As is too often the case, conventional thinking is more wishful than wisdom. Inflation is very much alive, and it’s definitely not controlled by central banks. And, importantly, asset inflation and Bubbles pose momentous systemic risk to economic, financial and social stability.
Risks grow exponentially during the “Terminal Phase” of Bubble excess. I assumed Beijing would move decisively to rein in excess, particularly in lending and apartment speculation. But what is now unfolding goes way beyond measures to contain excess. China has begun a transitioning phase, with momentous yet uncertain consequences and ramifications. What began seemingly as a campaign to rein in apartment speculation and crack down on the big tech monopolies has speedily developed into something much more systemic and Draconian.
Larry Summers: Out of all the things you could spend the money on, the thing that it seems to me that would help the wealthy most and do the least to promote demand, is buying up financial assets. And that’s what QE is.
. I believe a major global de-risking/deleveraging dynamic has commenced in China and Asia. U.S. “investors” seem oblivious to the risk posed to our highly speculative markets in equities, corporate Credit and derivatives.
Trillions of new “money” directly into the securities markets is pernicious inflationism and a deleterious redistribution of wealth.
The Fed is delusional if it actually believes it has anchored inflationary expectations.
Why have Treasury and global bond yields been collapsing in the face of surging inflation? The faltering Chinese Bubble. The Faltering Chinese Bubble! Fragile global Bubbles!!! “Hey Doug, you’re on mute.”
We’ve witnessed since March 2020 a QE program that, rather than accommodating deleveraging, actually spurred further speculative leverage.
The Fed basically risked everything. They thought the changing world meant no more worries of surging inflation and actual tightening measures. Keeping the markets elevated became their unstated priority. They’re now on the wrong side of a losing bet, a predicament that became increasingly clear this week with Chair Powell’s beltway testimony. The Fed, understandably, is Under Fire for surging inflation.
It was not the Federal Reserve flinching this time, it was China’s central bank that caused the bounce on Friday.