Did you know Dr. Frankenstein created a monster that stays alive to this day by eating zombies? Neither did the zombies. Neither, apparently, did Dr. Frankenstein. In fact, the zombies, being braindead as zombies are, do not realize that they are also keeping alive the diabolical doctor who made the monster that is eating them.
This little article, however, is going to tell you how all of that has become the strange case of the world as we all know it today. And, at the end of the article, I’m going to give everyone access to the first “Patron Post” I wrote as my thank-you to supporters who chose to keep this blog alive at the close of last year. That post was titled “2019 Economic Headwinds Look Like Storm of the Century.”
Before I do, I want to recap 2019 by shining a light on the occulted diabolical nature of the single most important economic event this past year … so that you can read the article in an appropriate frame of mind. You would not, after all, watch a horror movie without first turning out the lights to set the mood. In this case, however, I must also turn on a single small lamp to shine a light on the face of the monster hidden the dark corner of the banking world. Then we will be ready to review the article in context of all that transpired.
One purpose I had for laying out what I thought would be the prevailing headwinds in 2019 was, of course, to help people realize what they should keep their eyes on for their own sakes. That may or may not give them information they factor into investment decisions, but investments decisions are not at all what this blog is about. Investment decisions depend on personal tax considerations, appetite for risk and prosperity versus safety and security, which changes with age in life, and all kinds of other factors.
My main purpose, henceforth, was and is to develop my continuing saga about the Great Recession in which Dr. Frankenstein — Dr. Fed Frankenstein, to be precise — created the monster that still ravages the earth to this day and to lay out the completely predictable death of Dr. Fed’s monster for the dismal comfort of those the dred doctor pretends to be curing with his gift of reincarnate life that is eating away at them, limb by wasting limb.
You see, I was almost certain 2019 would eventually become the big year to prove out this central theme of my past decade of writing, a period which I have devoted to covering the life of the resuscitated monster and its demi-creator. To put it in the doctor’s own technical terms, the Fed’s failure at its “balance sheet unwind” would become, in my terms, the “Great Recovery Rewind” toward the end of the year, establishing once and for all that Fed Frankenstein did not ever create self-sustaining life.
With that certainty burning in my fevered mind, the one point I continued to drum home throughout the year that followed this January, 2018, post of which I am writing, was the development that would impact us all by the time the Fed’s tightening of the rack on which its recovery monster was bedded came to a scheduled close at the end the summer of 2018.
In anticipation of your reading the full tome, I present you with a summary sample of the pre-gloom enlightenment you are about to receive:
The Fed’s Great Recovery Rewind tightens to breaking point: The ultimate downdraft for the entire global economy is the Fed’s balance-sheet unwind. If you get that, you’re ahead of the Fed because they clearly don’t, and neither do market analysts or most economists. The Great Rewind is far more significant than the Fed’s targeted interest rates, which really have just been playing catch up to what the zapping out of existence of fiat money is doing….
As money disappears from the monetary system, we see those pumped-up bank reserves insidiously collapsing, as shown in the chart below. These reserves were supposed to be our insurance against another banking blowout like the last one. They are down now by a trillion dollars since their high in the fall of 2014.
At the end of summer what, in fact, we got was exactly such a banking reserve blowout — a supernova of a monster in the financial universe in that it has already expanded into a half-trillion-dollar fix, and we don’t yet know if that is the end of it. It burst into view before all mankind when very few, except the fortunate forewarned here and in a few haunts elsewhere, expected it. It jolted even the unready Dr. Fed into rapidly taking his balance sheet right back to where it was before he began foolishly tightening the screws on his weak mirage of a recovery. As my evidence of the alacrity with which the foul doctor has had to respond, note that he is now running backward twice as fast as he originally walked down that slope of reducing reserves on his balance sheet.
To me, this theme is the most important economic lesson of the past year because … if the citizenry in the United States doesn’t learn that Heir Frankenstein really does not know what he is doing, all of us are going to endlessly redream this nightmare after every economic collapse. The Repo Crisis of 2019 proves that Dr. Fed’s recovery plan is more like a Ponzi scheme than a recovery, and it proves there is no exit in what he has planned unless you help make one for him. Until this all blows up spectacularly, I doubt we’ll get enough people awake to help make any useful change.
It is like a Ponzi scheme in that a Ponzi scheme is a trick that only keeps working so long as someone keeps feeding it. The principal schemer must reinvest all the money made from one round of beguiled investors in targeted payouts to show unreal investor gains in order to attract a larger round of suckers to buy in to the next round until he’s rinsed and repeated the cycle enough to where he is ready to run with all the spoils.
Dr. Fed isn’t looking for a new and bigger round of suckers because he already has the whole world in his circle of influence, as I shall soon describe in morbid detail; but his Frankensteinian recovery plan of energizing the dead into new life is like a Ponzi scheme in that the plan will be discovered as a fraud as soon Dr. Fed (aided by his central colleagues around the world) stops creating bigger rounds of new money in order to keep energizing the scheme so that it wiggles and leaps, appearing to live on its own, which, in fact, it does not. Do not fall for his sly machinations.
True recoveries, like true living creatures, sustain themselves. That’s why they are called “recoveries.” The dying recover to live on their own. You give some necessary artificial life support to the patient temporarily until his or her own body heals to the extent that it can live a happy life on its own. The mission is accomplished only if you can remove the life support one day, and the patient thrives.
Dr. Fed’s patient, who collapsed in The Great Recession, remains moribund, requiring full life support a full decade after Dr. Fed’s monstrous recovery program began. I raise as my proof against Dr. Fed, the year 2019. The overarching theme of importance that must be recognized if we are ever to enjoy true economic vitality is that 2019 proved the Fed’s operations have created nothing that should ever live in this world. The mock recovery of the corpse that fell to the ground in the Great Recession remains utterly dependent on forever FedMed and functions nothing like the real economy this nation enjoyed for hundreds of years, even with its many ups and downs. This one dances only because it gets sparked by Dr. Fed’s various apparatuses from time to time.
The hard evidence is this: We got to see Fed Frankenstein pull out the last feeding tube in the summer of 2019, and shortly thereafter the financial system went into paroxysms that were completely predictable long in advance by anyone understanding the galvanic wizardry behind Dr. Fed’s whole life-giving deception. Ever since then, the financial quacks who work with Dr. Fed have been scurrying all over his O.R. to get their braindead, stitched-together patient, who looks more like a crazy quilt of flesh than a person, settled back down by stuffing the tubes back up its nose and down its throat and into its lungs in order to bring food and oxygen supply back to where everything was before these madcap medics attempted to pull the tubes and prove their monster could live on its own. They proved it cannot. Period.
They have tried to pull the curtain around their present operations to obscure their scurrying by telling the world they are not doing what they are now doing. “Do not look behind the curtain. This is not QE.”
The desperate attempt by these financial frauds to save this flopping body of gel that remains of a once strong economy is intended to convince us that the Frankenstein Fed has not eviscerated all of us. You see, the dirty secret is that we are the braindead patient on Dr. Fed’s operating table, and we are watching all of this as an out-of-body experience. There is the twist in my tale, but there is one more tale to tell.
We — meaning the collective populace of the United States — are braindead because WE have fully the authority to stop this unholy doctor, but we (as a collective) are in a coma allowing it to happen. You see, the other dirty little secret that is evading our collective mind is that Dr. Fed Frankenstein, himself, is only kept alive by the patient he is operating on! We could pull his plug in a heartbeat if we wanted to, but we’re so afraid we’ll die on the table without his help that we keep letting him conduct his filthy experiments all over our body politic. We do not arise from the table and take action against the mad doctor, lest his own death brings our own … and it very well might, so utterly dependent upon him have we allowed ourselves to become that who is there left can save us?
The fact of our deathlike state can be seen in the how we still flop on the table after an entire decade of this grotesque experimentation. We saw stocks crash and the bond market start to collapse as soon as Dr. Fed was fully engaged in ripping out the tubes. Now we see this Mephistopheles of mad medicine scrambling to repair the damage he and his hunched-over assistants brought to their own fake recovery, adding back the oxygen of interest cuts and pumping new food into the system via constantly increasing doses of new quantitative easing. So, our own quantitative wheezing goes on forever in order for Fed & Fiends to maintain the illusion of having fixed us, but we are as far from fixed as ever! My friends, we have never been so sadly sick as we are now; but zombies do not know they are the walking dead.
Why has it all turned out this way? Why so easily predictable if so unseen by many? Because plainly (to those few cells who are not comatose) you cannot heal something without surgery aimed at removing its actual internal cancers entirely. You cannot pump blood into a debt tumor and feed it to help it grow it much bigger bubble and think that’s going to solve debt cancer. You’re saving the tumor, not the patient. You cannot stitch together two failing banks that are too big to fail and not create a bigger monster, even if that somehow keeps the dead one alive. It only turns the two into a bigger, more hideous beast. What Dr. Fed did was stitch one dead body to the unhealthy body of another, creating a Siamese twin that drags along and lives off of one head! That was, in fact, the Fed solution time and again, and the whole of US citizenry watched it happen to us, and said, “We hope this works.” (Well, collectively we did!)
Why would it? How could it? Who could ever hope that, except those in denial of the foul condition of their own fetid flesh?
These things should be obvious, but we, as a collective of barely jiggling cells, lay in our coma on the table and watched all of this continue for years from outside of our body. Why else would any of us have ever believed that sewing together two or more banks that were too big to fail would somehow save us from the peril of having banks that are too big to fail fall on us? It’s ludicrous. We’re going to be saved now by creating a worse situation for later? You have to be braindead to buy into such a scheme, but buy into it we did for ten years. (Not you, but we, the collective. Some of us brain cells recognize this problem, but obviously most do not, or this would not be happening to us. Those that do are trying to wake the rest of the brain cells from this morbid slumber before it is too late, but many of us fear it already is too late.)
The Fed’s fix was to feed the cancerous banking cells and let the rest of the body starve. In other words, feed the billionaires more billions, and promise that a little trickle of the blood being pumped into those large tumors will somehow leak out to feed the rest of the body. What we now have become is a grotesque wobbling blob of cancer masses on the table that is an embarrassment to ourselves as a once-great nation because anything that once resembled healthy free markets has atrophied almost completely. Fed & Co. has to keep feeding the cancer cells to keep them living enough for the occasional spark of electricity to make them bounce and look alive because the real market-based economy shriveled to almost nothing years ago. The cancer is just about all that is left of us.
The evidence of this outcome is that corporations have to keep feeding their own stocks with stock buybacks financed by the Fed’s cheap money to billionaires because actual revenue growth from middle-class customers died on the operating table. Their stocks are going up, but their vital signs have been going down for a long time. The Fed feeds the whole world with its dollars, yet the whole world economy is collapsing. US banks have to keep feeding their government’s wobbling fat cells by buying up greater and greater rounds of government debt, which requires Dr. Fed to keep soaking that debt up because its own member banks are becoming so bloated with government treasuries they are reluctant to take treasuries as collateral for overnight repo loans any longer. They are stuffed with treasuries but short on cash used to buy those treasuries — a burden laid upon them. The whole world has been reduced to a quivering mass of cancer cells as purple as my prose and tubes all with connections to back Fed Labs. Similar situations have developed throughout the world.
Why would it fail? How could we know? Because of one primary reason that history should have taught us all — centrally planned economies with their manipulated markets have never been the ones in which human beings thrive. The central geniuses, no matter which human beings you choose (or which ones anoint themselves), do not ever have the brain power (and never will) to manage something as intricately complex as a national economy. Think about it. The Fed has been desperately trying to drive stock and bond markets forever upward. What if those market’s smartest course was to go down for awhile, but the Fed just wouldn’t let it happen because it doesn’t want that? Going down is what the Great Recession accomplished.
Our goal from there should have been cutting out all the cancer and corruption and fixing regulations that were stripped away, putting bad debts to death, etc., but not juicing up markets to try to fake life and pretend that it was still going on just because we can zap the blob on the table with some lightning and make it jump and quiver! Markets went down because they were too high to be supported by economic fundamentals in the first place.
Houses, for example, priced at their peak, were not affordable under wages that had long failed to rise. More of the trickle-down economics that hadn’t gotten wages to rise any in the past score of years certainly was not going to do so in the next ten! Yet, that’s what we bought into! Capital-gains tax cuts that hadn’t built any factories in the US, as we continually witnessed a net outflow to every other part of the world, certainly were not going to turn life around here in these United States! These things should have been obvious!
We needed major economic repairs. We opted for fake life, instead! We never never woke up. We’ve been lying on the operating table for ten years, but we’re afraid we’ll die without Dr. Fed.
Humans seem to think life needs their centralized control, but it does not. No group of humans should ever be given the level of economic control that we continually give to Dr. Fed and his assistants. There is certainly a place for regulations and regulatory agencies to establish and maintain level and fair playing fields among corrupt human beings. In fact, the tear-down of Glass-Steagall, which largely kept banks out of stock markets, remains a huge part of the problem; but there is no place for regulators to be the leaders playing the markets in order to run them in certain directions that the leaders feel is right for everyone because they fear pain, too, especially when you give these regulators the ability to create infinite amounts of cash as they see fit. With the ability to zap infinite cash into being on a computer chip and the ability to play in markets via your member banks, you can corner and control every market that uses your electrical currency.
The Fed has engineered the biggest monstrosity you could ever hope not to see, and my goal is to try to get people to wake up and see what they don’t want to see (and to support your arguments in the same battle) so we collectively stop giving the Fed the power to do what it keeps doing because it is still We The People in this democracy that keep electing two parties who both equally assure the Federal Reserve’s role in doing all of this!
The Patron Post that laid it all out for 2019
In my last article, I said I’d lay out the predictions I originally made for 2019 in my first Patron Post as a way to recap the year and review how I did … or did not. I’ve decided to just make that post accessible to everyone now that the end of the year is here so you can judge it for yourself. I think it might be fun for critics and supporters both to see if the hits outweigh the misses in your own mind, bearing in mind no one bats a thousand, and I did not either. I’m not a prophet, just someone trying to see deduct where the trends are going. So, of course, I have some misses.
For the purpose of my own internal audit as I reflect on that post, I have to consider whether or not I will venture more predictions based on how well those turned out. Mostly, I’ll be looking at how well the main event turned out. That’s a two-parter — a major repo crash, which I later said would cause a recession, starting most likely at the end of summer due to diminished bank reserves.
As I’ve qualified all along, we won’t be able to accurately evaluate those predictions until late in January, 2020, at the earliest because that is when most of the stats for the final quarter of 2019 start to come in. If I’m off by much, I’ll try to stop myself from making predictions because I genuinely don’t believe the world needs false prophets of any kind, including those who turn out to false prophets about false profits.
I can still write on the economic events of the the day without projecting where I think they are leading (should my ability at triangulating trajectories prove to be failing). I point it out now because one big reveal could happen at the turn of the year as my previous articles about the monster that I and some others call “the Repocalypse” have talked about. Though the Fed has done a lot more than I thought it would to prevent that, the very fact that it has scrambled to such an enormously visible degree says a lot about how serious it really became. No one doubts this has been the Fed’s biggest repo crisis in its history.
I referred to 2018 as “the Year of the Bear” in the article that I’m now going to give you access to as I spoke about where things were going with stocks and other economic and political matters in the newly dawning 2019 that would follow the arrival of that little bear in stocks, which also would have been a very, very great bear, had the Fed not slammed the brakes on its interest increases and promised to back off on its tightening. Now, it has even gone back to interest cuts and easing, the total opposite of all it originally claimed it would do. The article covers many anticipated headwinds for the year just passed, but you’ll see its central motif was the crisis that was coming to bank reserves because of that tightening and how that might play through other markets.
I clearly didn’t believe stocks would do as well as they did. However, I also did not predict any further crash than the one that timed out as expected in the December that had just passed. I mention that because I’m sometimes accused of having predicted a market crash in 2019, and you can see from the article that I did not.
My focus in the article moved quickly away from the big events that had just happened in stocks to looking at the big events I expected to occur in the Repo world in 2019, noting that would be where the action developed for the next significant stage in the collapse of Dr. Frankenfed’s fake recovery. My focus on this blog has always been what is happening to the overall economy and its fundamental supports and where the economy is going, not how to play the stock market. This is not an investment blog and it has never pretended to be one. However, when, as in 2018, I think the stock market will be the major economic news of the year, then, of course, I will lay all of that out. For 2019, however, I said the big, bad activity would in the banking world, particularly showing up in repos and other growing credit problems.
I can’t say I precisely caught how the Repo Crisis would play out in all of its particulars. I did not, but the belief that it would develop into the biggest set of economic problems to emerge in 2019 — especially “later in the year” — plays throughout the article. If it takes half a trillion dollars to build a dike against them, they are clearly a flood that would have overwhelmed us since that is comparable in size to what wwe saw at the start of the Great Recession … only all aimed at repo.
Since it was on the last day of 2018 going into the first day of 2019 that the Repo Crisis poked one eye above the water for the first time, now is the perfect time to review that article. We had seen ripples on the surface prior to that in the form of bubbling fed funds rates, which I noted from time to time, but not the actual monster. As we come to that same annual turn in a few more days where we first saw the monster, we’ll get to see whether or not the Fed’s half-trillion-dollar cocktail of financial medicine has taken the evil out of the beast it created or if the beast is about to transmogrify into something more horrific.
For future warning, let me just say that, even if it appears the Fed has chopped off the monster’s head as we roar into the twenties, don’t be surprised if it grows another one. Don’t be like the cliche fool in the horror films who thinks the monster is really dead as he stands by its disembodied head with its claws twitching near his feet, even after he’s seen how nearly impossible is this monster to kill.
The Fed’s frantic medicine is all designed to be temporary, as if the Fed thinks this is a temporary problem. IF the Fed does not keep rolling the temps along into perms, a new head will rapidly emerge — maybe by tax day. In fact, I strongly suspect tax-day concerns are why the Fed has said it will continue purchasing short-term treasuries until April of 2020. It wants the program to be up to full support by this December 30th and to remain that full until April 15th while pretending (probably even to itself in denial) that it can fade the intervention after that.
The Fed can never fade the robust intervention it has been forced to make while the president taunted the Fed Head for his incompetence. Just know the monster the Fed has created has many lives (all of them dead ones like zombies, sparked into animation by Dr. Fed’s lightning-quick, flash-cash generator). So, if the Fed doesn’t move decidedly back to lasting QE, the monster will be back to haunt us again next time banks have large seasonal transactional needs.
All of which is not to say the Repocalypse will not return in time for this happy New Year, regardless of Dr. Fed’s interventions to try to medicate and mediate the damage of its monstrosity. It is more to say that, if such grand interventions do keep the monster from biting us this New Year, still do not comfortably join the comatose. We have not resolved the insidious disease that runs throughout our body, not one bit. We have ALL of that work yet to do. Hiding under the covers does not kill the monster or the unrestrained, ungodly doctor who keeps recreating it.