The Fed Listens To Mr. Real Economy And Mr. Market Eventually Listens To the Fed
The Fed Listens To Mr. Real Economy And Mr. Market Eventually Listens To the Fed
“We get to spend a lot of time with data... But I personally would say I need to hear narratives, I need to hear stories, about what’s really going on out there ...." (Jerome Powell)
Summary:
· The US Q3/2022 “Techno-Economic War” update states that there is no clear winner at this point.
· Inflation is driving the demand for credit, not vice versa.
· The Fed is now creating balance sheet assets “out of thin air” to cover its losses Ponzi Scheme style.
· The Fed will be unable to sustain its Ponzi Scheme balance sheet asset creation process for the latest signaled intended 125 Basis points of rate hikes.
· Page 14 of 17 in the latest SEPs clearly illustrates the FOMC’s latest dual mandate failure from 2020 to the present.
· The latest Fed Listens event was more significant than the 75-basis points rate hike that it followed.
· The latest Fed Listens event will allow the central bank to re-listen to Esther George’s “constrained quality of monetary policy tightening” Jackson Hole soliloquy.
· The latest Fed Listens event is the precursor to the Fed’s embrace of a new New Normal that enables and facilitates Biden’s supply side “Friend Shoring Slam Dunk”.
· A new “New Normal” definition of Congressionally mandated full employment has moved from imminent, through pending, to overdue.
· It’s Squeaky Bum Time Down Under.
· The RBA is the latest “insolvent” developed central bank to call for assets, from a fiscal stimulus, in order, to monetize away its balance sheet’s unrealized losses and associated negative cash flows.
· It’s time to “Stan by your Man” on the Silk Road.
· “Lizzo” slips on a Banana (Republic) Skin and spills her “juice”.
· The Bank of England is a cash cow that has gone from being too big to fail to become too juicy not to get slaughtered by the rapacious Conservative Party.
· “Weimar-on-Thames” style with an English accent UK economic policymaking seeks to nationalize the Bank of England “Kremlin-on-Thames” style with the same English accent.
· UK fiscal and monetary policy will remain antipathetic until the war over the Bank of England’s independence is concluded or the recession overwhelms inflation.
· Larry Summers “sincerely imitates” the Key Signals global thesis.
· UK underdog status risks becoming global pariah status in the developed world under the current regime.
Getting to 2052 by the way through Q4/2022 ….
At the beginning of the year, this author set out his global macro thesis for the year and beyond. Ostensibly, America and China were, and still ate, in a “Techno-Economic War” for supremacy circa 2052.
America recently provided a Q3/2022 update of the thesis. A stalemate, effectively, exists with China ahead in the sectors of 5G, drones, and EV batteries. America has the edge in biotech, quantum computing, commercial space technologies, and cloud computing but could lose them at any time. Now is not the time to let up. Neither is it the time for the Fed to wreck it with a recession.
Silicon Valley is up for Biden’s “Slam Dunk of the Millennium”, according to legendary venture investor Vinod Khosla. He predicts that the US and China will soon be in a bi-decennial “Techno-Economic War”. This war will be based on a conflict of underlying values. Market values of American technology must, then, by definition, be boosted, to several multiples of their Chinese competitors, if America is to be the winner. American companies must also remain in private hands and be listed on stock exchanges by the same default victory conditions. “My Dad’s Market Cap is bigger than Your Dad’s Market Cap”, as they say.
(Source: the Author)
This author has framed the “Techno-Economic War” as one of competing market capitalizations for the competing economies, as the proxies for relative GDP, from which to objectively estimate the victory conditions.
The latest Q3 update also confirmed that there will be a battle of market capitalizations between Chinese and American technology companies. According to the update America has adopted the public-private model of war-making with commercial spinoffs that amplify the economic benefits.
America, thus, is not in a position to let a recession get in the way. The Fed should take and, probably, has already taken note of the update. The window for rate hikes and balance sheet reduction is closing fast. Continued monetary policy tightening, throughout 2023, will undermine the war effort.
On the home front, the US consumer foot soldier is limping along.
Credit: Can’t afford to live with it, but can’t afford to live without it ….
On the eve of the latest FOMC meeting, a poll by CreditCards.com reminded the Fed that it was shooting an already dead horse with rate hikes. The number of Americans who, thanks to inflation, must borrow to survive, but can’t really afford to borrow, has now jumped to a significant majority. The number who are in this long-term penury, out of necessity, rather than through choice, has also jumped.
Further context, for an apparently lacking in context Fed, about the plight of the US consumer, has been provided by Black Knight Inc.
Black Knight has found that Americans are using home equity, to unlock lender-constrained credit, because it is the only asset available to them with any substantial collateral value. Evidently, the Fed would wish to deprive Americans of this last lifeline, even though it is being used to sustain a meager living rather than to live consumption fantasies beyond the American dream. Quite literally, the roof over their heads is the only thing left to use, as loan collateral, to subsidize an inflated cost of living.
The Fed, allegedly, continues to argue that inflation is demand driven by the availability of credit.
The Fed, allegedly, continues to argue that inflation is demand driven by the availability of credit.
In practice, as explained by CreditCards.com, and Black Knight, inflation is driving the demand for credit. When the Fed has finally figured this out, it may be too late. Perhaps the Fed already knows but just doesn’t care because salvaging its inflation-fighting credibility is all that matters.
As a precursor to Macklem Doctrine being rolled out, over an envisaged three-year time horizon, its namesake author Bank of Canada Governor Tiff Macklem had recently been installed in a coordinating position at the BIS.
Since then, the BIS has advanced to contact with the global structural change, and its enemy/enemies. BIS General Manager Augustin Carstens has recently set out the rules of engagement for all the central bankers involved.
(Source: the Author)
The solution is to advance credit, and fiscal support, to those who can increase aggregate supply. The Fed has been told this, on numerous previous occasions, by the Bank for International Settlements’ GM Augustin Carstens, but, still, does not follow the advice.
The message was repeated again, by White House Economic Adviser Brian Deese, even as the FOMC was deliberating over its latest decision.
A further strong warning was provided from the US downstream petroleum refining and marketing sector. This warning is apposite since it highlights the supply side nature of the inflation problem that the Fed is ignoring.
This timely warning also highlights the diverse nature of the US economy, which has been clearly overlooked by the one size, of misery, fits all monetary policy settings of the Fed. This diversity should constrain monetary policymaking decisions. In practice, these diverse constraints have been ignored by a Fed Chairman with a hammer who only sees inflation nails. This should not be a surprise. Back in the day, when the Fed was being broadly inclusive, in 2021, the central bank took its eye off its inflation mandate. The results have been unedifying and have, probably, made diversity a dirty word in Fedspeak.
There is one regional Fed president who is not afraid of diversity. The diverse nature of her own district, and the US economy, has informed her monetary policymaking perspective. To call her a Hawk is discourteous and is, largely, refuted by the fact that she has become less Hawkish as her colleagues have become more so. To say that she is uniquely diversified, and to understand what this means would be more appropriate.
Given the “constraining” diversity, of the US economy, smaller sustained interest rate hikes, as prescribed by Kansas City Fed president Esther George, are more appropriate. “Constraint”, upon monetary policy decision-making, was the theme of the recent Jackson Hole symposium hosted by George. Nobody got it, except Esther George, by the look of things.
(Source: the Author)
Kansas City Fed president Esther George has, heroically (in this author’s opinion) tried to warn her colleagues of the diverse “constraints” upon their actions. She even went as far as dedicating the last Jackson Hole central bank symposium to these said constraints.
Coming out of the Jackson Hole meeting, it appeared that George had heroically failed. This feeling was strengthened by the ensuing 75-Basis points rate hike, from the FOMC, and various other rate hikes from global central banks in the same week.
George’s colleagues, and the rest of the global central banking community, with the exception of the BOJ, appeared to have totally ignored her at best. At worst, they appeared to have deliberately contradicted (and ridiculed) her.
Central bankers, on the whole, are a collegiate lot. It is, therefore, highly unlikely that they would have, deliberately, rained on George’s Jackson Hole parade, especially as she intends to retire soon. It is more likely, therefore, that they coordinated her symposium with their own rate-setting agendas. Jackson Hole was, thus, a bookmark to be returned to.
· Esther George’s sound monetary policy compass will be sorely missed when she retires.
(Source: the Author)
George does not strike this author as the kind of narcissistic central banking type, like Neel “Ex Culpa” Kashkari, or James Bullard who would acrimoniously personalize issues when they feel that they have been ignored. Neither does she strike as someone who takes all the trouble of setting up an event, with no apparent relevance other than as an all-expenses paid jolly for her pals. George is a proper leader and a proper central banker. What she set up and set out, at Jackson Hole, was of significance. Its significance has yet to be fully understood and discounted by the markets.
· The Quality and Quantity of Tightening are constrained by Esther George’s soliloquy.
(Source: the Author)
It seems, more likely, that George will keep her counsel, and remain on the record for warning her colleagues of what happens next, when, it happens, and, she retires. What happens, next, will then be attributed to them and their success.
George’s Jackson Hole warning should be seen as a frame, and context, for the warnings from the petroleum supply chain and other real economic agents.
The futures markets say that gasoline prices should be weakening. The investment-starved, logistically-constrained downstream, refining, and marketing sector, markets say that gasoline prices should be rising. Clearly, a supply-side investment solution is required to stimulate non-inflationary economic growth.
Instead of enabling, this supply-side solution, the Fed is currently prescribing a recession that will lead to even less capital investment in the refining and marketing sector. The problems are, exclusively, supply side and structural in nature. The US economy needs supply-side capital investment. Instead, it will get a recession from the Fed. The good news is that President Biden has a supply-side stimulus in waiting. The good news is, also, that the Fed is not totally deaf and blind to the solution.
Mr. Market thinks that the Fed is currently happy to be employed in the business of making itself insolvent, by destroying the value of its balance sheet, with the view that insolvency doesn’t matter.
The latest suicidal blow, dealt by the FOMC, was not the latest 75-Basis points hike in rates, rather, it was the projection of a further 125 Basis points of rate hikes. In the game of Russian Roulette being played, between Chairman Powell and Mr. Market, the chamber was loaded on the Chairman’s latest twist of the barrel. The Fed’s balance sheet is blood-red on a mark-to-market basis. The tax revenue-backed cash flows, of the assets on the Fed’s balance sheet, now also face impairment through a recession.
The accounting fraud involves the Fed creating a “deferred asset out of thin air”. The explanation then completely mistakes this “out of thin air deferred asset” for a Fed liability. The Fed has actually, in practice, issued a bond on behalf of the US Treasury, with no cusip number, that it has then bought, thereby, creating a unit of US currency.
(Source: the Author)
The Fed appears to cling to the belief that it can continue to create assets (with no cash flows) “out of thin air”, to cover the self-inflicted losses on its balance sheet, when it has impaired the creation of real assets (with real cash flows) in the US economy. Apparently, Chairman Powell thinks he can go on “creating assets out of thin air” for another 125-Basis points of rate hike-related losses on his balance sheet.
The Fed needs balance sheet assets, with real cash flows, desperately. This means that it needs a fiscal stimulus. President Biden will be waiting for the call from Chairman Powell.
One hopes that, when Powell speaks with Biden, the President will remind him that he has still got an employment mandate to follow. In his recent presser, Powell feigned uncertainty about the employment outcome of his actions. This could not hide the fact that Powell has, in fact, abandoned his growth mandate, by downplaying it. This is the converse of the position adopted, back in March 2021, when Powell abandoned his inflation mandate, with disastrous consequences today. This sorry tale, of abandonment, is clearly illustrated by the FOMC itself in the balance of perceived risk diffusion indexes on page 14 of its latest Summary of Economic Projections (SEP).
The FOMC clearly predicted inflation and then ignored it back in 2021. Now it is clearly predicting a recession and ignoring it. The Fed appears to be as incompetent as it is prescient.
The White House may have already spoken, to the Fed, however.
After all, the Fed Listens and was listening in Washington at the end of the momentous week of the latest FOMC meeting.
We came, we hiked, we listened …. he discounted.
· The inflation debate has assumed a life of its own, which is becoming irrelevant in the real economy but remains highly relevant in the surreal economy of the capital markets.
· Inflation (and monetary policy) is, everywhere and always a financial stability phenomenon.
(Source: the Author)
Mr. Market fondly believes that it’s all about him and his view of inflation. It isn’t, and he just hasn’t figured this out yet. The accepted wisdom, that he is always right, makes him a useful idiot to be manipulated by those who wouldn’t have it any other way. Currently, he has capitulated because it was the right thing to do, during the trading session, before the Fed Listened. The right thing to do, going forward, requires him to discount what the Fed listened to alongside the incoming economic data.
The Fed Listens as a new part of its monetary policymaking process. This means that the Fed is fully aware of the diverse nature of the US economy. This also means that the Fed is acutely aware of the constraints that Esther George has opined upon and tried to get out into the open.
The Fed has chosen to ignore Esther George as a process of listening to the real economy and then reprising her.
When the seven Fed Governors held their Fed Listens event, in Washington, at the end of the rate hiking week, they were told of the effective economic headwind blown by inflation. They were also told that rate hikes are just making things worse with credit headwinds of their own.
· Now would be a good time for the Fed to start some thought leadership on a new definition of full employment.
(Source: the Author)
Readers may remember that this author has theorized, for some time, that a new definition of full employment is pending/imminent/overdue. This new definition will, in effect, relieve the FOMC from rate hiking in an allegedly tight labor market.
“We get to spend a lot of time with data, here at the Fed. But I personally would say I need to hear narratives, I need to hear stories, about what’s really going on out there for it all to make sense,” he said. “We all learned a lot from you today.”
(Source: yahoo.com)
Chairman Powell’s summing up, of the recent Fed Listens event, has heralded the new definition of full employment. It has also heralded the Fed’s potential U-Turn, based on the futility of rate hikes. After listening, Chairman Powell has found the real economic context to the subtextual economic data that his colleagues interpret.
The reader should note that the Fed devolves its legitimacy, and independence, from Congress. Congress, in theory, devolves its legitimacy from the people. When the Fed listens to the people, it is therefore complying with its Congressional mandates. The Fed is, hence, legally obliged to respond to what it hears when it listens. The consummate lawyer, although not the consummate central banker, Chairman Powell’s behavior and future policy actions are, hence, totally legal and consistent with his Congressional mandates. When Congress is split along partisan lines, as it is now, Chairman Powell will need the legitimacy, of his Fed Listens program, because his written mandate has become a political hostage.
· Chairman Powell confirms the thesis that monetary policy will be framed as creating a disinflationary base for the Biden “Slam Dunk”.
(Source: the Author)
Chairman Powell has stated, at the recent Fed Listens event, that he believes that the US economy is in a new “New Normal”. This latest “New Normal” is one of a constrained supply of labor, goods, and services. Constraining credit does nothing to unconstrain these three growth essentials. Chairman Powell has not yet officially connected the dots to the supply side solution, of Biden’s fiscal stimulus, but he has adumbrated them. A further decline in inflation, with a little help from the Fed’s inflicted slowdown, should connect the dots.
The losses on the Fed’s balance sheet will, also, encourage Chairman Powell to join the dots to President Biden’s Fed balance sheet headed fiscal stimulus. A cynic would argue that these losses are the main connectors of the dots.
The Fed is not the only central bank with new “New Normal” problems.
It’s Squeaky Bum Time Down Under, Misheila!
The Jolly Swagman is not so jolly.
If any commercial entity had negative equity, assets would be insufficient to meet liabilities and therefore the company would not be a going concern. But central banks are not like commercial entities. Unlike a normal business, there are no going concern issues with a central bank in a country like Australia. Under the Reserve Bank Act, the government provides a guarantee against the liabilities of the Reserve Bank. Furthermore, since it has the ability to create money, the Bank can continue to meet its obligations as they become due and so it is not insolvent. The negative equity position will, therefore, not affect the ability of the Reserve Bank to do its job.
(Source: RBA Deputy Governor Michele Bullock)
The Reserve Bank of Australia is the latest developed central bank that has gone through the comedic act of explaining how it has shot itself in the foot by hiking interest rates. The RBA is insolvent, but this apparently doesn’t mean that it will stop creating money according to Deputy Governor Michele Bullock.
To create more money, however, without literally resorting to the printing press, the RBA must get some new real cash flows from securitized government debt. In the absence of real government debt i.e. real money, the RBA would literally have to create $A out of thin air.
What Bullock is trying to say is that the RBA now needs to buy more government interest-bearing assets so that the cash flows, from the, said more assets, are greater than the current losses on the balance sheet. The RBA must, hence, cover its losses with more assets. Unless the RBA cuts interest rates, it must continue to buy more assets to cover the losses. Alternatively, the RBA can cut interest rates so that it doesn’t have to buy as many assets to cover its losses.
The reader will note that at no point has any mention of inflation and/or economic growth entered the discussion. As this author has explained, many times, central bankers don’t really do inflation and growth anymore. They do balance sheet expansion, and balance sheet insolvency mitigation. Inflation and growth are derivative real economic outcomes of the central bankers’ primary mandate of financial stability. For financial stability read central bank solvency.
The outcome, of all this accounting sleight of hand, is that the RBA is now (silently) crying out for a fiscal stimulus and a fiscal deficit for it to buy. Hiking interest rates just makes the RBA more desperate at this point.
The reader may have noted that RBA Governor Philip Lowe has become more balanced in his view of the need for future rate hikes. The RBA has also, recently, become more concerned about housing. Basically, these signals are little-tells that the RBA is really worried about the losses on its balance sheet. This worry, and related self-preservation instinct, are sold as concerns about the real economy.
· Monetary Policy tightening is ending because the Fed has reached the technical “unrealized” insolvency event horizon.
· The Fed’s expanding balance sheet is a black hole that is pulling the central bank toward exclusive Financial Stability Policymaking to the exclusion of Monetary Policymaking.
· Jackson Hole should probably be renamed Central Bank Black Hole.
(Source: the Author)
The RBA is not alone, the Fed is in the same predicament. As noted by this author, President Biden has a bipartisan “Friend Shoring” fiscal stimulus and a related “Techno-Economic War” with China, which will provide the fiscal deficit to cover the Fed’s current losses.
It’s literally time to stand by your man, and/or Stan by your man.
Stan by your Man ….
· The Brzezinski Doctrinaire Silk Road context for the Western assault on the Belt and Road is apposite.
(Source: the Author)
The last report focused readers’ attention on the Silk Road artery, of China’s Belt and Road, in the context of the Brzezinski Doctrine. The latest roadside news confirms that this doctrinaire approach is contemporaneous with current events.
Two of the alleged Moscow Mules, on the Silk Road, named Tajikistan and Kyrgyzstan are no longer pulling President Putin’s war chariot in the same direction. In fact, both of the said mules are fatally kicking each other, thereby, undermining their alignment with Moscow.
The big question is who is working the carrot and whip that drives these two conflicted Stans.
Just to add to the traffic chaos, on the Silk Road, donkeys in Armenia and Azerbaijan are kicking lumps out of each other again too.
The congested traffic report, from the Silk Road, is an obstacle for China and a threat to President Putin. It is a green light for the mechanics of the Brzezinski Doctrine. The flow of strategic elements, and value-added products, along this main Chinese artery, has been frustrated in such a way that alternative commercial solutions can be offered in competition with China’s roadmap for the region. With commercial alternative solutions come alternative trade routes, and political alignments.
It’s a tricky one, for Biden, managing all these threats and opportunities. He is, however, blessed in that there is no shortage of threats with which to create his opportunities. Frankly speaking, he was dead and done thanks to inflation and the Fed. As they happened, the Ukraine War and Taiwan situation have brought his political fortunes back to life. A cynic may argue that there was, therefore, method in the madness of letting Russia waltz into Ukraine after spotting Russian forces well in advance of the invasion. The same cynic may also argue that sending Speaker Pelosi to Taiwan, whilst feigning disapproval in public, was also similarly inspired.
(Source: the Author)
The last report discussed the delicate balance of risks, within the BRICs, in relation to the war in Ukraine, and the status quo in the Stans. It was noted that President Biden is managing a delicate balance of risks, to keep his domestic agenda alive, whilst furthering his global agenda. POTUS recently gave a recap on the said balance of risks. Apparently, President Xi Jinping has done enough, or rather not done enough bad things for President Putin, to keep President Biden from ratcheting up the tariffs and invective against China. China and America, thus have the room to close a political gap at the exclusion of President Putin from the gap.
On the subject of political gaps, one cannot fail to mind the gap in London.
(New) World (Order) in Motion: “Lizzo” Slips on a Banana Republic Skin and spills her “Juice” ….
Deficit ballooners and financiers are being invited back, to the City, in order to help “juice” the economy, whilst the Government plays at central bank, with the prospect of “juicier” bonuses. This is a double-edged sword because these guys can short the hell out of Sterling, and Sterling Assets, to “juice” their P&Ls. It’s another Big Bang that ends with a big bang, except that it has started with a big bang already.
(Source: the Author)
The last report unlocked the trap door, underneath Sterling, and oiled the hinges with “Lizzo’s Juice”. As the world was in motion, recently, at the UN, in New York, regime change was in motion back in London.
The “Fat Lady” stood on the trap door and sang her aria with brio. Her tune was very dissonant from the global chorus line on 42nd Street.
The chorus of spectators, and speculators, seem to be signing the author’s assumed new World Cup football chorus with great gusto. For those who don’t yet know it, it goes like this:
It’s coming home to roost.
Gotta blame it on her juice.
The author believes that this chorus is also a marching aria for the next act, in UK politics, which he believes rhymes with regime change “world in motion”. As John Barnes once rapped, it’s time “to get round the back”.
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.
(Source: the Author)
Readers will know that this author has been singing that regime change is being engineered, in the UK, by aligned interests, in Washington and Brussels, with a little help from Tony Blair’s latest live album project.
Day-O, Day-O, Daylight Come: Black Gold, Banana Republics and Old Habits ….
The American thirty-year narrative involves the funding and creation of a bipartisan consensus from the perceived Chinese threat via Latin America.
(Source: the Author)
Readers should also remember that UK foreign policy is misaligned with US foreign policy, especially, in Latin America.
· All the current favorites to replace the UK PM are unfit for purpose, they just haven’t been caught in flagrante delicto …. Yet.
(Source: the Author)
Readers should also remember that UK “Sleasez Faire” is not dead, but just sleeping. It recently awoke.
· It’s over for the UK economy but the Fat Lady hasn’t sung …. Yet.
(Source: the Author)
In addition, readers may recall that “the Fat Lady hasn’t sung …. Yet!” On the subject of singing, “Lizzo” Truss has recently cleared her tonsils and “juiced” UK economic policy. Could she be the mysterious “Fat Lady”, to whom this author refers?
Having jogged the reader’s musical memory, this author would draw his/her attention to yet another crisis in “Lizzo” Truss’s stillborn government. Apparently, “Lizzo’s” Chief of Staff is cooperating with FBI investigations of criminal activities in Puerto Rico. The association is too close for “Lizzo’s” reputation.
This author will leave the reader to conclude if it all sounds like the latest FBI crisis is related to the context of the author-inspired rememberings above.
· The rekindling of the symbiotic Special Relationship is pending the tall New World Order of the permanent sacking/resignation of the Butler, the conviction of the Oxford Apostles, the UK re-joining the EU, the closure of the VIP Lane, and India leaving the BRICs.
· The rekindling of the symbiotic Special Relationship is also pending the syncretic bicameral Anglo-Saxon political cleansing simultaneously occurring on either side of the Atlantic.
(Source: the Author)
This author has previously noted that the rekindling of the Special Relationship is contingent upon certain specific conditions precedent on either side of the Atlantic. Currently, the said conditions are not conducive to relationship building. On the contrary, they are conditions precedent for an estranged relationship. The two nuptial protagonists can neither live with nor without each other.
· The UK is aggressively 1980s rebooting, Submerging Markets style, whilst its European trade partners reboot in a more peaceful fashion, and America tries to reboot 1990s style.
(Source: the Author)
Evidently, “Lizzo’s” PR team doesn’t see any thaw in the Special Relations which were already dead, when Boris Johnson was PM, with the Biden team. In fact, “Lizzo” doesn’t like to refer to the Special Relationship at all. Hence, “Lizzo’s” team is procrastinating over the prospect of a new free trade deal with America.
There isn’t going to be a UK-US trade deal, allegedly, because it’s not “Lizzo’s” priority, and the US is already the UK’s biggest trade partner. This has nothing to do with the FBI, of course. The author’s reference to Submerging Markets style drift of UK economic policy is now, clearly, resonating with the global editorial thesis and related price action.
This author is particularly chuffed that his global thesis protagonist Larry “Risus Sardonicus” Summers has adopted the “Submerging Markets” sobriquet first used in these reports.
Chapeau Larry! Do you secretly read Key Signals, and are you familiar with what Oscar Wilde said about imitation ….. innit?
“Lizzo”, like Johnson, would prefer that the UK plays the balance of power in geopolitics, and commerce, on the margins of a fractured New Multipolar World Order. This underdog status risks becoming pariah status, however.
So, a free trade deal with the world’s largest, and currently strongest, economy is not a priority. One wonders exactly what “Lizzo’s” priorities are. Could it be that she intends to restore the City to be the world’s premiere money laundering center, that it once was, in lieu of lost legal US trade and commercial opportunities? The FBI, apparently, seems to think so.
It is well known that the UK Government has long coveted the Bank of England’s independence, and intends to take it back by hook or by crook. One simply has to follow the money to understand why.
Like all other developed central banks, the Bank of England has substantial losses on its balance sheet, now, after interest rates have risen. The Bank’s ability to rescind profits, on its QE operations, to the UK Treasury, is, therefore, over unless the profits can be fabricated with clever accounting. Without rescinded central bank profits “Lizzo’s” intended big tax cuts will be unfunded. Unfunded tax cuts push up Gilt yields and, hence, hit the Bank of England’s balance sheet even harder. The Bank is now in a death spiral, of insolvency, that takes the UK economy with it. If the Bank of England were nationalized, all this bundling of cash and stimulus could be hidden, in the national accounts, and layered into the real cash flows of real tax receipts and real fiscal payments.
The pecuniary incentive to nationalize the Bank of England is immense. It is a cash cow that has gone from being too big to fail to become too juicy not to get slaughtered by the rapacious Conservative Party.
The funereally smirking Chancellor Kwasi Kwarteng is alleged to, already, be making plans to interfere with the Bank of England’s payment of interest on banking reserves, to commercial banks, in an attempt to claw back some revenues for the government. This clawback could only be realized, in practice, if the Bank of England was legally forced to rescind the money saved to the UK Treasury. Such an enforcement action is, in effect, the nationalization of the central bank.
For its part, the Bank of England has declared war on the Chancellor’s fiscal policy and intention to capture monetary policy. Monetary Policy Committee (MPC) member Jonathan Haskell has opined that the Chancellor’s policy is “difficult” in the face of real economic capacity constraints in labor markets and supply chains. This difficulty is illustrated by the fact that the Bank will soon commence its selling of Gilts, from its QE balance sheet hoard, just as the Chancellor wants to expand the fiscal deficit.
In the absence of the Bank’s balance sheet, it has been rumored that the government will force domestic private investors to buy Gilts, instead, in a clear breach of its free market credentials. On the other side, of their private balance sheets, the enforced buyers of Gilts will then have to endure economic austerity. So, the government will make them finance its deficits and deprive them of the income to finance these deficits. This is basically wealth confiscation on the Soviet scale of state-planned kleptocracy. Not only will the United Kingdom split up, but the English will leave what is left behind.
· “Lizzo” Truss is juicing the UK economy by jibbing the Bank of England, Weimar Style, with an English accent.
· The Bank of England will jib the UK’s foreign deficit financiers at great cost to the UK economy.
· Non-Rationing Britain’s unsustainable Weimar-on-Thames Rave is being politically juiced, in the short run, by ephemeral Sovereign mourning and over-optimistic World Cup hopes.
(Source: the Author)
Evidently, from the reaction of the markets to his budget, the Chancellor has twigged that he can’t shake foreign investors down. He has not, yet, been able to legislate the Bank of England into buying his deficit. Hence, he has turned on the domestic savers.
· The UK will become an austere economy with an ungovernable polity.
(Source: the Author)
Unfortunately, the Chancellor has forgotten that the said domestic savers, who he intends to shake down, are also voters. Free market Thatcherism II, has rapidly degenerated into Soviet Klepto-Capitalism. “Weimar-on-Thames” is now the kind of “Kremlin-on-Thames” that Lady Thatcher would detest.
Thus, monetary and fiscal policy are antagonistic, in a Kafkaesque way, that will nullify each other going forward, unless/until the Government is able to legislate away the Bank’s policymaking independence. The courageously independent Bank of England’s defiance is however token. The losses on its balance sheet belie the same kind of insolvency, as its global peers, which require a new supply of cash flows from a deficit-financed fiscal stimulus. At some point, therefore, the Bank will have to either surrender independence or monetize the next fiscal stimulus.
Or perhaps “Lizzo” is working on her Brexit U-Turn already. Rumour has it that President Macron has a cunning plan to enlarge the EU without enlarging the EU. Macron wishes to create something called the “European Political Community”. This club is a de facto expansion of the EU. Hence Macron has made the club membership rules flexible enough to allow compliance with EU rules, without forcing a legal plebiscite on EU membership.
Tony Blair is rumored to be crafting a Brexit deal that will, satisfy Joe Biden and, allow Truss to look like a Brexiteer until she can get her feet under the table and start kicking shins into the Re-join line.
(Source: the Author)
All “Lizzo”, thus, has to do, in theory, is pay the community membership fees without officially applying to rejoin the EU. Hence, she can have her Brexit, and EU re-entry, without upsetting the Brexit faithful, back home, and looking like a hypocrite. This assumes that the Brexit faithful are too stupid to understand that the “European Political Community” is EU-Lite membership.
There is also the very real issue of the Irish Border, within the Brexit context, which is a hill that “Lizzo” may also die on. President Biden is particularly fond of this hill and sees it vividly as emerald green. President Macron may also see the same vivid hues.