Thursday, September 28, 2023


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“There is a great deal of ruin in a nation” - Adam Smith, 1777

 Recently there has been a noticeable uptick of “Roman Empire” scuttlebutt on the socials, which wouldn’t be all that interesting except for the fact that in this instance, it appears as though there is a significant effort being made to somehow associate the act of “thinking” about the “Roman Empire” with manhood and men’s supposed preoccupation with concern for the unwind of the United States.

A comical example was from “Eva Vlaardingerbroek” who wrote:

There is some “Freudian thing” happening here for sure and I, for one, believe that her father was being far more honest… that being said, in a world awash in fanciful narratives, and in particular, narratives concerning impending hyper-inflationary financial doom for the United States, one shouldn't get too carried away.

It's important to remember that hyperinflation is not simply “lots of inflation” coming as a result of the mismanagement of purely monetary factors, but instead a far more fundamental and total loss of confidence in the institutions of the state and the financial system.

While hyperinflation typically arises from a combination of familiar calamities such as severe economic crises, political instability, and loss of confidence in currency as a result of excessive money printing to finance large budget deficits or in response to external shocks like war or other exogenous events, the scale of such numerous ruinations and the credibility of the nation in question make all the difference.

There is no doubt that the United States will ultimately visit such a condition eventually, particularly given the lowly course we have chosen to chart these last many decades, but the real question, as perennially posed, is when?

While our historical understanding of “The Fall of the Roman Empire” provides a lot of information to work with when drawing superficial parallels to today’s seemingly endless political theater and economic dramas, it is noteworthy to consider that this is not a new exercise in our public discourse.

A cursory dive into the newspaper archive yields a couple of interesting articles (reprinted here in their entirety from The Minneapolis Representative on July 12, 1893) detailing the monetary concerns of that time:

Clearly on matters of money and arguments over monetary standards, metal or otherwise, the “Fall of the Roman Empire” serves the purpose of providing a powerful historical account of a dramatic end to a once great civilization and thereby a potent lesson for similar issues in the storyteller’s place and time.

Note also that in the first of the two articles above, the “Fall of the Roman Empire” theme is, ironically, being leveraged to make the radical argument to put an end to metalism in favor of a purely “numerary” unit of account, the precursor argument that ultimately led to the “fiat” world we find ourselves in today.

As it turned out, while much of the latter half of the nineteenth century was spent debating metalism, commodity gold and silver backed standards as well as other supposedly modern “scientific” approaches for a monetary standard, it was not until 1913 that we finally organized an institution, namely the Federal Reserve, that could possibly cultivate enough hubris to actually justify a move in the direction of a “fiat” standard.

Even then though, it took another 58 years, a period containing two epic world wars, several lesser wars and a massive depression, before the state ultimately cut the final cord (just a single thread by then) tethering our financial system to a metal-backed monetary standard with the Nixon administration’s now infamous “temporary” move back in 1971. (including support from Paul “the inflation slayer” Volcker prior to his famous Fed Chairmanship by the way)

Fast forward another 52 years that included nearly two decades of inflationary hardships, numerous recessions, a vast campaign to defeat our major “cold war” rival, multiple significant wars in the Middle East and many lesser elsewhere, a steadily mounting Federal debt built by ever more preposterous budget deficits and a Federal Reserve seemingly continuously paying-out larger and larger portions of its valuable credibility in an effort to underwrite the next and progressively more extensive “stability”-inducing bailout of the economic system, and we are only now just coming to common conclusions of the downsides of our “fiat” system.

Given all that has been recounted above, it could seem as though real “ruin” has finally arrived and that we are on the precipice of the “big one”, the final tipping point into a hyper-inflationary tailspin engulfing our entire financial system and destroying the future for millions.

Yet, even the ancient Roman Empire didn’t fall overnight as its influence spanned roughly 1000 years and required multiple centuries of debasement and devolution to fully erode thereby ushering in the terrible period of the “dark ages”.

By comparison, the United States Empire is orders of magnitude more significant a world (military) and economic power than the Roman Empire ever was and will take far more significant devolution to sully itself into past-empire status than any naive monetary-focused narrative suggests.

The key point is that hyperinflation is (almost) all about credibility… as long as the United States is unquestionably the dominant global military and economic power, hyperinflation is not a likely end-state.

That said, persistent periods of typical and even deeply entrenched and uncomfortably high inflation dotted with bouts of deflation coming as the repercussions of 35 years of the Federal Reserve's monetary mismanagement unwinds against the backdrop of the Federal Government’s hyper-dysfunctional and counterproductive political process, are absolutely to be expected.

This era, that I previously termed The Great Agitation, will continuously feel like “the end is nigh” as our financial and political systems reflect a new degree of volatility coming from the continuous recognition of the cost of the vast liabilities we have allowed to accumulate.

Will this era truly mark the end of the United States Empire as is suggested by the supposedly vast number of “men” who are apparently preoccupied with “thinking” about the Fall of the Roman Empire?… I wouldn’t bet on it.

Monday, February 13, 2023

Not the Right Man for the Job

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 For one brief moment at the 2022 Jackson Hole symposium, we got a glimpse of what a Fed Chair could achieve in the way of “jawboning” if he concluded that to be the right action and, going even further, possessed the leadership quality to get it done.

In that moment, Powell both presented and truly embodied something revolutionary, particularly to a generation of delusional speculators with virtually no conscious or even lived memory of anything other than a permissive Fed doling out endless liquidity through continuous open market operations while always at the ready to jump in with the expected “Fed Put” at the smallest sign of system risk.  

The proverbial “punch bowl” had never been so rife a nostrum of narcotic delights as what had been concocted in the prior fourteen years of Fed quackery.

But now, with one succinct nine minute speech about bringing “some pain to households and businesses”, Powell not only pulled the punch bowl away, he dumped it into the toilet, flushed all the methadone then grabbed the addict by the back of the shoulder and slapped him in his stunned and delirious face.

Needless to say, all markets responded accordingly. 

Bond market yields jumped notably with the 10-year Treasury bond yield climbing over 80 basis points in the following four weeks while the notable summer rally completely gave way with stocks selling off about 15% over the same period. 

This was the right approach at the right time for Fed policy.

After about 35 years of steadily increasing and moral-hazard coddling incursions into the private markets, including the most absurd fourteen year period of never ending “zero interest rate policy” (ZIRP) and “quantitative easing” (QE) boondoggles, the Fed had finally stated the truth... Financial “pain” is a fact of life and it finally was coming to your home and business and the Fed wasn’t intending to stop it.

But where did this moment of clarity on the part of Fed Chair Powell come from?

It was well noted that there were last minute changes to the messaging and watching the speech, it seemed plausible that he literally just “ripped up the script” and went with his gut, but, such a magnificent work of bluntness took fortitude and courage the likes of which could only come from one place, namely actual leadership.

It’s important to really reflect on what a “leader” is in order to truly comprehend the role of leadership in human life. 

While the modern Merriam-Webster dictionary defines a leader as superficially as “a person who leads” and “a person who has commanding authority or influence”, an antique dictionary by Samuel Johnson from 1768 only adds “one that leads or conducts” and “one who goes forth”.

Probably the one of the best quotes on leadership was published in the Manchester Weekly Times and Examiner on Saturday March 7th, 1846 within a larger article on legal policy matters:

“In ethics, the law of compromise is unknown.  There is one right and one wrong – one truth and one falsehood – but no intermediate partaking of neither. Compromise is a thing human, physical – a thing born of that necessity which weak men admit, and, admitting create.  Compromise is the game of the mere politician, not that of the truly great leader whose life is the exposition of a sacred truth.”

In a sense, a true leader projects a vision of a future and drives men to want to embark on a mission for that future, not because they want to take the easy way, but because, despite the journey possibly being difficult, risky or even dangerous, they know it is the only true path forward.  

The people we attach the empty moniker of “leader” to today are NOT true leaders.  They are weak, conciliatory political tacticians who present calculated mischief to the populous either for purely political gain, to fulfill some duty to their institutional role or, more selfishly their own legacy, or for even worse and more nefarious reasons.

Whether coming from a “new hope” political deity, a multi-billionaire titan of industry, a highly educated and acclaimed scholar or even a decorated military commander, the problems these charlatans confront often aren’t truly real, the solutions aren’t real or worse, they are “solutions” that literally create or exacerbate actual problems with narratives spun from appeals to authority, emotion or ignorance or just pure fantasy and then socialized and tele/techno-evangelized to the multitudes for maximum impact.

Reality though is unforgiving and always finds a way of breaking through the current hegemonic bamboozle, particularly in economic matters, eventually, flushing out all the ills and deceptions and with them, the cleaver frauds and con artists who perpetrated these malfeasance.

Our economy is on a disastrous track and only true leadership can bring back some semblance of what has been lost over the last 35 years, and not through some “easy money” scheme to kick the can even further down the road, but a true reckoning of the actual circumstances at play.

For a very brief moment, it looked as if that leadership, at least within the confines of the Federal Reserve, had arrived in the form of Jerome Powell.

He spoke the truth, kept the point clear and concise and offered no equivocation.  Like the Orwellian-attributed dictum, “In a time of universal deceit, telling the truth is a revolutionary act”, Powell’s simple nine minute “pain” speech was truly revolutionary.

But alas… the revolution was only a brief mutiny, or maybe even just a random quirk made possible by a hot case of the runs, or some other momentary digestive illness that was troubling Powell.

There was no additional follow through or further momentum, only a retreat back to the prior cowardly “data dependent” posture with a non-stop cavalcade of dovish Fed speakers lead, not by Chair Powell, but by the Queen of the Doves, Vice Chair (and aspiring political hack) Lael Brainard and her close compatriot the San Francisco Fed’s President Mary Daly.

The reminder of 2022 was truly disastrous as Powell, possibly subdued by the UK’s gilt fiasco, the UN’s warning of global recession, the looming mid-terms or even moronic yin and yang hyperventilation by the likes of “Nobel laureate” Paul Krugman and Wharton’s Bull-kook Jeremy Siegle, allowed the Fed’s forward guidance to disintegrate into decidedly dovish heap of muddled and confusing outlooks with Fed speakers attempting to again “look through” the COVID-driven supply-shocks (read… still focused on mystical “transitory” nonsense) drivers of inflation while indicating the intention to not “crash the economy” with too aggressive rate hiking. 

These missteps, in turn, resulted in a strong expectation and an actualization of a step-down in the pace of the Fed’s rate hikes which transmitted to markets throughout January as a notable lift for all risk assets as this generation of cunning speculators easily picked up on the Fed’s weakness and doubled down on everything from gold to stocks to cryptos.

Financial conditions reverted back to a loosening trend with, most notably, the 10-year Treasury yield declining about 80 basis points from the fall of 2022 to the start of 2023 while the 30-year fixed mortgage rate retreated from a national average that topped 7% to about 6% over the same period.

In short, Powell utterly and totally failed. It’s just that simple. 

He is completely incapable of mustering the courage to lead because he is simply NOT a leader.