Neither a Borrower Nor a Lender Be

McAlvany Recap • Mar 27 2023
Neither a Borrower Nor a Lender Be
MPM Posted on March 27, 2023

As in a football game, economics and finance are subject to both enforced laws (such as boundaries and rules) and immutable laws (such as gravity and equal and opposite reactions). For years, policymakers and central bank officials have acted as though they could overcome the latter by changing the former. But football players can’t fly, and you can’t build a debt-based economic system without facing payback.

That fact seems far-off and minor in the early days of a debt-based system—days when money flows freely and the future from which we are borrowing is still far off. The problem for us in 2023 is that the future is here. And what have our earlier selves given our present selves for all that money they borrowed?

Some have given productive companies, useful real estate, healthy retirement funds. Many others have given years of high living, raucous parties, and epic benders. For its part, the government has leaned toward expenditures of a perishable nature. “Entitlement” programs, governmental growth, and empire projection have arguably yielded little to no present benefit. But the bills are due, and they don’t care what the money was used for.

Many Americans believe we can solve the problem by borrowing more money. They don’t understand that that “solution” works only until your debts exceed your ability to pay them off. We’re there.

Spend some time with analysts who understand the times and the problem. Their grasp of the situation is exceeded only by the network of experts from which they gain even further understanding. See things as they are, not as ideologues and agenda drivers assert them to be. Click on a link or two below, and learn from insightful chroniclers of the historic events now unfolding.

Key Takeaways:

  • Events are confirming bubble analysis
  • Government is choosing winners and losers among bank investors
  • The Fed dilemma continues to dominate monetary policy and the economy
  • Government is choosing winners and losers among banks

The McAlvany Weekly Commentary: This week Doug Noland’s insights are highlighted in the Weekly Commentary as he joins David and Kevin as their featured guest. True to form, Doug takes a huge and complex subject and makes its understandable. In chronicling his own journey through the study and exposition of monetary bubble dynamics, he makes the entire subject much clearer and easier to understand. His summarizing conclusion of the matter is representative: “We haven’t even entered into a recession yet, and we’re already seeing acute fragility. So to me, that’s a lot of confirmation of the thesis here of this historic bubble and how we’re now entering a period of what will be instability in finance, banking, and, unfortunately, I think the economy also.”

Credit Bubble Bulletin: Doug looks carefully at the Swiss government’s solution to Credit Suisse’s financial woes this week. Its effect was to reward equity investors at the expense of bondholders—causing the bondholders to cry foul. As Bloomberg reported, “That’s not supposed to be the pecking order, some holders in the bonds insist.” And as might be expected, the effects go far beyond stakeholders in the bank. As Doug observes, “The surging cost of raising new bank capital will leave a mark. We can assume more risk aversion throughout the global bank community, along with much greater regulatory zeal.” The effects have extended to Deutsche Bank, which is, in Doug’s words, “a highly levered and fragile institution in a market that now fears systemic fragilities.” Banks worldwide have been affected in ways effectively chronicled in this week’s CBB.

Hard Asset Insights: Morgan has centered his analysis on the Fed’s dilemma (raise interest rates and trigger recession vs. lower rates and feed inflation) for months, and last week saw the most notable casualties to date of higher rates. Several banks essentially failed, and the President bailed them out by effectively insuring all their depositors regardless of monetary amount. This series of events underscores the fundamental accuracy of HAI’s analysis, falling perfectly in line with the dynamics described. Accurate, too, was Morgan’s expectation of a .25% raise in the fed funds rate at the latest FOMC meeting—something many big-name analysts got wrong. How does HAI get so much right? In part from clear thinking and heavy researching, and in part from not going it alone. Relying on the most incisive and pertinent data collectors, right-thinking economic theorists from Hayek to von Mises, and the most successful investors and high-level institutional analysts, Morgan offers wisdom, experience, and penetrating insight every week.

Golden Rule Radio: Miles and Rob take a look at recent events, beginning with the .25% raise in interest rates by the Fed. That rise counterintuitively saw bond yields decrease, so the hosts look into the matter further. What they find is that, regarding its asset profile, the Fed has repurchased about half of what it sold over the past year in little over a day! The chart action showing this development looks more like an anti-aircraft projectile than a purchase record—almost straight up! In Rob’s words, “it’s astonishing!” [Emphasis very much in his voice.] In short, what the Fed’s rate increases have taken away (in terms of monetary liquidity), the Fed’s bond purchases have added. The hosts also discuss the recent banking crisis and follow its developments to show how the government is greatly helping big banks at the expense of smaller, local banks.

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