The Boom And The Bust

When the sheeple at large are rudely awakened from their monetary coma, they will be shocked to discover what fraud and criminality hides beneath the thin veneer of a super bubble.

The only source of inflation right now is asset inflation. In a true hyper-inflationary feedback loop, wages are rising faster than prices. That scenario does not abide. The working class at large is using ever-larger amounts of debt to make ends meet. Alongside asset prices, debt levels are rising faster than wages. For the first time in American history, the U.S. populace is now bifurcated between owners and renters. The graphic below shows what I mean. Of course such an imbalanced paradigm will create unprecedented political strife during economic meltdown. Consider that risk in a year when the U.S. government is already a non-functioning entity. It will get far worse.

The U.S. has become predominantly a nation of debt serfs. Monetary policy over these past decades has been extremely regressive, meaning it has been increasingly benevolent to the wealthy at the expense of everyone else. Which is why the rentier class is an ever-smaller and wealthier cohort of society while everyone else falls further behind the economic eight ball. I am of course referring to the Fed's path of raising interest rates to 3x pre-pandemic levels, while keeping their Treasury laden balance sheet still nearly 2x higher than it was pre-pandemic. One has been tightened too much and the other is STILL stoking asset inflation.

Here we see personal interest payments have now crossed over wages (both adjusted for inflation) for the first time in history:

The reason the Fed would follow such overtly regressive policy is obvious, yet overlooked by every mainstream pundit - because, similar to Japan, the Fed is now the buyer of last resort for government debt. At the least hint of trouble the Fed will stop balance sheet rolloff and resume buying U.S. bonds and the reason they can do that is because Globalization is a source of secular deflation. In other words, we are in a cyclical inflation surge WITHIN a secular deflation regime of indefinite duration. Which is the worst case scenario, because it portends imminent deleveraging into a deflationary abyss.

Just this week, Janet Yellen was scolding China over their massive and rising trade surplus with the U.S. However, the PBOC is trying to ease liquidity AND support the currency at the same time. How to support the economy, support the currency, AND reduce the trade imbalance? Impossible. But don't tell that to Janet Yellen, she still hasn't figured it out - once you unleash the flood of deflation, it can't reverse:

"Yellen told a press conference that U.S. President Joe Biden would not allow a repeat of the "China shock" of the early 2000s, when a flood of Chinese imports destroyed about 2 million American manufacturing jobs"

Similarly, we are to now believe that Japan has defeated deflation, and yet in constant dollar terms the Nikkei is a fraction of its 1990 high.

Would anyone want this type of success - 34 years to a lower high?

Japan and China's fate is the fate of the U.S. now: A deflationary path of unknown duration.

Nevertheless, the 1930s, provided excellent trading opportunities - roughly one bull market and one bear market per year for a decade. For those who got out near the top.

For those who chose to "buy and hold", the 1930s provided a deep burial and 25 years until the stock market made a new all time high. On a NOMINAL basis.