Authored by Matthew Pipenburg by way of Gold Switzerland,

Under we take a look at the interaction of embarrassing debt, dying currencies and failed financial fantasies masquerading as insurance policies to verify that irrespective of how one turns or spins the inflation/deflation, QT/QE or recession/no-recession narratives, the worldwide monetary system is already doomed.

Recession: The Elephant within the Room

As I’ve been arguing in report after report, my view has been that the US, with its 125% debt-to-GDP and seven% deficit-to-GDP ratios, was, and already is, in a recession heading into 2023, regardless of official efforts in DC to re-define the very definition of a recession.

However a recession remains to be a recession, and an elephant remains to be an elephant, and each are pretty straightforward to see at a distance.

As of now, nonetheless, the recession has formally been prevented.

How comforting.

As with the inflation knowledge, it’s good when the parents in Washington can train their magical powers to maneuver the goal-posts in mid-game each time slightly “dishonest” helps their odds and fictional narrative.

For me, an elephantiac recession is now within the room.

The Empire Manufacturing knowledge in my newest report, for instance, supported this recessionary outlook.

In case, nonetheless, we nonetheless want extra recessionary proof, the dramatic 6 month decline within the Convention Board’s index of main indicators serves as yet one more neon-flashing warning that the recession—if not beneath our bow—is definitely proper off our bow.

Nonetheless Hoping for a “Softish” Touchdown?

Moreover, and regardless of Powell’s perception that his workplace can handle a recession with the precision of a house thermostat, his religion in what he recently described as a “softish touchdown” is nearly as farcical as his prior try to explain inflation as “transitory.”

With out wishing to seem “sensational,” as many people blunt and math-based observers (from Burry to Middelkoop) of late are described, I’ll stick my tin-foil-covered head out and say candidly that I see nothing “softish” forward.

As a substitute, I see both: 1) a monetary disaster which can dwarf 2008 and/or, 2) an absolute tanking of the USD, whose unsustainable power all through 2022 was certainly “transitory,” as I argued quite a few occasions.

The Easy Math of Liquidity

The straightforward math and actuality of even centralized and central-bank distorted markets is kind of easy: These markets rise and fall on liquidity.

As soon as the financial “grease” required to take care of the MMT fantasy of mouse-click cash as a debt resolution “tightens” too tight or runs too dry, your entire home of playing cards of the post-2008 fairytale involves a tough fairly than “softish” finish.

Once more, we noticed the primary indicators of this collapse within the “tightening” backdrop of 2022.

After all, this crucial “liquidity” gained’t be coming from financial progress, rising tax receipts, a sturdy Major Road or a fairly-priced market.

As a substitute, and as anticipated, it now comes from out of skinny air…

Is It a Race to the Backside for Danger Belongings?

The sincere however scary numbers fairly than fluffy however fictional phrases of our monetary central planners make all of it too clear that until Powell places his finger on the Eccles-based mouse-clicker to create extra fiat cash (extremely inflationary), US and world credit score markets will merely proceed their race to the ocean ground (extremely deflationary or not less than dis-inflationary).

As credit score markets sink and bond yields and charges rise, this additionally signifies that fairness markets, who’ve been sickly hooked on years of central-bank repressed low charges and low-cost debt, will merely be part of these bonds on the underside of the darkish ocean ground.

In brief, bonds (and therefore danger parity portfolios) gained’t prevent. Quite than hedge shares, they’re now correlated to the identical.

Extra Easing Received’t Deliver “Ease”

Failing outright and open bond default, it thus appears that an eventual capitulation to extra magical “liquidity” and renewed QE is nothing wanting inevitable, which suggests the USD’s fall from its 2022 highs is equally the case, as proven beneath.

However such “easing,” if realized, will result in extra inflationary-debased {Dollars} and therefore extra inflation dis-ease for traders.

That is laborious for traders to completely grasp when the Greenback appears “sturdy,” however even that was an phantasm, and one which hardly did any asset class any good in 2022 however for the Greenback itself.

The Injury Already Wrought by the Sturdy USD

Within the interim, the cancerous ripple-effects of the Fed’s sturdy USD insurance policies, as warned all through 2022, proceed their waves of destruction, as brazenly evidenced by the earnings reviews from our beleaguered S&P.

Already, the early knowledge coming from its listed corporations is something however constructive.

As within the July and October earnings seasons of 2022, company earnings for 2023 are nonetheless drowning beneath the burden of the USD.

However we should additionally take into account that the DXY (which measures the relative power of the USD) has fallen 11% (from 113.9 to 101.8) over the past quarter.

If the S&P hit an October backside throughout a DXY excessive, what can we deduce from a now falling DXY?

Will markets rise like Lazarus?

This shall be one thing value monitoring.

However why?

Sturdy Greenback or Weak Greenback, No One Wins…

Ought to earnings and therefore shares proceed to say no regardless of the DXY declines, this may counsel that not even a weakening USD can save these post-08, over-stretched, Fed-addicted and debt-soaked markets.

Nevertheless, ought to shares rise on a weaker Greenback, the proportion beneficial properties in worth will solely be eaten away by the invisible tax of inflation and the more and more debased worth of the very {dollars} used to measure these so-called “appreciating” shares.

In brief, a no-win situation…

For now, it appears the inventory market solely cares concerning the Fed fairly than the DXY, because the Fed is the market.

That’s, when QE is the meme, zombie markets rise; when QT is the meme, they fall.

Once more, see for your self:

Yellen, Squawking for a Weaker Greenback?

In actual fact, it was throughout these October market lows that the queen of poisonous liquidity, former Fed-Chair-turned-Treasury-Secretary (think about that?) Janet Yellen, was abruptly ringing the bell for extra magical cash—i.e., “liquidity.”

Particularly, Yellen was questioning who can be shopping for Uncle Sam’s IOU’s with out extra mouse-click cash from the Eccles Constructing?

As my newest reviews on the UST markets confirmed, the reply was easy: Nobody.

As a substitute, international central banks have been and are promoting fairly than shopping for America’s bonds. Simply ask the Japanese…

Is Yellen, opposite to Powell, silently suggesting that QT has backfired? Is Yellen, not like Powell, realizing that there aren’t any consumers for our more and more issued but unloved USTs however the Fed itself?

Maybe these tensions throughout the Treasury market present the hidden clues as to why the USD has been sliding fairly than rising from the DXY’s October highs?

In any case, a weaker USD means much less compelled want for international nations to dump their UST reserves to provide you with the cash to purchase their very own dying bonds and strengthen their very own dying currencies as a direct response to Powell’s (and initially, Yellen’s) sturdy USD coverage.

In brief, maybe our Treasury Secretary now needs to cease the bleeding in her Treasury market…

Weaker Greenback Forward?

My present view is due to this fact this: We’re seeing the gradual finish of the sturdy USD coverage.

Why?

As a result of as warned all through 2022, such a robust USD was a large gut-punch to foreign currency and therefore international holders of USD-denominated debt.

Not directly then, the sturdy USD was additionally a gut-punch to the UST market, which noticed extra sellers than consumers round a crippled globe. Therefore Yellen’s backfired and back-stepping fears above…

Moreover, and returning to the aforementioned matter of recessions, I additionally argued all through 2022 that no recession in historical past has ever been solved with a robust forex.

On condition that such a recession is, once more, both straight off our bow or already beneath it, it’s possible no coincidence that the USD/DXY is now falling fairly than rising.

In brief has Uncle Sam’s sturdy Greenback lastly cried, effectively… “Uncle”?

Or extra merely said, has Yellen realized, in non-public, what we’ve been arguing in public, specifically: That we’re already in a recession and thus want a weaker Greenback.

Powell: Ignoring Actuality & Yellen?

In the meantime, nonetheless, you may have the math-challenged however psychologically tragic Jay Powell wanting to avoid wasting his legacy as a Paul Volcker fairly than as an Arthur Burns.

Like a baby eager to be John Wayne fairly than Daffy Duck, Powell and his rate-hiked sturdy USD refuses to see the $31T debt pile in entrance of him which makes it unattainable to be a reborn Volcker, who in 1980 confronted a a lot smaller debt pile of $900B.

In brief, Powell’s America of 2023, not like Volcker’s America of 1980, can’t abdomen rising charges or a robust USD.

Or said much more merely: Powell can’t be Volcker.

Will somebody on the Eccles Constructing please remind him of this?

Doomed Both Manner

Yellen or Powell, QT or QE, sturdy Greenback or weak Greenback, the worldwide monetary system is nonetheless doomed.

We both tighten the bond and therefore inventory markets right into a free fall and financial catastrophe, or we loosen and ease liquidity into an inflationary nightmare.

As I’ve stated so many occasions: Choose your poison—despair or hyperinflation.

Or maybe each…specifically stagflation.

Both method, in fact, Powell, and the American economic system, is now doomed. And he has solely Greenspan, Bernanke, Yellen, himself and years of mouse-click fantasy accountable.

Supercore (CPI) Lies from On Excessive

In the meantime, the lies, twisted math and Nobel-Prize stage mis-information continues…

Final week, for instance, I reminded readers of DC’s newest try to mis-report in any other case humanly-felt inflation by tweaking an already-tweaked (i.e., bogus) CPI inflation scale.

But when that comedy wasn’t already comical sufficient, now welcome none aside from Paul Krugman to this stage of open theatrics masquerading as financial knowledge.

In response to certainly one of Krugman’s newest neoliberal economist tweets, “3-month ‘supercore’ CPI is beneath Fed’s 2% inflation goal,” which naturally had these equally raggish financial playwriters on the WSJ virtually galvanic with theatrical “excellent news.”

Hmmm.

What neither Krugman nor the WSJ appeared to acknowledge is that “supercore” CPI excludes meals, power, shelter and the worth of used automobiles, so sure, completely, in the event you take away all of the issues that really price numerous cash, inflation isn’t any downside in any respect… Bravo!

Such shameless misuse of information and headlines, in fact, is nearly as shameless because the misuse of financial coverage we’ve been having fun with for the reason that Troubled Asset Reduction Program…

However as said final week, such determined tips from on excessive will proceed to mount as world monetary issues do the identical.

An Historic Turning Level

The astounding lack of accountability from the foxes guarding our monetary hen home will at some point be the stuff of historical past books, assuming historical past itself isn’t cancelled, because it appears the research of economics has already left the room.

The perfect we are able to hope for from the very “consultants” who’ve introduced the worldwide economic system towards a mathematically unavoidable cliff are actually empty phrases and twisted math, as per above.

Such disloyalty from our monetary generals on the eve of an unprecedented strategic and tactical financial defeat of their very own making jogs my memory of officers sitting miles from the trenches as traders go “over-the-top” towards a row of cannons pointed straight at their trusting chests.

In brief: Sickening.

Gold: A Far Extra Loyal Lieutenant

Gold was a much more loyal asset than shares and bonds within the turbulent occasions of 2022; and provided that 2023 portends to be even worse, we are able to count on higher loyalty from this so-called “barbarous relic” of the previous.

With inflation ripping and conflict blazing, many nonetheless argue that gold didn’t do sufficient.

Hmmm…

However gold in each forex however the USD (see above) would beg to vary.

Moreover, and as argued so some ways and occasions, that USD power won’t maintain, as gold’s worth strikes this 12 months have already tracked.

Gold’s future power and rise is thus straightforward to foresee, as gold doesn’t rise, currencies simply fall.

It’s actually that easy.

Bought gold?