Our Economic Arrogance Will Be Our Undoing

Submitted by QTR’s Fringe Finance

Think seriously for a moment about what we were told about inflation over the last two years. As everybody knows, both the government and the Federal Reserve swore up and down to us that inflation was going to be transitory and they were, of course, dead wrong.

This wholly incorrect prognostication will be filed next to Ben Bernanke’s “subprime is contained” statement as one of the all-time worst pieces of financial and monetary analysis provided by those who are supposed to have mastery of the subject at a consequential time, ever.

Putting aside whether or not the Fed is nefarious or simply incompetent, what is far more alarming is that we continue to ascribe credibility and relevance to the same people who not only seem to have a poor understanding of the basics of economics, but also a willingness to either put their stupidity on display, or lie to the public with a straight face. 

Which is why I feel like I can confidently declare exactly which “prediction” we are getting from the Fed and the Treasury that will turn out to be dead wrong: the idea that we are not headed, at warp speed, head-first into a recession.

But what I am fairly certain of, however, is that we are going to see a crack up in some market somewhere – the “blowoff valve” that I wrote about at the beginning of the month and the consequences I wrote about last week, while discussing what positions I liked heading into the chaos.

I also think it’s important that people don’t underestimate the Central Bank’s ability to make a significant problem much worse. After all, the way that we determine policy in this country is often to blame the easiest, lowest hanging fruit, regardless of their actual culpability, mixed with trying every potential “quick fix” possible before eventually giving up and defaulting to an actual, often uncomfortable, solution, once its too late.

For an example of this, look no further than JP Morgan’s Jamie Dimon, who has been placing the blame on the very bank blowups he is taking advantage of on short sellers.

As my friend Larry Lepard has predicted with me several times, the same thing will eventually happen to gold and bitcoin when it becomes clear that sound money has become our nation’s Achilles’ heel. Nobody will blame 50 years of horrific central banking policy, greed or excess among those who received bailouts, tied with abusive spending habits, as the reason for the dollar’s downfall. Instead, they will come for your gold, they will nationalize the miners and they will tax or ban bitcoin.

Hell, anything that can get you out of their system, while the system is crumbling, is going to be seen collectively as the enemy.

The enemy will be everything except the people and policies that created the problem to begin with. Those people get awards instead, as I detailed here:

Ben Bernanke Winning The Nobel Prize In Economics Is A Sick Joke

So brace yourself for an incoming recession.

What it means for markets, I wish I could tell you, other than it just feels to be a risk-off environment and here’s what I have in my portfolio.

There’s a small group of us out there that will be proven right when the recession takes place, but no one will notice, we won’t be taken seriously, and everybody who got it wrong will have a new set of excuses and jargon to try to justify how deeply ineffective and morally bankrupt their predictions and policies have become.

I imagine that with every new incoming Treasury Secretary and every new Fed chair, there is a tiny bit of worry that the whole thing will come undone under their watch. And while the Fed may believe it still has some tools it can use, like yield curve control, anything short of responsible policy and cutting spending is still going to have us trending in the wrong direction. Maybe it won’t blow up on Powell’s watch and maybe Janet Yellen will escape scot- and guilt-free for the rest of her life. But I’m certain of one thing: when we look back half a century from now, it’ll be clear that our arrogance to think we never have to stomach uncomfortable solutions will have been our nation’s monetary and economic undoing.

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QTR’s Disclaimer: I am not a guru or an expert. I am an idiot writing a blog and often get things wrong and lose money. I may own or transact in any names mentioned in this piece at any time without warning and generally trade like a degenerate psychopath. In pieces that I did not write, but that I aggregated from other sources, I did not personally fact check them and am republishing them, with permission, because I found the content useful and believe my readers will too. This is not a recommendation to buy or sell any stocks or securities or any asset class – just my opinions of me and my guests. I often lose money on positions I trade/invest in and I’m sure have lost more than I’ve made in my time in markets. I may add any name mentioned in this article and sell any name mentioned in this piece at any time, without further warning. Positions can change immediately as soon as I publish this, with or without notice. You are on your own. Do not make decisions based on my blog. I exist on the fringe. The publisher does not guarantee the accuracy or completeness of the information provided in this page. These are not the opinions of any of my employers, partners, or associates. I did my best to be honest about my disclosures but can’t guarantee I am right; I write these posts after a couple beers sometimes. Also, I just straight up get shit wrong a lot. I mention it three times because it’s that important.