MARKET NEWS / MCALVANY RECAP

Power Corrupts

MARKET NEWS / MCALVANY RECAP
McAlvany Recap • Mar 04 2024
Power Corrupts
MPM Posted on March 4, 2024

Hundreds of books have been written that chronicle man’s lust for power. Chief among them, of course, is the Holy Bible, but there are many classic works that amplify the point: Socialism by von Mises, Crisis and Leviathan by Higgs, and Lex, Rex by Rutherford are just a few. And for citizens of the US, centralized power is more than just a theoretical threat.

The slow-motion revolution against the rule of law that is ongoing in the US is just one in a thousand instances of powerful people seeking absolute power. The forces against rule of law have always been here (See Cronyism: Liberty Versus Power in Early America, 1607–1849 by Patrick Newman for some eye-opening specifics), but they’ve made immense inroads over the past 163 years, and especially in this 21st century.

The Fed is a product of the 20th century, of course, and was the third attempt at a central bank in the US. It’s interesting how closely the establishment of a central bank has been associated with attempts to centralize power in the country.

Well, we’ve had a central bank for over 11 decades now, and a person might wonder if the power mongers are beginning to see the wisdom of the aphorism be careful what you wish for. Inflation now threatens the whole house of cards.

It’s nothing new. Inflation has been a constant in America since the founding of the Fed. Maintaining it at 2% is one of the Fed’s openly stated goals. This means, of course, that stealing 2% of your dollars’ purchasing power each year is official policy. But attaining this goal depends on more than a policy statement.

And what it takes, the Fed has on more than one occasion failed to provide. Now, of course, is one of those occasions. And if compound interest is a powerful device for putting money in your pocket, inflation is a powerful device for taking it out.

Hundreds of millions of people don’t like high inflation for just that reason, and hundreds of millions of unhappy people are always a problem for those who wield power. King Louis XVI, Tsar Nicholas, and Nicolae Ceauşescu bear mute testimony to the fact, though far fewer people were involved in their overthrow. The problem for strongmen is, when you’re at the peak of the power pyramid, who do you blame?

Fed policy, pronouncements, proceedings, and processes are a major part of the analysts’ comments in the publications summarized below. That’s because the Fed is not just a central bank, it’s a central mechanism in the consolidation of power at the federal level. As many of America’s founders well understood, what goes up together comes down together—and often faster and harder than would happen under a decentralized polity.

If you don’t already, make one or more of the below publications a part of your weekly reading list. The analysis is free, it’s deep, it’s wide, and it’s pertinent. These folks don’t have a Fed fixation. They follow the money, and the money starts with the Fed and is deeply influenced by the Fed in the path that it takes.

Key Takeaways:

  • Reasons to be hopeful
  • Speaking truth to crazy
  • The future is in the mines
  • The power of the ratio

The McAlvany Weekly Commentary: After taking his son to Jekyll Island, David joins Kevin by phone to discuss the sinister origins and subsequent misdeeds of the Federal Reserve System. The institution’s champions sold it as a way to provide liquidity to banks in times of crisis so the banks wouldn’t fail and take people’s savings with them. “What many think of as the creature of Jekyll Island would not only provide liquidity in periods of acute stress, but, over time, and as we’ve seen, money and credit would expand without limit. 34 trillion in debt is starting to get people’s attention.” Are we about to see the abolition of this oppressive institution? No predictions here, but the discussion is fascinating. It looks at an historical experiment with low interest rates and endless money by a major nation in relatively modern times, and it highlights a crucial book for understanding our monetary system. David also explains why, in the midst of many foreboding developments, he is an optimist. If you’re having a tough time keeping your chin up during these troubled times, that is a must-hear.

Credit Bubble Bulletin: Doug’s heavy-lifting commentary is often heralded by an apt and hard-hitting title—as is the case this week. “Speaking Truth to Crazy” packs a world of meaning in four words. After relaying the comments of various Fed officials as quoted in Bloomberg and Yahoo Finance, he asks, “Why do Fed officials persist with all the rate cut talk in the face of persistent inflation, economic resilience, and conspicuously wild speculative excess? By now, I would hope they recognize that their ‘dovish pivot’ during a market melt-up was a significant blunder. Yet they continue to throw gas on the fire.” To mix metaphors, it’s like cloud seeding during a 500-year flood. Still, the Fed continues to talk rate cuts. And Doug continues to call the Fed out for its misguided policy. He then proceeds to analyze current dynamics in the economy in clear and informative style, and concludes: “There will be a huge price to pay for all the craziness. Powell and Fed officials repeatedly assured us that they had learned from history. They understood the risk of resurgent inflation in the event of premature loosening of monetary policy… But the Truth is they orchestrated a dovish pivot and attendant dramatic loosening of conditions. Plain and simple: they stoked a historic super-cycle market speculative blow-off. And they apparently cannot refrain from more stoking.”

Hard Asset Insights: Morgan continues this week his tale of two ditties. One, “Party on!” The other, “Beware the Ides of March.” (The latter, ominously, was the deadline for settling debts in ancient Rome.) The foregoing are not actually Morgan’s words, but these are: “[Equity markets’] bubble momentum and FOMO-turned-POMO dynamics are driving further market gains. Those dynamics can continue to power markets higher—for a time—but they eventually run their course and reverse at extremes. We appear to be rapidly approaching those extremes, so the stock market is highly vulnerable to a reversal.” Later in his narrative, Morgan extols the virtues of disciplined and well-run precious metals mining companies. Calling them “the tip of the spear of alternative hard asset opportunities,” he notes that the poorly run companies of yesteryear have been forced by purse and circumstance to reform and discipline themselves. They are lean, mean, and ready to run when gold takes off.

Golden Rule Radio: After Tory’s introduction, Miles takes a look at the gold charts. He places current price movements in recent historical perspective, concluding that he won’t begin to be bullish on gold until it reaches $2,060. Still, in the face of the current equities rally, gold continues to move sideways rather than down, so Miles looks at the upside moves that could be coming soon. His analysis gives a good rationale for entry points into the market in light of probable future moves in gold. Tory lists a number of macro issues that are impacting the gold market, particularly in the East, and threaten to boost the price worldwide as they develop further. The hosts then turn to the silver chart and discuss ratio trading at some length. This latter concept is a powerful and nearly zero-risk strategy for increasing the size of the insurance leg of your investment triangle. This is one of the best discussions you’ll find on the subject.

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