BTFD - Silver and Gold Edition... ?
I struggle to agree with GS / Jeff... but, they're more or less right on this one...
The global economy has not recovered from Covid... I've addressed why it can't and won't as a function of the fragility of mercantilist systems... but as the "reflation" trade others expect to materialize means an initial resumption of growth "on the path" to restoring what we had prior to Covid... it has been paired with expectations that the growth in a recovery would at least bring us back to the February 2020 base fairly rapidly... First considered as "the V" that didn't happen ? Now... its said to be a U... a V with a delay ?
But, you can't turn production off for 18 months and then just turn it back on... entropy forbids it...
Restoring what was... depends on demand being restored to what was... supply chain functions restored to what was... and all of that happening while production of materials necessary to enable "what was" fails to happen... as reality in materials production means... the now more than ten year long withdrawal of finance from mining... and the sustained shortages entrained in preventing development of future supplies... which was already developing into a critical issue prior to Feb 2020... was followed by an implosion in materials in March... will require 3 to 5 years to BEGIN to be able to catch up with demand levels circa Feb 2020...
And, the investment to begin enabling "some" of that finally began being enabled about 4 months ago... not any I see from more than 12 months ago... so, at least two to four years away from being able to stop... the declines that were already occurring prior to March 2020 ? But, that's only what's required to prevent declines... not what would be needed to enable resumption in growth ? And, from there, introduce the "fragility" issue in the structural problems the mercantilist economy has enabled ?
The problem then becomes... reducing demand as China seeks to do... by lowering rates / constraining flows however you do... to throttle the economy back... only makes the problem worse. Lowering prices, now, with suppliers already reluctant to trust "the market" will be there to reward them... only reduces investment, shrinks future supply faster... making future shortages worse. While the U.S. approach to the same end, through the manipulation of markets to suppress market prices artificially... DOES work to suppress prices, just as demand reduction will... but in the short term, only. In the long term, demand suppression or price suppression only results in getting less of the thing you are under-pricing... while, beyond some limit, under-pricing only limits growth or shrinks the economy FASTER in the future... in some proportion to the limits imposed...
What's the proportion ?
Economists fail to understand homeostasis in nonlinear systems at their peril... "pushing on a string" often being mentioned as one aspect of entering into an area of reverse command, here with an automobile reference to throttles and brakes at balance X : Above level X the more power you add... the faster you go. At level X... full power is required just to sustain a constant speed at level X. Below level X... there is not enough power available to sustain speed at level X even at full throttle... In a car, you get that in a balance won by using throttle and brake at the same time... the more brake you add, the less the power being applied matters. And, starting from a full stop... full throttle will not be able to overcome the brake. In the economy... same sort of thing... with the scale of the DEBT as a throttle limiter... now preventing the throttle from generating more power... basically as it is causing vapor lock... and, "more is not better" as flooding the engine doesn't solve the problem to too little power being produced ?
The big MOPE lie... is "no constraints" on the ability of a lie to work... which fails in a world where the real physical
constraints in limits are absolutely more controlling than lies... So, no matter what you convince people is true... it doesn't matter... when what they believe cannot alter the outcome in reality. Whether people believe inflation is going to happen or not... that belief will NOT make more materials magically appear out of thin air ? Nor will their belief alter the fact of real shortages existing... when demand in reality exceeds supply in reality... all occurring well outside any regime in which "noise" in what people believe matters... Noise might matter... when there is "slop" in the system... a good stock pile to draw from... to enable the manipulations to proceed without noticeable impact in the short term... But lying about the easy availability of anything... fails when there is none of that thing actually available in the market ?
So, how shocking is it... that on the last trading day before the expected June 21st implementation of Basel III... we'd see another attack mounted on mining shares and gold and silver prices ? And, taking stock prices down with it... just not near as much... probably totally coincidental ? Although, seems to me I might have mentioned that occurring as a near likelihood here some time back ?
ZH addressing it today... Powell Just Made a Huge Error... as usual, not doing as good a job of getting to the point as some in the comments, as this one, if only in part: Agreed, the Fed ONLY has two "tools" : QE and Jawboning. This is the latter as the former, achieving nothing other than inert Bank reserves (which is NOT the "money printing" reported by the Financial MSM and which the Fed is happy to leave alone), continues irrespective. This was also designed to push Gold down again and allow the Bullion Banks (mostly TBTFs who are also the owners of the Fed) to escape from some of their intractable paper Comex short positions ahead of the funding provisions of Basel III on June 30th which would otherwise cause damaging losses.
The comment goes astray from there... failing to note the limits in the tools intrinsically reflects limits in the potentials... The Fed has does have choices it can make... its only that none of them are good choices. At first glance, one might think the choice is: They can get "growth" with inflation... or no inflation with no growth...
But, how true that is... depends on the homeostatic functions... ? The Fed needs to apply enough throttle to get growth AND inflation... in the prices of real things... attaining a positive balance that does include actual growth. The alternative... with less throttle... is not less growth with less inflation... but negative real growth... accelerating shrinkage in future supplies imposing greater inflation in future... with negative inflation in the short term... that requires more power than exists to prevent decent into a deflationary spiral.
That's what ZH says too... as " a far more appropriate question is whether we are on the precipice of non-transitory runaway inflation as the Fed's hands will soon be tied and its attempt to stem soaring prices will push the US into economic depression?"
The only way to stem commodity price inflation... is to reprice commodities to make producing them attractive (and stable) enough as an investment... that higher prices will make more commodities available to the market. And you don't accomplish that by reducing demand, while reducing growth... or by reducing prices... thus reducing investment and future supply even more ?
Of course, there are other tools... and other consequences inherent in the choice to use them. The threats the Fed deliberately made on Friday... wasn't about more QE (baked in anyway)... but was only "jawboning"... posing the threat of higher rates... even if only two years from now, ignoring "how much" ?
The market knows they can't raise rates... because can't tolerate the consequences of doing so... as the mere mention of the fact it might happen "eventually" shows... again as ZH mentions. So, why ELSE would the market react as it did... bumping the indexes lower... while slaughtering mining shares ?
Because.... its a lie ? So, BTFD in mining shares, gold and silver...
The caveat... is made apparent in the charts. This is exactly the same sort of thing as happened in February of 2020 ? Look at the weekly chart of NG from December to February 2020... and compare it to the chart of NG up to the end of last week ? But, also,notice the difference in the volume in 2020 versus today... noting it seems not nearly as many people are willing to surrender shares, today as in 2020... which, of course, is what they are expected and intended to be doing now... ?
See what the next three weeks bring ? The banks want gold, silver and the miners to crash... but some likely can't survive if the market crashes, again, instead of "only" gold, silver and the miners ? And, thus far, the Fed refuse to allow the market to go down at all... let alone crash ?
The 40 year long bond bubble... and the industrial engine it has built... were built on the sustained suppression of commodity prices. Both have reached a limit at which sustained suppression of growth in debt... as sustained suppression of prices of commodities... have NONLINEAR impacts in reducing future growth... and future supply... The only way out... is to quit cheating... or cheat a whole lot more... on an unprecedented scale...or, BRRRRRR.....
The downside risk... is not balanced as a zero sum game... ?
Assuming "nothing else goes wrong"... you fight inflation today with more suppression, at a cost... and it means you'll be fighting deflationary depression tomorrow... at the larger cost of an even larger inflation... starting from a lower point of balance in supply... in a more rapidly shrinking economy.
Level X... in the economy... is what ? ZH says r* is a proxy... but fails to define the risks in and nature of the non-linearities in the homeostatic functions ?
|
