Doug Noland on Second Term Realities
prudentbear.com
...once unleashed, inflation becomes only more difficult to control and there are always hopes that just a little more will suffice. Only more suffices. Few initially recognize the eventual costs, while many clamor and yearn for the perceived benefits. Politicians adore inflation, at least until their constituents learn to abhor it. Over time inflation’s losers become more attentive and the detriment more conspicuous. For society as a whole, the insidious effects of debt and inflation spawn angst, animosity, and polarization. Globally, the redistribution of wealth foments acrimony and conflict. (italics DJ)
Today, our administration is understandably ecstatic with the prospect of four more years. And they would surely be content with four additional years of reflation and attendant dollar debasement. But our foreign creditors are being impaired and must be losing patience. Meanwhile, global central bankers are coming to grips with the prospect of ongoing dollar weakness and the associated increasingly unwieldy liquidity and pricing environment. Monetary Disorder has become manifest. And, let’s not forget, the U.S. bond Bubble. It appears that the transition away from the aberrational “weak dollar is good for bonds” period has begun, with unclear but potentially significant consequences. Myriad issues for bond holders now include foreign selling, rising risk and inflation premiums, speculative unwind, derivative-related selling and policymakers much more attune to the needs of the economy and stock market.
Why do I have the sense that it is only a matter of time until the administration’s agenda is placed on the back burner to deal with more pressing issues such as financial and economic instability, or even the dollar’s role as the world’s reserve currency? The scenario I find most troubling is an oblivious policymaking team steadfast in its pursuit of a legacy, stubbornly refusing to accept reality, and in no position or having any inclination to cooperate with our global partners. And it is a tragedy that our nation will face its next crisis so ill-prepared and polarized, and in this regard there is certainly plenty of blame to spread around. |
