This is Just the Start…
Yesterday’s rally was not really about the level of the CPI, it was about a huge pile of liquidity that was waiting for a trigger.
Bernanke Policy is the driving force…
What Nobel prize winning Ben brought to the world in 2011 was Funny Money. It is now everywhere and all those born after 1990 have its effect ingrained in there thinking. Supposedly the 2022 election was highly affected by the zoomers.
Higher interest rates just means that the liquidity pile must be made more productive.
I have been of the persuasion that 3.5 % is a longterm operating level for FED funds rates, but apparently the FED thinks the level is 4.5 % and Larry Summers apparently thinks the rate goal is 6.0 %. That is probably why he is not Treasury Secretary.
I will show three charts next that will put liquidity levels in perspective.
First is the chart of liquidity vs GDP output.
This charts is made up of market based production units vs GDP with the base set at zero in 2005 before the Housing Crisis.
The next chart shows some of the factors involved in the equation, CRB commodity prices, GDP and FED Balance sheet liquidity, again with numbers based at zero in 2005.
And one more, next we have the chart of the Nasdaq 100 vs FED balance sheet liquidity. The balance sheet has declined some but the Nasdaq 100 has been hit much more by the FED as it tries to cover its actions.
In conclusion, todays thoughts on the election, MMT and Climate Change.
This past week’s Climate Change talks focused on the enormity of the effort needed and the Trillions of dollars that will be required. I try to think of it as a War on past living and production direction that put environment off the table. Everything since the supply side revolution in 1980 was about making money and moving it to the top. History says that huge borrowed outlays to fight wars builds a base for Economic Growth, just look at the period of 1952 to 1980 after the conclusion of WWII.
And the election. At this moment the final results are pending but some real trends are emerging. The Trump period is over, in fact the whole state of Florida may be taking on a direction where implosion is not that far off. The highest point in Florida is 345 feet above sea level with a vast portion of the state right around sea level. I remember as a kid in 1954 visiting my uncle’s family in Winterhaven and visiting Bok Tower. It was supposedly one of the higher points in the state and had an attraction called Spook Hill where cars put in neutral would seemingly back up the hill. That is kind of like what the Republican party of Florida of Trump and DeSantis looks like. With all the recent northern state rich people moving in to save on state taxes, the climate change flooding will probably see Trump and DeSantis sharing a bungalow on Spook Hill. Imagine two rich fat guys sharing a kitchen as water moves in.