‘And if thine eye offend thee, pluck it out, and cast it from thee.’
—Jesus
The big event this week is the Federal Reserve meeting in Jackson Hole.
That is probably what is behind the rally of the last few days; big traders are front-running the Fed.
Everybody thinks the Fed largely controls the US economy and stock market. And everybody thinks cutting rates is good for both. And everybody knows Jerome Powell is not going to disappoint them.
The only argument, led by the president of the US himself, is over how much cutting the Fed should do. Here’s POTUS:
‘The Fed Rate, over a fairly short period of time, should be reduced by at least 100 basis points, with perhaps some quantitative easing as well. If that happened, our Economy would be even better, and the World Economy would be greatly and quickly enhanced-good for everyone!’
Jim Beam economy
Gosh. Is it that simple?
All this time, we’ve thought of an economy as a complex organism…responding to billions of inputs — prices, culture, innovations, preferences, weather…everything.
And for lo so many years, central banks, too, thought they should be careful.
They worried about queering the information flow…or about consumer price inflation…or about ‘overheating’ the economy.
They thought they needed to ‘take the punch bowl away’ from time to time, just to cool things down.
And come to find out…they were all wrong.
The whole ‘world economy would be great and quickly enhanced’ by just cutting rates…and cutting them good and hard (well below the level of consumer price inflation).
It’s that simple! Turn up the music. Dump in some more Jim Beam. ‘Good for everyone!’
Explosion of fakery
If nothing else, you have to admit that Donald J Trump really is a stable genius.
In just 31 months on the job, he has mastered the mysterious and unruly connections between central bank policy and the economy.
And it was so simple. So obvious. Cut rates, economy goes up. Raise rates, economy goes down. And if prudent central bankers insist on raising rates, he will gouge them out, like an offending eye…
And now, of course, blind central bankers are turning up almost everywhere. That’s what his advisor, Peter Navarro, confirmed on nationwide TV. MarketWatch:
‘“I can tell you with certainty…we’re going to have a strong economy through 2020 and beyond with a bull market,” he told ABC News in an interview on Sunday morning. “The Fed will be lowering rates. The ECB will be engaging in monetary stimulus. China will be engaging in fiscal stimulus.”’
Wow. Certainty! Our worries are over. All it takes, apparently, is monetary and fiscal stimulus.
No second-guessing. No hesitation. No more ‘on this hand…and on the other hand.’ No careful, humble, moderate, or intelligent reluctance.
And we’re pretty sure that Navarro is right, at least about what the desperadoes in central banks and central governments are going to get up to.
Markets and economies are hard to predict. But politicians are panes of glass. They have two major goals — re-election and larceny. The aim of the former is merely to enable the latter.
And a good way to accomplish both is to stimulate the voters with fake money…fake wars…and fake news.
Yes, you should expect a fulsome explosion of fakery in the months ahead — and big money flushing out into the Swamp.
Rough and tough
Donald J Trump comes from a rough and tough world of New York hustlers. He knows that if he loses the election, his enemies will go after him.
He knows, too, that he has plenty of skeletons in the closet…and that his adversaries are bound to find one of them if they get their hands on the Justice Department.
So he’s going to do ‘whatever it takes’ to win in 2020.
And here we return to our prediction: He will never go Full Retard in the trade war with China.
Goldman Sachs has a new estimate that the trade war, fully implemented, will cost each US family about $1,000 a year. That is not something Mr Trump will want on his re-election resume.
Instead, he will want good news. That means rates will be cut. Quantitative easing will be revived. Maybe even direct purchases of stocks too.
The trade war will be won. China will not want to lose face to Mr Trump. But both China and the Trump team need to make a deal.
Most likely, a glorious deal will be announced. Nothing much will change.
Guns and butter
We can also expect more government spending…more giveaways…more payoffs…and more debt.
Already, government spending under Mr Trump has increased faster than at any time since Lyndon Johnson’s ‘guns and butter’ budgets of the late ’60s.
Instead of paying off the national debt as promised, Trump has added $2.7 trillion. And look for more to come.
And tax cuts? Yesterday, the White House denied that it was considering a payroll tax cut, but that too is almost sure to come back.
But wait…will all this spending, inflating, and rate-cutting really make the economy healthier?
Of course not. It makes it unhealthier.
Will it prevent a correction on Wall Street?
Nope, not even.
How will this play out?
Tune in tomorrow…
Regards,
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance.