The Fed Can’t Do What It Must

Karl Denninger sees the proximate problem, but not the structural impediment to solving it:

Either Hike 200bps Today and 100 Each Mtg Until PPI Cools. or watch the economy literally burn to the ground.

At the same time all inhibitions on energy production here in the US must be lifted immediately. All of them. All coal plants shut down but still operational and those intended to be retired must have those orders rescinded immediately. Further, all refined product exports must be banned.

If you didn’t get the hint from WalMart and Target’s earnings announcements you’re deaf, blind, stupid and might be starving and homeless within months. Fuel prices continue to ramp, in no small part not because of oil but because we’re exporting products to other nations, specifically Europe. This must end now.

There is no instant solution but if we do not put a stop to the transportation cost and fertilizer problems now by this fall and winter the lower 50% of the economic strata in this nation will be hard-pressed to both feed their families and heat their homes. That is the combination that leads to riots and worse. Witness Sri Lanka where its already happening and politician homes are being set on fire.

Stocks? Who cares. The entire ramp from roughly 2011 onward likely will and should come back off. If you believed that said price advances of roughly a triple over that period of time were reasonable you’re nuts. If you predicated your future or present on it there’s nothing we can do to help you at this point; you ridiculously overpromised to yourself and overspent behind that.

Ditto for real estate. There’s nothing to be done other than let prices go back to where they should be. They will, by the way.

The Fed absolutely should be raising interest rates and raising them very steeply. The last time the USA saw this sort of inflation, it was the 1970s and interest rates went as high as 20 percent. However, there was considerably less debt then, and both consumers and corporations were able to service the debt payments even at those higher rates because the prices were so much lower.

Now that debt-consumption has raised prices by artificially stimulating demand, consumers can’t even make their payments on very low, historically low, interest rates. The level of defaults would be astronomical, and would essentially amount to a debt jubilee that would utterly destroy every single federally-regulated financial institution in the country. So, the Fed cannot, and will not, do what the laws of economics require of it.

My expectation is that there will either be some sort of federalization of the entire US economy, possibly on a neo-global scale that includes the NATO countries, or a recurrent series of defaults in which rates are raised slightly, allowing the weakest institutions to fail first in the hopes that the stronger institutions can survive on the strength of the assets previously held by the failing ones.

Neither option will work, of course, but the Fed has successfully kicked the can down the road for more than a decade already, so perhaps they might be able to buy themselves another year or three.


China Prepares for Decoupling

Recent Chinese actions on the financial front make it appear stage two of the Great Bifurcation is incoming, and it looks as if it’s going to be on a scale much larger than most observers of the Russo-Ukrainian conflict were prepared to believe.

The Chinese government reportedly held an internal conference with officials from foreign and local banks as the nation seeks to protect overseas assets from US sanctions over potential military tensions in Taiwan. The meeting between officials from China’s Central Bank and Finance Ministry, as well as executives from foreign and domestic lenders, was held on April 22, FT reported on Sunday, citing people familiar with the discussion.

“If China attacks Taiwan, decoupling of the Chinese and western economies will be far more severe than [decoupling with] Russia, because China’s economic footprint touches every part of the world,” one of the people briefed on the meeting told the media.

Chinese officials are reportedly worried that penalties similar to those imposed on Russia over the military operation in Ukraine could be introduced against China in the event of a regional military conflict or other crisis.

China summons banks over sanctions fears, 1 May 2022

I very much doubt that the Chinese officials are worried in the slightest. They have clearly intended the break with the neo-liberal financial system for at least a decade, it’s only the preferred timing that is unknown. For me, the only serious question here is whether the Chinese will wait for the neo-liberal financial order to make a partial break in reaction to something, as per the article, or whether they prefer to make a preemptive break themselves. The evidence of prior Chinese behavior, including the erection of the Great Firewall of China, tends to indicate the latter, especially since their ability to choose the timing of the decoupling would permit the Chinese to create maximum disruption in the West while minimizing the disruption to the East.

Furthermore, the delicacy of the Russians in pursuing the moral and rhetorical high ground has gone mostly unrewarded, so there isn’t much tangible benefit to the Chinese in being able to proclaim that they are being further victimized by the imperialist colonial forces. A preemptive move would not only be materially beneficial, but would also be a powerful psychological blow to a Western elite that perceives itself to be dictating reality by calling all the shots.


Those Who Rule the World

Roosh explains who is ruling the world on Satan’s behalf:

How can one explain the fact that conservative politicians who speak against transgendered children or vaccine mandates are ultimately controlled by the same bankers who are forcefully pushing those very things through other politicians? If you are a top banking family that controls both sides, the left and the right, you will grant the left an allowable set of behaviors that are opposed by the right and grant the right an allowable set of behaviors that are opposed by the left. If you did not do this, there would not be two sides but only one, and you would have to watch in fear as an organic opposition rose up from the people. Therefore, even if you are the banker who desperately wants to promote sodomy for the purpose of your depopulation agenda and everlasting rule, you must allow some of your pawns to mildly speak out against that agenda for the purpose of establishing a dialectic that ultimately you fully control to serve your long-term interests. Therefore, some “conservative” politicians are allowed to usher in toothless conservative policies under the guise of letting people think that power resides with them and their votes instead of a shadowy elite who increasingly desires to control every aspect of their lives.

Some leaders are allowed to go against cultural aspects of the globalist agenda, such as gay marriage, but they are not allowed to go against global agenda items such as climate change and pandemic response. Politicians cannot go against the big-ticket items of the bankers, and if they do, they will be quickly removed or assassinated. The ability to mildly oppose degenerate cultural norms outside of abortion is greatly limited. The biggest obstacles to family creation and higher birth rates are not abortion but women’s education, employment, and birth control, which all fall under the feminism umbrella, but conservative politicians dare not stand in opposition. Conservatism is what the liberals believed a few years ago, and never includes pre-feminist traditional views, which puts God, family, and nation above all other concerns, especially the emotional and material desires of women.

This is why one should never get too excited over the statements made by those who have been raised up to govern over us or shape our opinions. They are permissible, which means they have been corrupted.

And neither ideology nor identity will save you. Because there is no earthly salvation.


Yeah, That’s Not How This Works

If the global media suddenly begins rehabilitating the image of Vladimir Putin and painting the Zelensky government as the bad guys who need to be regime-changed, you’ll know why:

Ukraine has called on international financial organizations to cancel the country’s foreign debts claiming massive destruction in the country caused by the Russian military offensive that began last Thursday.

“The scale of destruction in Ukraine … is colossal! In view of this, our external creditors must be required to write off Ukraine’s debts. To date, the external debt is 1.6 trillion hryvnia, or more than $57 billion.

International financial organizations should revise the debt policy and zero out the debts of Ukraine!” the head of the Accounts Chamber of Ukraine, Valeriy Patskan, wrote on his Facebook page on Tuesday.

That’s no way to win the support of the global satanists who rule the West. See, what you want to do is demand that Russia be forced to pay those debts while promising that they will be paid no matter what, one way or another. You don’t fill social media with blue-and-yellow flags by threatening the lifesblood of The Empire That Never Ended.


Bold Move, Cotton

I wonder if any of these brilliant “soft power” strategists have taken into account the fact that a) Russia has prepared for this move, and b) Russia and China already have a SWIFT alternative in place and ready to go.

The leaders of the European Commission, France, Germany, Italy, the United Kingdom, Canada, and the United States issued a statement on Saturday, announcing the latest round of restrictive measures targeting Russia’s economy in response to Moscow’s military operation in Ukraine.

In particular, they concern “selected Russian banks,” which will be “removed from the SWIFT messaging system.” Russian Central Bank, meanwhile, will be prevented “from deploying its international reserves in ways that undermine the impact” of the sanctions.

The leaders said they will also “limit the sale of citizenship — so called golden passports — that let wealthy Russians connected to the Russian government become citizens of our countries and gain access to our financial systems.”

Finally, the countries announced plans to launch “a transatlantic task force” that will identify and freeze the assets of sanctioned entities within their jurisdiction.

As usual, the provocation is a bluff. The Prometheans aren’t willing to simply shut down SWIFT entirely because that would result in Russia simply replacing it with the Sino-Russian alternative. And because it would shut off natural gas shipments to Western Europe for lack of payment. So, they’re trying to cause enough pain to encourage submission, but not so much that would result in rejection and competition.


Mailvox: Canadian Boots

A boots-on-the-ground report from Canada:

I tried to withdraw $20 000 in cash from my bank today. They would only give me half, due to their “reserves being very low”. They were out of $100 dollar bills, gave me $50’s instead. They said the next cash shipment to them was on the 23rd. Later in the day they called me and said the next cash shipment wouldn’t be until March 2nd. I bank at RBC, the biggest bank in Canada. My boss ran into the same thing at TD, another big Canadian bank. The bank staff was very nervous. I was calm and polite since I’m well prepared, but they looked like they had been yelled at a lot in the last couple days since the government started locking down accounts of people who donated to the Freedom Convoy.

The bank run is real.

Power to the people.

The more serious problem the Canadian government has caused for itself is the extreme lack of confidence it has now instilled in the entire banking system. Now, in addition to not receiving any interest on their deposits, even Canadians who are not involved with the Freedom Convoy are learning that they can’t even rely upon the banks as a safe store of their wealth.

Since its role as a store of wealth is the primary purpose of money, this means that the legitimacy of the Canadian monetary system is being actively undermined by the converged Canadian government. Which means that the legitimacy of the Canadian government will also soon be questioned by those who don’t even support the convoy.


Uninvestable or Uninfestable?

Somehow, I don’t think the CPC strategists are overly concerned about the global financial community’s sudden addition of China to the uninvestable zone that includes Russia and Iran:

Investors may want to think twice about putting their money to work in China, contends DoubleLine founder Jeffrey Gundlach.

“China is uninvestible, in my opinion, at this point,” the bond king told Yahoo Finance in an interview at his California estate. “I’ve never invested in China long or short. Why is that? I don’t trust the data. I don’t trust the relationship between the United States and China anymore. I think that investments in China could be confiscated. I think there’s a risk of that.”

The ongoing crackdown on the operations of big Chinese internet companies such as Didi by the government has rocked investors in the space. The clamping down on the country’s biggest tech names has now led to a tightening of listing requirements by the Chinese government

The Chinese have long understood the corollary to the Golden Rule: the only way to prevent those with the gold from making the rules is to refuse to accept it.



The alternative financial system linking the Chinese and Russian economies takes shape:

In 2015, approximately 90% of trade between Russia and China was settled in dollars, and by 2020, dollar-denominated trade between the two Eurasian giants had almost reduced by half, with only 46% of trade in dollars. Russia has also been leading the way in cutting the share of US dollars in its foreign reserves. The mechanisms for de-dollarizing China-Russia trade are also used to end the use of the greenback with third parties – with advancements being seen in places such as Latin America, Turkey, Iran, India, etc. The US has been pumping out dollars to the entire world for decades, and at some point, the tide will change as the sea of dollars return home with increasingly diminished value.

Financial transactions
The SWIFT system for financial transactions between banks worldwide was previously the only system for international payments. This central role for SWIFT began to erode when the US used it as a political weapon. The Americans first expelled Iran and North Korea, and in 2014, Washington began threatening to expel Russia from the system as well. Over the past few weeks, the threat of using SWIFT as a weapon against Russia has intensified.

China has responded by creating CIPS and Russia developed SPFS, both being alternatives to SWIFT. Even several other European countries have banded together with an alternative to SWIFT to curb Washington’s extra-territorial jurisdiction and thus continue trading with Iran. A new China-Russia financial architecture should integrate CIPS and SPFS, and make them more available to third parties. If the US expels Russia, then the decoupling from SWIFT would intensify further.

Development banks
The US-led IMF, World Bank and Asian Development Bank are renowned instruments of US economic statecraft. The launch of the Chinese-led Asian Infrastructure Investment Bank (AIIB) in 2015 became a watershed moment in the global financial architecture, as all the major allies of the US (except Japan) signed up in defiance of American warnings. The New Development Bank, formerly referred to as the BRICS Development Bank, was a further step towards decoupling from the US-led development banks. The Eurasian Development Bank and future SCO Development Bank are more nails in the coffin of US-controlled development banks.

Synergy effects
China and Russia have also developed their own rating agencies and replaced the dominant position of Visa and Mastercard in their respective countries. This new financial architecture is complemented with an energy partnership and a technological partnership as neither China nor Russia wants to be reliant on American high-tech industries as they move into the fourth industrial revolution.

For those who live outside the USA, it will be wise to find a bank that is utilizing both systems, which will limit one’s exposure to either deplatforming or a collapse of the self-styled “rules-based order” that is, in fact, neither rules-based nor orderly.


The Supply-Chain Crisis

Well, that’s not going to help:

Waco, Texas-based Central Freight Lines has notified drivers, employees and customers that the less-than-truckload carrier plans to wind down operations on Monday after 96 years, the company’s president told FreightWaves on Saturday.

“It’s just horrible,” said CFL President Bruce Kalem.

A source close to CFL told FreightWaves that CFL had “too much debt and too many unpaid bills” to continue operating, despite exploring all available options to keep its doors open.

Kalem agreed.

“Years of operating losses and struggles for many years sapped our liquidity and we had no other place to go at this point,” Kalem told FreightWaves. “Nobody is going to make money on this closing, nobody.”

Central Freight will cease picking up new shipments effective Monday and expects to deliver substantially all freight in its system by Dec. 20, according to a company statement.

Denninger sees this as an early sign of deleveraging-based contraction of the money supply.

The simple man (or simple family) has decent reserves, no debt beyond a modest mortgage, paid-for vehicles and thus, while they won’t like a disruption of income or tough times, will be ok.

Nearly all of the so-called “betters” running around screwing you with this or that are the precise opposite.

Indeed, that “virtue signaling” is expensive. Those solar panels? They’re a lease, basically. That Tesla? It has a note on it. That nice, expensive house? It has both the original note and probably a HELOC too. That fabulous nearly-new boat? Anyone care to bet what the odds are the bank actually owns it?

Every one of these levered things has serious and unavoidable cost associated with it. So long as everything is fine in your world that’s ok, or so you think. It all pencils out; you can meet the cash flow requirements and in a low interest-rate environment those look reasonable and safe.

You’re wrong.

If you’re not in debt, you’ll be fine. If you’ve got cash, there will be bargains available. But if you’re leveraged, you can’t control when the loans will be called.


We’re Not Locked Out, You’re Locked Out

As I anticipated on a recent Darkstream, China and Russia are collaborating to provide the world with an alternative payment infrastructure that will compete, most likely favorably, with SWIFT and the US dollar.

Russia and China will develop shared financial structures to enable them to deepen economic ties in a way that foreign states will be unable to influence, the Kremlin has announced following talks between the countries’ leaders. The move appears to be a response to a series of warnings that Western nations could push to disconnect Russia from the Brussels-based SWIFT financial system as a form of sanctions.

The payment platform underpins the vast majority of international transactions. During the talks on Wednesday, Russian President Vladimir Putin and his Chinese counterpart Xi Jinping called for increasing the share of national currencies in mutual settlements and expanding cooperation to provide Russian and Chinese investors with access to stock markets, said Yuri Ushakov, Putin’s foreign policy advisor.

Ushakov said “particular attention was paid to the need to intensify efforts to form an independent financial infrastructure to service trade operations between Russia and China.”

“We mean creating an infrastructure that cannot be influenced by third countries,” the Kremlin aide added.

Ahead of the video summit, Kremlin Press Secretary Dmitry Peskov hinted that economic discussions were likely to be on the agenda for the two heads of state.

Both Russia and China are said to be increasingly looking to move away from using the US dollar as the main currency of international trade, instead using their own denominations to underpin the booming volume of Moscow-Beijing trade.

It’s probably not a bad time to get an Alipay account, if you don’t have one already.