When Insanity Starts Making Unlikely Appearances

The comments below are an edited and abridged synopsis of an article by Bryan Lutz

Many believe that the Fed will not keep raising rates; that it will not let the stock/housing/bond market fall; that QE will be back soon. But this is unlikely because structural inflation is being embedded into the US economy.

When Insanity Starts Making Unlikely Appearances - BullionBuzz - Nick's Top Six
Business man trapped in a white room, screaming for help. Could symbolize desperation, depression, insanity, failure, etc. Horizontal with copy space.

Congress believes it can spend without limit because of trade sequestration. In short, dollars are gobbled up overseas and, if the absolute size of foreign trade goes up then, even if it is transient, the amount sequestered rises as well.

The belief is that only funds available to spend in the US cause inflation; it is more available spending power between previously earned funds (money) and credit (not money) in comparison to the things you spend it on.

Doing more with less should produce a mild deflation: If you produce 3% more this year than last with the same inputs, your standard of living should rise 3% because the price of what was produced falls by that amount, but that doesn’t happen in the real world.

The US cut off trade sequestration when the Russia/Ukraine war began, excluding use of foreign exchange as a holding for trade, because the risk is real and there is no way to defend against it other than to demand payment in your local currency, and demand that it be tendered before the product leaves your nation.

As a result, all of the emitted credit by Congress now comes back into the US economy as inflation.

The only remedy is for Congress to cut it out and, until it does, the Fed will raise rates to a level required to neuter the Congressional money spigot.

Housing and stock prices are going to come down, perhaps as much as 2/3rds or more. This dip won’t be recovered quickly because the pricing wasn’t driven by innovation and advancement, but by a deliberate effort within the US government to hand out something for nothing in the belief that the trade sequestration would hold forever without consequence, and thus they could get away with it.

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