How Long Can This Go On?

McAlvany Recap • Dec 18 2023
How Long Can This Go On?
MPM Posted on December 18, 2023

People who were conscientiously raised by well-adjusted and loving parents are often astounded at how long dysfunctional national policies can go on. When such people did something wrong as a child, they were forcefully corrected by their parents or other competent adult, and the correction was in real time. Seldom did a day pass before justice was meted out.

Perhaps just as significantly, when such people escaped the notice of those who would correct them, the consequences of their errant behavior often manifested quickly and forcefully. Such consequences were often far worse than what would have been done to them had they been caught. Children raised under such circumstances can typically see a high correlation between cause and effect and between good behavior and a good life.

In contrast, when a nation chooses a bad course of action, it can take years, decades, or even centuries for the effects to become apparent. Such a delay gives people who deny the cause/effect correlation plenty of opportunity to spin the subject and deny the correlation entirely.

This has been done in many respects in America over the years, but the decisions to take currency creation out of the hands of the states and then gradually separate currency from any kind of valuable backing have taken a long time to play out. We don’t know how long the drama will continue, but there’s no question we’re seeing the end play out in our time.

By “end,” we don’t mean the end of fiat currency. That concept is just too valuable a control and wealth transfer mechanism. We just mean the end of the status quo—the situation as we know it—where the dollar is the world’s reserve currency and Washington DC calls the shots economically for the rest of the globe.

Given the power and vastness of the American economic empire, the end could take years to play out—or it could surprise us all and collapse suddenly. What’s clear is that bad ideas have bad consequences, and we’re seeing that in the headlines every day.

You can also see it explained far more clearly and thoroughly in the publications below. David McAlvany and Morgan Lewis break down what’s happening in the McAlvany Weekly Commentary summarized below. And the other analysts take a look at the historic and monumental nature of what’s happening in real time and what it represents.

Key Takeaways:

  • The data tell a baleful tale
  • Yes, Vlad, there are weeks where decades happen
  • Where do you turn in the face of increasing uncertainty?
  • Two plus two equals … whatever the Fed wants it to

The McAlvany Weekly Commentary: Last week’s Commentary focused on the geopolitical factors weighing on the precious metals markets. This week’s installment focuses on the history and the data that support the global move toward gold. David interviews Morgan Lewis, who writes Hard Asset Insights. Morgan’s chops as a researcher are highly regarded among those who know him or read his work. He includes in his scrutiny competent theoreticians, accomplished practitioners, and data aggregators whose work is impartial and factual. When trends emerge from such extensive research, he presents them in compelling and clear prose. Little wonder that his work is given such respect among his acquaintances. You can read his work each week, as summarized in the Hard Asset Insights section below, but this week’s exchange with David is a special treat with many deep and pertinent insights.

Credit Bubble Bulletin: Never afraid to call ’em as he sees ’em, Doug surpasses himself this week. The past week brought us to a historic point in the management of America’s economy, and you won’t find the facts of the matter presented any more thoroughly or clearly than right here. “This period will be examined, analyzed, discussed, and debated for at least the next century. My task after a week like this is to provide some facts and contemporaneous analysis to help future analysts and historians foil the revisionists.” “To be sure, the Powell Pivot doused nitro on the Everything Squeeze, the Everything Rally, and the Everything ‘Melt-Up.’ And everyone is absolutely overjoyed – a holiday gift pack beyond imaginations. As such, there is today sparse insightful market debate or pushback. I’ll say it: the emperor is buck naked.” The clarity and strength of these quotations are representative, but far from comprehensive regarding this week’s post. If you’re tired of milquetoast analysis of events, this is your filet mignon.

Hard Asset Insights: Morgan also spills a lot of ink on Powell’s unambiguous volte-face. Given that the Fed has faced a no-win situation between, in Morgan’s words, inflationary fire and recessionary ice, the only surprising thing about this development is that it represents such a stark change in Powell’s pronouncements. He has strongly maintained that the Fed would at least stand firm on interest rate increases made thus far. The market has effectively doubted his word for months, and he has now acceded to the market’s enthusiasm and, doubtless, cold calculation that precipitating a major recession in an election year is a non-starter. Inflation has apparently been assessed as the lesser of the two evils, and it has already begun creeping up. Further, the stage is set for higher prices in the future. Morgan is unique among researchers to the degree that he recognizes the immense latitude available as events play out in markets and economies, even as he focuses on trends that are firming up and give some sense to the apparent chaos.

Golden Rule Radio: Miles and Tory also focus their analytical skills on the Powell pivot, noting that none of the four conditions the Fed stated should be achieved were attained before this new and major change. 1) Economic activity is still growing. 2) Employment is still growing. 3) Unemployment rate is still low. And 4) Inflation is still elevated. These conditions have all moved in the desired direction (from the Fed’s perspective), but have not moved far enough to justify the pivot—again, from the stated perspective of the Fed. The hosts strongly suspect political pressure given that an election year is coming up, but without specific evidence to that effect move on to technical considerations. Miles shows the gold chart and likens its movement to two previous periods of gold action—the 1940s/’50s and the 1970s/’80s. He also states that the most normal-looking chart action for gold would include a further retracement that would be good for dollar-cost averaging purchases—in which regard he gives some practical advice.

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