The Brains Trust-2022, page-1656

@Barney82 and BT'ers.
Must be something in the air; morning bike ride this morning & here are a few things that were going through my mind .... no order. (did the fact and number check when I got home.)

I like using charts to tell a story so a few charts with the facts of the numbers I use.

IS THE MARKET ON THE VERGE OF TOTAL (or at least very large) COLLAPSE?

I reckon something is NQR (not quite right) with the world ... Now I know that the stock market is NOT the economy but I started thinking about things I DO KNOW; I am NOT an economist but I do know that a glance at long term chats reveal simple truths.

So here is "my storyn

- How can the current US market be 60% higher than the PRE GFC level .... a level that was subsequently viewed as a total BUBBLE that led to the biggest collapse since the Great depression?



And just as surprising the market is 20% higher than the pre covid highs?



In that last cuppla years we have seen:

- a pandemic that should have warned us of our own vulnerability,

-we have see THE TRUMP rise and fall and the almost unbelievable demonstration of just how fragile the democratic system we follow really is (eg January 6, 2021) .... & unbelievably it looks like THE TRUMP might be back.

-the collapse in relationship between China and the West.

-Russian invasion of Ukraine

-and did anyone mention Climate Change (does a week go by these days where we don't see what one can only conclude is evidence of Mother Earth groaning under the strain of CC; floods, fire, droughts, record temperatures are all reminders.)

So why are markets soo high; I have to conclude its down to one thing = money printing.

I have seen money printing figure of anywhere between $6 Trillion and $15Trillion BUT here is a Federal Reserve chart of what they call M1 (the definition is here M1 from the Fed .... but for my purposes it is US money supply.



Lets cast our mind back to the GFC when we learnt of the term Quantitative Easing (QE). As I recall the Fed started pumping an UNPRECEDENTED $65 Billion / month into the market & gave it the fancy name QE. Shock horror the world was going to end and the US was going to fall foul of the Japanese stagflation. negative growth etc etc .... & nothing happened ... have a look at the cahrt 2008 - 2010 ... hardly noticable.
Then 2020 and the printing that happened got another fancy name Modern Monetary Theory .. teh theory was that it didnt matter HOW MUCH THEY PRINTED ..... give me break .... thats why the chart above goes vertical and shows a $16 trillion jump .... now these numbers are just beyond most peops understanding ... $16,000,0000,000,000 = 16trillion

And it has no effect ....who are these clowns. We were warned of Inflation .... it would be TRANSITORY ..... then we heard its here ...... Oh ok. So how do we fight it? By spending??

USA has announced an $800B inflation fighting Bill =more printing

& my favourite over the last week is the Student Loan fiasco .... there are more than $1.5T of student loans in the USA wth a fighteningly high % in default:



So the Government are looking at bailing out these loans and they are talking about > $500B bail out ... seen some commentary of > $1T .... wow this is getting crazy. HOW MANY OF THIOSE LOANS WOULD BE GETTING PAID OFF RIGHT NOW??? MY GUESS NONE ... wait for the government bail out of course.

BUT IT DOESN'T matter because of MMT I guess? And with interst rates at or near zero DEPT DOES NOT MATTER ...... mmmm I notice since inflation started appearing



and interest rates started rising



People have stopped referring to MMT. Anyway my old teachings were that interest rates needed to get up to or above inflation to stay on top of the inflation geni .... just seems so intuitively ROGHT to me. So here is the thing I came home from my ride and checked ... AND NEVER HAVE I SEEN A MORE OBVIOUS COERRELATION.
here is MY Fed Reserve overlay of Inflation vs interest rates.




Study this chart; In general terms interest rates sit above inflation and go up above EVERY SPIKE IN INFLATION by a couple of percent .... except in the last decade ... THIS TIME ITS DIFFERENT????
This chart would indicate that interest rates should be at least 8% ... 2 to 3 times current rates ... & MANY COMMENATORS BELIEVE CURRENT INFLATION IS ACTUALLY WAY NORTH OF 10% maybe > 15%
What happens if interest rates do spike to >10%?

In simple terms the 10's of trillions of debt instead of incurring maybe $100B or so of "interest" which is manageable now has an unpayable few Trillion dollars of interest... so we just print that hey? Banana republic come on down.
I have to believe this story ends very sadly. Just sayin' ... gotta go; dinners ready.