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    Market Update: The Fed’s Big Lie

    Ignore Powell's happy talk. The Fed is desperate and merely playing for time.
    by Adam Taggart

    Friday, August 28, 2020, 9:10 AM

Insanity is doing the same thing over and over again, but expecting different results.

Federal Reserve Chairman Jerome Powell announced on Thursday that the Fed will now shift its focus from hitting inflation targets and instead prioritize closing “unemployment shortfalls”.

This gives it the aircover to do “whatever it takes” until the unemployment rate is back down into the low single digits. Inflation can now run hotter than 2%, rates can stay at 0% (or go negative) for the next decade+, more QE…. all is fair game now in the pursuit of lower unemployment.

Essentially, the Fed is now tripling-down on the same failed policies that have created today’s zombie economy and the worst economic inequality in our nation’s history.

Rich 5% own 2/3 of the wealth

Perhaps the folks at the Fed are smarter than we think, and there’s actually a grand plan they’re pursuing that’s going to work out to society’s benefit?

Sadly no, reveals this week’s expert guest, Danielle DiMartino-Booth. Danielle knows the Fed inside and out, as she worked as a consultant for nearly a decade to Richard Fischer, President of the Federal Reserve Bank of Dallas, including helping deal with the Great Financial Crisis. She knows how the organization runs, as well as the specific people running it.

And her assessment is that the Fed is trapped in a nightmare of its own making and is merely playing for time at this point. Everything it throws at the situation is designed to hopefully get the system to limp through the next quarter or two without breaking, at which point they’ll scramble to come up with the next short-term “solution”.

In the video below, Danielle breaks down the important takeaways and repercussions of Chairman Powell’s Jackson Hole speech and vents her frustration at both his duplicity with the public and the media’s cowardly refusal to hold him to account.

As our other recent guest experts have warned, Danielle confirms this is an exceptionally treacherous time in the markets for investors, as the Fed’s intervention has and continues to deform and distort prices far beyond reason:

<

Anyone interested in scheduling a free consultation and portfolio review with Mike Preston and John Llodra and their team at New Harbor Financial can do so by clicking here.

And if you’re one of the many readers brand new to Peak Prosperity over the past few months, we strongly urge you get your financial situation in order in parallel with your ongoing physical coronavirus preparations.

We recommend you do so in partnership with a professional financial advisor who understands the macro risks to the market that we discuss on this website. If you’ve already got one, great.

But if not, consider talking to the team at New Harbor. We’ve set up this ‘free consultation’ relationship with them to help folks exactly like you.

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27 Comments

  • Fri, Aug 28, 2020 - 12:46pm

    #1

    Mark_BC

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    Mark_BC said:

    Good discussion. I have a few issues though:

    Danielle seems to be suggesting that the Fed is the one who would be taking political influence from the government. I find this hard to believe considering the bankrupt US government is the one who is indebted to the Fed. If anything the Fed is in complete charge and the government is run by paid-for puppets, as is the media.

    As to the question of whether the Fed is just tying to hold the system together with rubber bands based on their generally good but misguided intentions to try to revive the US economy, versus having some grand evil plan, I also find this hard to believe. They would not have been able to extend things this far if they were bumbling idiots. And the direct transfer of wealth they are giving Wall Street confirms that they know exactly what they are doing and it has nothing with stimulating any economic recovery. I agree that they are trying to hold the system together with rubber bands, because this system continues to serve them. They have a plan and they are fulfilling it. As Mannarino says, to be the lender and buyer of last resort, to be the owner of the world. With every new dollar of debt they issue to others, who then owe it to the Fed, the Fed becomes stronger. I wish I could have this power. Write the laws to force everyone to use the currency that I print up in my living room or make on my computer out of nothing; as I get wealthier and wealthier from this and everyone else becomes impoverished as a result and needs to borrow from me (since, don't forget, I have declared myself to be the only one allowed to issue currency), I then end up owning the world through my computer screen. What a deal!!!

    As to the observation that there has often been minor dissent within Fed ranks historically regarding its dovish stance, I would tend to think that this dissent is manufactured to create the illusion that there is are options to the path the Fed is taking, which there isn't. It's theatrics.

    They are trying to hold this system together for as long as they can, and milk as much wealth from it as they can, until the reset happens and new system is put in place to further their goals of enslaving the world as it falls to its knees to the Fed-created financial catastrophy.

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  • Fri, Aug 28, 2020 - 1:12pm

    #2

    Mark_BC

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    Mark_BC said:

    As further evidence that it's all predetermined, I've noticed a few times how trading over the day will bring a stock up in price and then you watch it go down to close exactly where it started for 0.0000% change.

    And today, AAPL closed exactly at $500. So what are the chances that months ago someone made the decision that AAPL was going to split on Aug 31, and that the price would be $500? Pretty high IMO.

    I wonder what the price plan is for TSLA going forward?

    You can be sure this price plan includes a market crash of X % on Y date.

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  • Fri, Aug 28, 2020 - 1:18pm

    #3
    nordicjack

    nordicjack

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    Printing money like crazy

    As I sit and figure how printing money like crazy cannot and does not cause hyper inflation,  the realization that all the printed money flows to the wealthiest.   It is then retained by those few,  and not spread into the economy.   The over-all effect is stable inflation where those ultra rich can still buy goods and services on the cheap while having even greater purchasing power but not technically not using  it, there by keeping inflation down.      Its a nice game.. when you print money like crazy , and hand it to a select few where it does not alter the over-all buying power of masses or a dollar.

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  • Fri, Aug 28, 2020 - 1:25pm

    Mark_BC

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    Mark_BC said:

    And that money printing is offset by deflation in Main Street.

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  • Fri, Aug 28, 2020 - 2:46pm

    #5
    David Hunter

    David Hunter

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    14:50

    Who was the "canned" journalist she is referring to...and Adam knew immediately?  Would love to read up on the person, story, issue and outcome!  At the 14:50 point in the video,

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  • Fri, Aug 28, 2020 - 3:12pm

    Adam Taggart

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    Pedro de Costa

    For the back story, read this

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  • Sat, Aug 29, 2020 - 6:31am

    #7
    PVF Cosgrove

    PVF Cosgrove

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    No mention of hyperinflation

    Whilst I found this interview interesting, I was saddened that there was no mention of hyperinflation. Powell us that the Fed is prepared to let inflation run hot in order to benefit the unemployed.

    Weimar Germany did something similar before 1923 when it printed more and more marks because the people wanted more marks on account of rising prices. It seems to me that what Powell wants  in regard to unemployment is "to print marks because the people want more spent on them".

    Inflation started in 1913/14 in wartime Germany, and the mark fell to  11% of its pre-war value in December 1919, and long before the Versailles punitive requirements were published. From 1920, inflation worsened until the hyperinflation of 1923. So, only ten years from the start of printing money by the Kaiser to the death of the mark in 1923.

    Does this history not require that hyperinflation should be used as a descriptor much more frequently than it is? This gross printing of currency is seriously interesting only when understood in terms of the death of the dollar.

    The only personal, individual response to  hyperinflation is to own bullion.

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  • Sat, Aug 29, 2020 - 1:31pm

    climber99

    climber99

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    Yep, you're spot on

    Yep, you're spot on.

    A billionaire can only drive one car, physically be in only one house, eat 2200 - 4000 calories of food per day.  Virtually all their money does not circulate and just exist as digits on a bank computer ledger or as physical assets that just sit there.  In the technical jargon we say the velocity of money of wealth people is almost zero.  Inflation = quantity of money relative to resources x velocity.

    If the billionaire were to give all their money to the very poor then they would most likely spend that money and it would circulate in society.   The velocity of that money would increase and inflation would increase with it.

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  • Sat, Aug 29, 2020 - 2:29pm

    #9
    climber99

    climber99

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    We live an unsustainable lifestyle.

    We live an unsustainable lifestyle based on burning the Earth's fossil fuel legacy.  As Net energy from fossil fuels peaks so will global GDP.  We have a choice, decend the down the otherside of the Gaussian curve or delay the descend by bringing future GDP forward in time.  The Fed, together with all central banks round the world, politicians and people in general support the latter policy.  Evolution dictates that we prioritise short term survival.

    Debt brings this future consumption forward in time.  As the present catches up with the future, debt goes exponencial before  collapsing .  The Gaussian curve will have been converted to a Seneca cliff.  At my age and wealth I may avoid the downward descent of the Gaussian, while the young and poor will experience the cliff edge of the Seneca.

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  • Sun, Aug 30, 2020 - 1:13am

    #10
    climber99

    climber99

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    The Seneca curve (cliff)

    Nice picture of a Seneca curve.

    "Fortune is of sluggish growth, but ruin is rapid" - Seneca 4 BC - AD 65

    He also said "Life, if well lived, is long enough"

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  • Sun, Aug 30, 2020 - 6:12am

    climber99

    climber99

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    The electric age.

    Bear in mind that the  "The electric Age" or "hydrogen economy" is fuelled predominantly by Natual gas and coal.  Solar, wind or hydro are only a small source of energy at the moment (under 15%) and themselves cannot be renewed without considerable fossil energy input.

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  • Sun, Aug 30, 2020 - 7:45am

    #12
    Barbara

    Barbara

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    REPORT ON CHINA

    CHINA beige book - interesting info

     

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  • Sun, Aug 30, 2020 - 1:45pm

    #13
    MKI

    MKI

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    Hyperinflation?

    The only personal, individual response to hyperinflation is to own bullion.

    I think the best personal response to hyperinflation is to cut consumption, build local networks, and become self-sufficient in food/energy/water (which is really not that hard)...and ride it out.

    Bullion? Not an effective response at all. Why? Because in the highly, highly unlikely event we see hyperinflation, the USA would immediately ban/outlaw/confiscate bullion on severe felony charges, making it worthless for the crisis.

    But we are nowhere near hyperinflation, and it is extremely unlikely we see it. Not even worth considering. Because again, the USA 1) has most of the gold, 2) most of the oil production, 3) most of the food, 4) tons of coal, 5) biggest military, 6) reasonable political stability. And hyperinflation really is a political event when a nation loses control of their nation's currency, and the USA is not likely to ever get near this without a world war or a lot bigger issues. The USA, due to her strengths in almost every category, is the very last nation on earth that will experience hyperinflation.

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  • Sun, Aug 30, 2020 - 2:24pm

    agitating prop

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    agitating prop said:

     

    In Canada, currently, the wealthy seem to be sheltering in the stock market and real estate. I totally agree with the deflationary forces you describe, with the exception of house prices, in desirable areas.  I don't know if the U.S. is similar, with regards real estate.

    I see the fed as attempting to extend what is essentially a pyramid scheme. When money is loaned or financed (not merely printed) into existence, a literal base requirement is stacking the bottom tiers of the pyramid with bodies that continue to borrow. This isn't just the federal reserve. One way or another it will occur, in the later stages of capitalism, through one means or another.

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  • Mon, Aug 31, 2020 - 7:01am

    #15
    Barbara

    Barbara

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    Missing middle housing VS the death of the McMansion

    Supply and demand, like the FED policies is not working for the middle.

    Another change in the housing market - not just fleeing megacities, but also elderly trying to dump their suburban McMansions as they drive less for walkable communities where you don't need to take long drives for groceries.  I love the idea of the state just overriding the local laws/deed restrictions which make it impossible to split up the lots and rent empty bedrooms.  Family owns some lots in a small town and we were able to negotiate with the city and neighbors to zone them high-end multifamily, but not single-family so the older residents could always rent a room.
    FYI, we discovered they had been zoned agricultural, but community decision was that nobody really wanted pigs and goats across the fence, while nothing about residential zoning prevents a huge garden.  There is a way to protect near-by homeowners while allowing sane development for higher density.

    https://www.cnu.org/publicsquare/2020/08/24/great-senior-short-sale-threatens-housing-market

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  • Mon, Aug 31, 2020 - 9:00am

    MKI

    MKI

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    elderly trying to dump their suburban McMansions

    The pig-in-the-python effect of the baby boom is now coming towards an end, and it's causing much (most?) of the crazy economic distortions we see today. Much of the Fed's seemingly nefarious behavior is just flailing about trying to stop these wild changes (that are inevitable).

    People forget that the crazy inflation of the 1970s was merely due to massive demand from all the boomers coming of age, while Volker's Fed kept rates high, driving that demand overseas into Japan and Europe to provide Boomers with cars and dishwashers they desperately needed. And now, it's going the other way. For example, we saw more housing starts than ever before in US history with half the population in '71. Much of the massive importing/dumping of immigrants into the US today by the PTB is merely a desperate attempt to bring in young people to prevent the inevitable economic unwinding (read: deflation). The fact the boomers had no kids is the primary driver of economics today, and they still need to sell their stuff to somebody. Rock and a hard place for the Fed. So they drive asset prices up and impoverish the boomer's grandkids. Groovy!

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  • Mon, Aug 31, 2020 - 10:54am

    climber99

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    Pyramid structure of debt.

    Totally agree with you.  I have written about the pyramid structure of money creation a few years back as a comment on Peak prosperity.

    95% to 98% of money in circulation is created as debt and needs to be paid back.  However the money gravitates up the pyramid to be hoarded by the very rich at the top of the pyramid.  This means that the people at the bottom of the pyramid can't repay the debts unless the pyramid is continually being expanded below them. Putting this another way, the base of the debt pyramid needs to constantly expand in order for the rich at the top to hoard the money and for people near the bottom not to default on the debt.

    And before anyone replies that interest money is not created they are wrong.  Interest money is created beforehand whenever banks pay for assets, goods and services, dividends, wages, bonuses etc.  Interest money is not the reason why the debt pyramid needs to expand.

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  • Mon, Aug 31, 2020 - 11:37am

    EddieLarry

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    Boomer agonizing!

    “The fact the boomers had no kids is the primary driver of economics today, and they still need to sell their stuff to somebody.“

    Hey MKI, I am a boomer with kids and can tell you they don’t want our stuff.  I could pretty easily sell my house but the stuff?  No way.  Best,

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  • Mon, Aug 31, 2020 - 12:50pm

    MKI

    MKI

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    MKI said:

    I could pretty easily sell my house but the stuff? No way.

    Eddie, good chuckle here! Amen. But just in case I'm misinterpreting your sense of humor...by "stuff" I mean your stocks, bonds, & homes (well, I will take your all-original lime green '71 Mustangs & original Led Zeppelin LPs though).

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  • Mon, Aug 31, 2020 - 4:55pm

    climber99

    climber99

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    I can't see hyperinflation either.

    I can't see hyperinflation but I can see the Fed and central banks round the world creating inflation of say between 4% and 8%.  They do this by creating debt-free money and handing it out on condition that people clear their debts first.   Helicopter money.  This erodes the debt in two ways, firstly by enabling some of the debt to paid back and secondly via inflation  At the same time it would encourage spending by savers, again in two ways, firstly directly from the free money and secondly because they see their savings being inflated away.  Gold - compulsory purchased and outlawed.

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  • Tue, Sep 01, 2020 - 4:49am

    #21

    timeandtide

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    The Fed should know better but we are all complicit in this market extreme

    The most interesting question here is why is the Fed doing what it is doing. Despite the popular idea that the Fed has the ability to hold the economy together and keep the stockmarket elevated, it has suffered three major market meltdowns since 2000. Markets rise and fall with little regard for the conceits of Greenspan, Bernanke, Yellen and Powell. Markets undoubtedly anticipate the economy with market tops usually preceding economic deterioration by 3-9 months and market bottoms preceding economic upswings by similar time periods. The economic collapse this time was virtually at the same time as the stockmarket collapse because of the instant effect of Covid-19.

    It is easy to blame economic conditions on the virus but things were looking wobbly with at least 3 steep stockmarket falls from early 2018 until the huge drop this year. If the FOMC is being unduly influenced, then it could only really be pressure from the commercial banks on each of the 12 district reserve banks because they have to own stock in those banks to be members of the reserve system. Given that rates have been effectively zero for a decade, apart from from the one attempt to raise them, I think what we are seeing is just the same herd-like behaviour as we see in the stockmarkets. The same thing has been happening all over the world. Rationality is not and never has been a prime cause for the aggregate level and direction of markets. Interest rates and stock prices are inherently uncertain and driven by the prevailing mood. We then ease our uncertainties with post-purchase or post-sale rationalisation which will be the prevailing narrative.

    Danielle's assertion that there are "no-brainer" methods of protecting portfolio is wishful thinking because although there are correlations in markets from time to time, no correlation is permanent. In other words, financila markets are always surrounded by risk and uncertainty. Ironically, she is correct in her use of the term "no-brainer" because that is exactly how most of us make market decisions. We act on deep primal urges in situations of great uncertainty. The same instincts that tell us to fight or flee. You don't sit around discussing such actions - if you see your mates running for their lives, you do the same. It's natures way of protecting us.

    Unfortunately, it is not helpful in financial markets - people tend to pile in when they see everyone else doing so, which is usually near a market top, or hold on when markets are creeping down in the hope that they will turn up to at least get them out at a better price. All the time they are looking to see what everyone else is doing, which is usually nothing much. So they stick with their weakening stock until the market panics near the bottom and they finally sell to committed buyers who drive the market back up again. We have all done that and it is incredibly hard not to because, as much as we like to think how smart we are, we are driven far more in life by basic urges rather than rational objective thought.

    So here we are looking at the most extreme market in history which we can't really explain but, being uncertainty-hating rational humans, we have to make an attempt to set our minds at rest! Astonishingly, we still hold tight to the Fed narrative. Well, it's nice to blame someone but in reality we have all been complicit in borrowing unbelievable amounts of money to indulge our desires in real estate, travel, cars, collectibles etc etc and generally holding onto the idea that "this time it's different". My point is that we are all, in aggregate, complicit in building the largest debt bomb in history and believing that nothing could go wrong. That positive and complacent mood is rapidly running out of steam now.

    Adam, have you ever approached Robert Prechter or one of his team from Elliott Wave International for an interview?

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  • Tue, Sep 01, 2020 - 9:26am

    MKI

    MKI

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    Great post timeandtide

    Timeandtide, I really agree with your post! Well written. Thanks for taking the time.

    One comment: instead of looking to Prechter for the explanation, I recommend looking to Michael Green.

    Why? Prechter's thesis has been shown to be wrong, especially over the last decade. I used to think Prechter was generally correct pre-2008, but he (nor I!) never anticipated the government's illegal and reckless response to the expected deflation (which Prechter predicted very well). But Green? Continuously correct, and his thesis has made a lot of money.

    Green's thesis? Index funds (now 40% of the market, up from 1% since 2000) are removing real-live-humans from the natural value-investing process. We can't all index off the efficient market hypothesis if there are no intelligent humans left picking the stocks. This then equates to a new, momentum-based-investing (flash-crash style market), one that must march forward irregardless of "value". Green believes most "market makers" like Buffet are cynically aware value doesn't work anymore and profiting on this and keeping mum. Myself, I've been doing likewise...but with firm stop-losses :-). In this market, it must get to unreasonable heights, and double many times from there. We haven't even started yet.

    Green also has a clear grasp of the demographic nightmare we face, and how the Fed really messed it all up, starting with Volcker.

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  • Tue, Sep 01, 2020 - 3:51pm

    #23
    Mohammed Mast

    Mohammed Mast

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    Central Bank Vomit Fraud - Keiser

    https://www.rt.com/shows/keiser-report/499567-us-central-bank-interest-rates/

     

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  • Tue, Sep 01, 2020 - 4:20pm

    #24
    Barbara

    Barbara

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    Historical debt problems and future projections

    Debt comes back to haunt us.

    https://www.youtube.com/watch?v=LlQX4fmRrpI

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  • Tue, Sep 01, 2020 - 7:35pm

    MKI

    MKI

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    Historical debt problems and future projections

    That video on national debt is pretty misleading. Notice it doesn't mention Japan, the poster child for crazy levels of debt...yet Japan is a very, very nice and productive place to live. So why leave them out? Because they have a great economy and don't fit the narrative.

    What matters regarding debt is what the debt was used for. Useful infrastructure? That's like an investment in productive stocks that may pay more than it costs. But useless consumption? C19 virus baloney? War? That's bad debt, gone forever. But it still drives the velocity of money, which may be all that is needed, like WWII - bad debt, but enough to get out of the depression.

    The idea that we "must" pay off the debt is also a joke. Remember the old saying: "If I owe you a thousand bucks, I have have problem; If I owe you a million bucks YOU have a problem." It can just be ignored or written off; that's what QE is all about. It works. Plus, if you own the money to yourself, or other nations that trade a lot with you, that's fine, as all the payments go to into your own economy and people. If it's owed to other nations? Well, then it depends on if the debtor nation needs the goodwill of the lender nation or has their own effective economy. If the latter, they can just ignore it and walk away. But wasted countries who cannot feed themselves like Greece? Well they are dependents so must pay their debts or stop the imported goods. But productive nations like the US? All we need to do is refuse to pay with little repercussion except to return our factories back to our own nation...which is where they belong, and this would be a good thing. The problem of debt is only for nations who have no effective production due to political decay or failed local economies. Basically the lazy and politically corrupt nations. The US doesn't fit (yet). Japan doesn't fit. The creditors? They will likely never get their cash back, and who cares? We don't need them, they need us.

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  • Sun, Sep 06, 2020 - 5:06pm

    timeandtide

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    MKI - Prechter's thesis proven wrong?

    Hi MKI - thank you for your kind comments. I would love to know who or how Prechter's thesis was proved wrong. I am not quite sure what thesis you are referring to. First there is Elliott Wave Theory which is not Prechter's but which he rediscovered and spread widely. Then there is Socionomics which is Prechter's theory and which does explain many aspects of human social and economic behaviour which are conveniently ignored or side-stepped by other economic theories. Where he has been wrong is in calling market tops. Almost every top that he has called has been a top for a while but then is clawed back. His calls are always based on probabilities surrounding a set of rules developed by R.N.Elliott. Prechter's great contribution to the theory has been in creating a logically consistent explanation for why Elliott Waves are real. He demonstrates how stockmarkets emulate natural systems of growth. He shows how the Fibonacci sequence is a crucial part of growth. He reverses cause and effect. He has come at his explanations with Occam's Razor and reduced human behaviour and growth to a simple dynamic which revolves around the aggregate mood being either up or down or in transition. Mood is not driven by anything. It is inherent or endogenous and does not appear to be affected or influenced by any outside force. This aspect of mood, its inability to be influenced or subject to feedback, is the part of the theory that most people find difficulty accepting. I do too because nature is full of feedback systems. However, I find the essential tenor of the socionomics thesis a better and more realistic explanation for human history than any other. I don't think there is any right or wrong about it. Like all theories it will evolve and adjust but it has not been disproven because the market has continued to rise. At the moment this only points to the far greater effect that a grand super cycle wave has on humanity as reaches an extreme of complacency.

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  • Sun, Sep 06, 2020 - 5:20pm

    timeandtide

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    MKI - historical debt problems

    Your idea that the US is borrowing from "creditor" nations is quite misleading. There are no creditor nations. The US is in a slightly different situation to all other nations in that the US$ is the world's reserve currency. The US can buy as much as it wants from other nations because it can print as much as it wants to pay for its purchases. No other nation has that advantage. President Trump lambasted the Germans over the cost of Nato without understanding that the massive US support for Europe (not just Germany) is part of the trade-off for having the reserve currency. Not forgetting that Europe is a huge market for the US too.

    US debt is essentially being borrowed from US taxpayers/citizens even though they are not actually lending directly. In other words if it all goes pear-shaped, it is US citizens who will be bailing the government out via higher taxes, loss of services and general mayhem.

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