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Of Two Minds – Life’s a Beach Until the Tsunami Hits: Four Waves Nobody Cares About–Yet


October 8, 2021

Four monster waves are about to crash onto the Fed’s beach party
and sweep away the unwary revelers.

Hey, is the water in the bay receding? Never mind, free drinks are on the Federal Reserve, so
party on, life’s a beach, asset bubbles will never pop, we’re safe. Of course you are.

The Fed is all-powerful and would never let a rogue wave turn all its precious phantom wealth
into broken detritus.

The water is fast receding and a wave is visible if you care to look, but nobody cares to
look.
Why bother? The Fed is invincible, that’s all you need to know to mint another
fortune.

Just to keep life interesting, let’s look anyway. Gordon Long and I discuss
four monster
waves that are about to crash onto the Fed’s beach party
and sweep away the unwary revelers:

1. Declining liquidity: while everyone is focused on the Fed’s ceaselessly repeated reassurance that the
liquidity spigot will never be closed, never ever ever, so party on, asset bubbles will never pop,
never ever ever, other central banks have already started
reducing global liquidity while domestically, the Treasury General Account (TGA) is soaking up
liquidity to fund the federal government’s monumental deficit spending.

2. Declining global growth: long before the pandemic swept ashore in 2020, global
growth was faltering: the business cycle had not been abolished, despite Fed assurances that
growth and asset bubbles will continue expanding until they reach Alpha Centuri and beyond
(Dow one trillion, yowza baby!), growth by any conventional measure (PMI, ISM, industrial production,
global trade flows, etc.) had stagnated or rolled over.

Profits had also topped out and the expansion of leveraged debt had started to wobble, hence
the Fed’s frantic unleashing of a repo flood in late 2019 to cover up the putrid stench of
rapidly decaying debt.

3. Global supply shock: as we all know, global supply chains that everyone assumed were
unbreakably robust turned out to be extremely fragile, tightly bound systems of endless
dependency chains that fell to pieces once any one link snapped.

4. China credit impulse shock: while everyone in America focuses on the Fed’s we
walk on water
claims of unlimited power to inflate asset bubbles forever, the rest of the
world lives or dies on China’s credit impulse which has long been a reliable leading
indicator of global expansion or contraction.

For a variety of reasons, China’s gargantuan credit bubble is no longer expanding, and so
China is not going to save the world from recession and asset bubbles popping.

It would be easier to put one’s faith in the unlimited power of the Fed to inflate asset bubbles
if the humans behind the screen weren’t hopelessly compromised by self-serving corruption.

But alas, they are corrupt and self-serving, and their claims of unlimited power to inflate
asset bubbles forever are about to be tested.

Not looking won’t stop the waves from washing the beach party away.


Four Tsunami Waves About To Hit At Once
(40 minutes)



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