Is Too Little of a Good Thing a Bad Thing?

McAlvany Recap • Feb 08 2023
Is Too Little of a Good Thing a Bad Thing?
MPM Posted on February 8, 2023

Both the way in and the way out of our current economic difficulties are complex. A lot of people and factors are involved. Still, the money supply issue in particular does seem to involve a relatively simple to understand tug-of-war between Wall Street and Main Street. Loose monetary policy gives Wall Street more money with which to make more money. Tight monetary policy restrains the inflation that makes life on Main Street more difficult (at least in theory). So to characterize the Fed’s policy dilemma as a tale of two thoroughfares is not entirely simplistic.

Doing so necessitates the view that the Fed turned from serving Joe Six-Pack to serving Joseph Chateau-Lafite in its most recent FOMC meeting. So was it just another chapter in the book “The Rich Get Richer and the Rest of Us Get Poorer”? Or was there more to the decision?

Perhaps a pivot to moneyed interests was involved, but there are also some very real-world constraints involved—constraints on what the Fed can do, how quickly it can act, and what the consequences will be. Given that we are all deeply impacted by the decision, these facts are well worth knowing. They affect your investments, your cost of living, and the stability of the society you live in.

All of the McAlvany analysts are serious, skilled, high-level aggregators of news, data, analysis, and theory. There’s a lot going on, and it takes incredible amounts of time, money, and effort to assimilate it. You can spend all of that to find out what’s going on, or you can read or listen to the information summarized below. For most of us, that should be an easy decision.

Key Takeaways:

  • The gold market can sometimes see events a decade in advance
  • Powell is no Volker
  • “Without price stability, the economy does not work for anyone.”
  • Ratio traders pay attention!

The McAlvany Weekly Commentary: The prescience of markets, like that of humans, is a sometimes thing. We’ll leave it to probability experts to determine if the former exceeds what would be expected from the average of a population’s guesses, but unpopular markets seem to be better at prognostication than popular ones. The latter are subject to herd dynamics, FOMO, and emotion. The gold market—given that it spends much of its time out of the limelight—seems at many times to have 20/20 foresight. David and Kevin look at one such time, significant for its similarity to our current circumstances, and note not only its insight but also its surprising historical setting. The way events played out, coupled with their impact on the hegemonic role of the US dollar via its three pillars, makes for interesting history and key knowledge for today.

Credit Bubble Bulletin: Doug gives a detailed analysis of the origins of the 1970s stagflation. Most people remember that decade in caricature. The particulars paint a very different and illuminating picture. In short, “as much as we would like to believe the Fed can manage inflation with moderately higher (from a historical perspective) interest rates, they have limited control.” For most people, that’s very bad news—at least insofar as it impacts our hopes for a soon and signal victory over inflation. The details here are amazing, and you’ll be surprised to see how things really played out. Even those who lived through the decade probably didn’t pay much attention to what the Fed was doing until Volker took the reins and subjected us to some very painful—and memorable—times.

Hard Asset Insights: Though crucial, the Fed decision to raise interest rates only 0.25 percent in its most recent FOMC meeting is only part of the picture. Inflation is making life very difficult for hundreds of millions of Americans, and the Fed’s culpability is immense, but there is blame enough to spread around. Morgan analyzes several aspects of the problem, and discusses in particular the difficulties facing the Fed as it attempts to bring down soaring prices. Its most recent decision certainly seems to be slowing if not preparing to stop the war on inflation. Why do so when inflation remains so strongly in the fight? There might be several possible reasons, but Morgan thoughtfully and thoroughly presents two. Both are plausible and rational—as well as ominous.

Golden Rule Radio: Tory and Miles give shape to the Fed decision by showing the resulting charts for stocks, bonds, and metals. Much of the action follows the expected script, but the hosts caution against assumed action. Gold has risen long enough that it is due for a breather. That change could take a couple of different forms, which the hosts detail and chart. The result could give hope, and possibly opportunity, to ratio traders. The hosts also give key numbers that likely will influence market action.  Though they particularly note that it’s impossible to anticipate the news, and that things can change very quickly, proper chart analysis allows you to stack the odds in your favor.

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