturers, have already got Yellen’s heads-up, and are adapting their business models. Positioning for “Friend Shoring” will be a secular driver of shareholder value, and CEO compensation, going forward. Consequently, business models are switching from exploiting inflation pass-through to positioning for “Friend Shoring”.
“Just in Case”: A “Friend Shoring” Mantra ….
The process of “Friend Shoring”, through which the concentration of supply chain risk (and economic power) in China, gets reduced, has a new mantra to accompany it.
Concentrated, Sino-centric, “Just in Time” supply and logistics are being replaced with a proliferation of smaller, dispersed, Sino-phobic, “Just in Case” configurations. The concentration of pricing power, in the hands of the few Oligopolists , is now being dispersed across a hoped-for plethora of smaller competitive nodes. The Alpha Oligopolists may also find themselves at the sharp end of anti-monopoly/competition legislation which penalizes them unless they conform and comply with the global “Friend Shoring” agenda.
It’s a world in which supply chains could be more robust and less subject to economic blackmail. It’s also likely a world that’s poorer and less productive.
Consequently, warehouse inventories and their capacity in “Friend Shored” locations will have to expand. Dispersion will also mean a proliferation of new warehouses and infrastructure.
(Source: Bloomberg)
The new “Friend Shored” “Just in Case” supply chain regime is, ostensibly, an economic stimulus. It is also a cost, for those involved, which they will seek to pass on to their consumers. Hence economic growth is coming, but at what inflationary cost and loss of productivity cost? To avoid these costs, the “Friend Shoring” process must also have default structural reforms embedded.
Assuming that the structural reforms are embedded “Friend Shoring” will present a sweet spot. Some San Franciscans have anticipated this sweet spot. Give it a name, “Speaker Pelosi’s Bottom”.
The Sweet Spot: “Just in Case” you’re “Friend Shored”, in “Speaker Pelosi’s Bottom”….
Speaker Pelosi “loves” Microsoft and Apple call options. Madam Speaker’s recent eyebrow-raising leveraged bottom fishing has raised more than a few eyebrows.
(Source: the Author)
Companies that can solve the productivity problem, whilst also “Friend Shoring”, will flourish. Clearly, this flourishing will involve technological solutions. Speaker Pelosi, apparently, agrees with this investment thesis because she is betting on it. Her timing is informed if nothing else.
Early movers, like Speaker Pelosi, will now begin to discount the great monetary policy easing event of the patriotic reconciliation, between the FOMC and the White House, at each subsequent 50 to 75 basis point rate hike. This discounting may include President Biden or it may include a new President.
(Source: the Author)
Former New York Fed president Bill Dudley has developed an uncharacteristic sense of levity, sadly lacking during his Fed career, to metaphorically describe “Speaker Pelosi’s Bottom”, and amazing timing. This metaphor is a US Economy that is out there, like Wile E. Coyote, awaiting gravity to do its thing. Apparently, it’s going to be a hard economic landing, thereby, guaranteeing that the Fed will have to ease swiftly. Early adopters, like Speaker Pelosi, are buying options in the discounting process of the easing.
· Oligopolists are currently defeating Capitalism, possibly for the last time.
(Source: the Author)
Western policymakers will deem any associated “Friend Shoring” economic cost to be acceptable because it reduces the dependence on China, and the associated economic and the political influence that is lost to China along with pricing power. Western policymakers can also intervene in the “Friend Shored” supply chains, within their fiscal jurisdictions, to ensure a more equitable distribution of the costs and benefits. Oligopolists should beware of the regulator.
· Inflation is being primarily fought with financial stability policy tightening rather than monetary policy tightening.
(Source: the Author)
Compliance with the “Friend Shoring” agenda will also hasten the soft economic landing, upon which the next economic expansion, and equity bull market, will be predicated. The current observed Fed conflation, of monetary policy with financial stability policy, resonates with this agenda.
This author calls the conflation, of monetary and financial stability policy, in pursuit of the American global agenda, “Patriotic Monetary Policymaking”.
The Fast and the Feasible: Do no harm in “Speaker Pelosi’s Bottom” ….
· Patriotic monetary policymaking may soon be framed as the creation of a stable disinflationary foundation on which the President can Slam Dunk.
(Source: the Author)
The support level, chart pattern, under construction, that this author labels “Speaker Pelosi’s Bottom”, is evidence that the Fed is using the tool of financial stability policy to appear to deal with inflation until a supply-side solution comes from elected policymakers.
The “fast” and the “feasible” conflation of monetary policy with financial stability policy was evident in the recent guidance from Richmond Fed president Thomas Barkin.
Barkin candidly stated that: “the spirit is, you want to get back to where you want to go as fast as you can without breaking anything.”
An accomplished essayist, and wordsmith, Barkin has cleverly conflated the two policies under the risk management banner. Hence, when he uses the R-Word, he is referring to both Risk and Recession, thereby, making the two interchangeable in the eyes and minds of his audience. This interchangeability, thus, enables the interoperability of monetary policymaking and financial stability policymaking. Acceptance of this interoperability, then, raises the probability of a soft economic landing.
· Dimon’s Hurrikraine implies that heavy-handed central bankers will need to apply their heavy hands with ambidextrous flexibility, going forward, with the further loss of their credible commitment.
(Source: the Author)
In the Senate half, of his recent Humphrey Hawkins testimony/interrogation, Chairman Powell alluded to the fact that, whilst trying to swiftly deal with inflation, the growth risk to the economy is increasing. He also alluded to risks beyond the Fed’s control, thereby, putting elected policymakers on watch that there is only so much the Fed can do without their help. Consequently, Powell has concluded that the Fed will need to be “nimble”.
· Now would be a good time for the Fed to start some thought leadership on a new definition of full employment.
(Source: the Author)
This author had suggested that, in lieu of the tenuous Phillips Curve covariance between employment and inflation, a new definition of full employment will soon be needed. Chairman Powell avoided this new definition, in his Senate testimony, but put the lawmakers on watch, to expect one, by cryptically stating that it is important for the Fed to move whilst employment remains strong.
From this author’s perspective, Powell’s prepared testimony also met the conditions of the thesis that Fed guidance will soon segue into, the framing of its actions as, preparing a disinflationary basis for Biden’s “Slam Dunk”. Powell testified, under oath, that: “it is essential that we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit all.” The segue to Biden’s “Slam Dunk” was, thus, articulated by Chairman Powell.
· The Fed is trying to reprise Alan Greenspan’s 1994 vintage as it hurriedly plays catch up.
(Source: the Author)
This author also thought that he was hearing Powell reaching for a bottle of Chateau Greenspan 1994 vintage tightening reprise with this comment under oath.
Outgoing Chicago Fed president Charles Evans is not ready to put the Chateau Greenspan ’94 on ice just yet, although, it is at the top of his scenario probability list.
With a valedictorian sense of data dependence and one eye on his own posterity, Evans predicts that, after one more big rate hike, in July, inflation will drop substantially in the next one year to eighteen months. Employment, not having reached pre-pandemic strength, despite apparent labor market tightness, will remain impaired. This impairment will be exacerbated by the FOMC’s commitment to prioritizing the inflation mandate. Supply chains will be open, but this is a mixed blessing, for monetary policy settings, since it brings growth but also lowers inflation. Consequently, the urgency to tighten could swiftly become an urgency to ease.
There was no Chateau Greenspan for Philadelphia Fed president Patrick T. Harker either. He would like to get to Fed Funds to circa-3% before he starts deciding on the vintage, although, he already sees no need to go much beyond this target.
Livestreamin’ Jim Bullard comes at “Speaker Pelosi’s Bottom” from a different angle, but, it’s still bullish. He wants to “front-load today, get inflation under control in short order and get inflation back on a path to 2%." Recession is not on his balance of risks, in fact, quite the contrary. Bullard sees the US economy in “the early stages of an expansion”. This view belies the Biden “Slam Dunk” and the ensuing “Friend Shoring” economic expansion.
As this author suspected it would not be long until one Fed speaker opined that the central bank is creating a low inflationary base for the Biden “Slam Dunk” to land on. Bullard is livestreamin’ it. It all sounds so patriotic, and so 1994, in the metonymic “Speaker Pelosi’s Bottom”.
For the Fed Board of Governors, however, patriotism belongs at 20th Street and Constitution Avenue N.W., Washington, DC 20551, and not at “Speaker Pelosi’s Bottom” although the two locations are strangely collocated.
Patriotism begins at home (sic).
Whilst the Fed Board of Governors may believe that patriotism begins at the central bank’s home in Washington, at least one Fed president may have been fooled into locating it in the home state of “Speaker Pelosi’s Bottom”.
“Speaker Pelosi’s Bottom” is firmly supported by Vinod Khosla.
The Fed is in a hurry to catch up with America’s bi-decennial “Techno-Economic War” curve.
(Source: the Author)
The previous report discussed the geolocation of the technology piece of “Friend Shoring” in Silicon Valley, in the state of California with about 25% of US GDP in its territory. It is no accident that “Speaker Pelosi” lives there when she is not moving the chess pieces on the great chessboard in Washington. The same could, also, be said of San Francisco Fed president, and Democrat Mary Daly.
Daly recently confirmed that Fed monetary policy settings were going into “nimble” mode. This means one more big tightening to confirm Mr. Market’s, already, heavy tightening of credit conditions in anticipation of future Fed action. Said anticipation, however, now threatens to deliver a recession, so the Fed needs to create what is known as a Bull Flattening of the yield curve. This Bull Flattening discounts ultimate falling inflation and the potential for easing. In effect, it is a confirmation of the Fed’s questionable credible commitment.
A Bull Flattening of the curve discounts and promotes duration buying. Duration buying is an early Risk On signal and driver. This phenomenon recently occurred at “Speaker Pelosi’s Bottom”. Go figure.
· The 1990s global economic scenario is hiding in plain sight.
(Source: the Author)
Daly also put the Chateau Greenspan 1994 on ice with her related guidance that “for a number of reasons, I (Daly) expect our economic transition now to look more like the mid-1990s than like the 1970’s Great Inflation and subsequent painful disinflation. That’s because many of the factors that helped fuel the Great Inflation are not as prominent today.” Go figure.
· The Fed may embrace Macklem Doctrine when it sees the unrealized losses on its balance sheet from the recent spike in yields.
(Source: the Author)
This author has noted that the Fed, and other central banks, will lose the zeal for tightening when the unrealized losses on their balance sheets become large enough, not only to cancel out all their QE profits, liable for payment to the taxpayer but, also, to require an injection of capital from the same taxpayer.
This type of central bank financial loss is, thus, not only a loss of credible commitment. It is also a loss of solvency.
A central bank’s liabilities are (1) its reserves, (2) the currency in circulation and (3) its obligation to pay any profits, on its monetary policy market operations, back to the government.
The central bank’s assets are the securities on its balance sheet.
The assets and liabilities must always balance.
Assets greater than liabilities create profits that are paid to the government, by way of rebalancing, if they are not invested with the corresponding increase of reserves also. Losses realized and unrealized, require notional, and real balance sheet shrinkage. Losses that do not shrink reserves must be made up by taxpayer injection, in the absence of any income from the other balance sheet assets.
Central banking is a simple balancing exercise.
Central banking should be so easy, that one wonders why central bankers consistently appear to fail. And then one realizes that they are given mandates that are inconsistent with their balance sheet accounting obligations.
Inflation has an equal, and opposite, effect on both the central bank’s assets and the liabilities, so, in fact, a central bank is ambivalent to inflation, from its own pecuniary perspective, until the economic growth is threatened by the inflation. Readers will remember the Fed’s old “transitory” excuse for doing nothing about inflation. That excuse was the evidence of the ambivalence, explained by this author until the inflation hit and remained beyond its mandated inflation mandate trip-wire. The inflation mandate obliged the Fed to do something, potentially in conflict with its balance sheet accounting process.
When a central bank is forced, by its inflation mandate obligation, to raise interest rates, it will have unrealized losses, on its balance sheet, which should oblige it to reduce bank reserves. The reduction of reserves then tightens financial conditions, in the banking system, presaging an economic slowdown. The economic slowdown, then, negatively impairs the credit worthiness of the central bank’s balance sheet assets, by reducing tax revenues.
If financial conditions tighten enough, to trigger a recession, then, the tax receipts that collateralize the assets on the central bank’s balance sheet are seriously impaired. Theoretically, therefore, central bank reserves should be removed from the banking system to balance the central bank’s smaller balance sheet notional value. This reserve removal would, however, trigger further economic weakness, and, a vicious cycle of credit contraction that would also lead to central bank insolvency and a depression.
The reader should, therefore, understand that a central bank will at some stage always have to abandon monetary policy tightening even if inflation remains undefeated. Central bankers then talk, with brio, about the supply-side nature of inflation, and the need for supply-side fiscal stimulus with structural reforms. If one listens, carefully, this is what, in essence, is being said right now.
Indeed, if the inflation creates a recession, all of its own accord, by destroying the need for economic production, and substituting production with price increasing instead, the central bank will also have to ease monetary policy to avert the recession from a lack of manufactured and serviced supply. In extremis, Oligopolists constrain supply, and employment, and simply exist by rationing their output to the highest bidder. This may sound familiar to those readers who suspect the current narrative of constrained supply chains and the currently accepted Stagflation narrative. Central bankers only deal with inflation, when it threatens economic growth, as they are doing now.
The author’s explanation is what the architects of Modern Monetary Theory (MMT) always avoid explaining, for fear of exposing that it is not modern at all. A glimpse, of this ancient central banking pyramid scheme, was once provided by Fed Board Governor John Exter. Little wonder that he was never allowed to become the Fed Chairman. MMT is pure and ancient, central bank self-interest. MMT is the process of balancing balance sheet assets with reserves in practice.
Easing in times of financial distress, caused by inflation, or deflation is what central banks do. They do so, to balance their balance sheets and avoid realizing losses. A central bank inherently cannot avoid monetary inflation, by default, unless it were to return to the Gold Standard.
Readers who doubt the veracity of this author’s explanation, of the real nature of central banking, should look closely at the Bank of Japan (BOJ). Here is a central bank that continues to confound its detractors, who expect it to tighten. When there is inflation, the BOJ eases; and when there is a recession the BOJ also eases. QED.
Then, readers should look at the ECB. Currently, there is inflation, yet the central bank is also easing at the same time as it is tightening. The excuse for easing is Spread Fragmentation. This fragmentation risk has been created by a combination of inflation, and monetary policy tightening, which now threatens recession in the weakest Eurozone economies. Consequently, the credit worthiness of the weakest economies weakens and their credit spreads widen to reflect this. QED.
Readers should also note that the recent bit of Bull Yield Curve Flattening guidance, from Mary Daly, at “Speaker Pelosi’s Bottom” (wherever it may actually be!), is the financial stability policy tool that puts the assets on the Fed’s balance sheet back into profit. Said profitability, then, makes the equal and opposite reserves in the banking system look healthier in value. Said reserve health then drives the economy out of its recession vector. Anyone who thinks any of this Bull Flattening is about inflation is deluded. QED.
This digression, into the un-modernness of Modern Monetary Theory (MMT), explains why central banks, currently the Fed, is using financial stability policy to fight inflation. If deflation was the problem, the central bank would still use financial stability policy to address it.
A modern central bank can do nothing, but use financial stability policy, because it is the only true policy tool that it has. All this talk and mandating, of inflation and growth mandates, is a political abstraction, and distraction, from what central bankers really want to do. The ancient, and modern central bank has always used financial stability policy to serve itself, whilst appearing to serve the economy. Serving itself means balancing its books.
Following the thesis of this report, central banks ease, “Just in Time”, “Just in Case” there is a recession. Fiscal Policy, in the form of “Macklem Doctrine”, will provide the balance sheet collateral for the rebalancing and reserve creation. Central bank balance sheets never permanently shrink, unless their underlying assets are allowed to default. A defaulting government can rely on the central bank to create reserves out of thin air. This sudden appearance of reserves then begets a new round of buying of assets that are supposed to be in default. The reserves then lead to credit creation which then finds its way back to the government, via taxation, and then back to the central bank through interest payments on balance sheet assets.
· The balance sheet discussion in the latest FOMC minutes was the Soft-Landing signal.
(Source: the Author)
And this awkward reality, dear readers, is why we now find ourselves in “Speaker Pelosi’s Bottom” waiting for the Fed to deal with the real threat, to its existence, that is growth and not inflation.
When the Fed decides to address growth, it will reload its balance sheet, with more assets, which it can then balance by injecting reserves into the banking system. President Biden is currently working on a “Slam Dunk” that will dump the debts of his fiscal stimulus onto the Fed’s awaiting balance sheet. If he doesn’t do it, the next President will.
But the voice of a schoolboy rallies the ranks:
'Play up! play up! and play the game!'(Sir Henry Newbolt)
When it comes to patriotic policymaking, Britain leads the way.
The UK PM intends to quaff Champers all day, every day, even if the ship of state sinks in the end. Local election results in the North, and the South suggest that the tide is rising.
The PM has a uniquely British “Slam Dunk” of his own, up his sleeve, to save the day and win the match.
Vitai Lampada with “an hour to play and the last man in” ….
Bucket hats and Joe Bloggs Jeans are back in fashion. What a pity Man United is not doing the business, too.
Allegedly, Britain has gone back to the 1990s, via the 1970s, well before all of its developed trade partners. Having decoupled, effectively, from its developed trade partners, through Brexit and its knock-on effect, on global trade agreements, Britain is plotting a regressive course across the oceans with the UK PM at the helm.
· Britain conflates the Commonwealth regime with the concurrent G7 global governance best practice regime.
(Source: the Author)
Facing ostracism at home, and abroad, the UK PM is going for his New Commonwealth World Order (NCWO) alternative trading system to the “Friend Shoring” NMWO system currently under construction in the developed economies.
UK Prime Minister Boris Johnson’s strategic misalignment with the New Multipolar World Order (NMWO) under construction, is finally getting the kind of editorial attention that can only mean one thing. This thing is regime change.
(Source: the Author)
As noted previously, the PM has already had his “Eddie Temple Facts of Life” speech from Speaker Pelosi. In one ear, out the other, apparently, just like it was when he was at “School”.
Speaker Pelosi has already signaled that Britain will not be allowed to spoil EU-US trade relations and their bicameral vision of the NMWO. There simply is no place for Britain, and no exorbitant privilege either, as an equal of the two. The British PM would be well advised to take care. Instead of taking care, he gambles and plays the balance of power game, seemingly, to make Britain and/or himself seem more relevant than they actually are.
(Source: the Author)
Desperation, a thick skin, amongst other psychological traits have prompted the PM to gamble, all-in, on a historic solution that conflicts with that of former allies.
Presumably, the PM’s hero Churchill is smiling down from the firmament. The loss of the Empire was a bitter pill, for Churchill to swallow, that the current PM is sweetening for his hero. The smile may well be one of bewilderment, however, since Churchill, as is the current PM, was half-American and never betted against this bigger/better half. On the contrary, Churchill courted his bigger/better half.
Britain is out of sync with its two main trading partners. It is trying to replace them with former colonies, whose economies are being undermined by exiting capital flight. These emerging economies are becoming submerging economies, in the economic sense. Britain is converging, by submerging, on these submerging economies.
(Source: the Author)
Britain isn’t exactly standing alone. The nation is standing with nations that can neither handle inflation, the strong US Dollar, and rising interest rates nor the new Cold War diplomacy that is carving up their abundant natural resources.
Sadly, also, the current PM is more like Robert Walpole than Churchill. Hence nepotism and sleaze have done for the economy and his party.
As noted already, by this author, there are some Cabinet members who have positioned themselves, and their family interests, to clean up, so to speak, in the great Commonwealth Market that now beckons. There is more than a hint of suspicion that they have used their Cabinet positions to nudge this beckoning future, into legislative reality, with their policymaking and attendant spin-doctoring. “Partygate” is a chimps tea party in comparison to how these wily operators play the game. When all this nepotism, and abuse of office, becomes clear, to the electorate, it will be game over for the Tory Party.
Then it will be game on for the Britain Project, with its 1990s Tony Blair DNA. This game is already happening in the high street shops that are selling out of 1990s fashion.
UK politics appears to be following fashion these days.
Or is it, the other way round?