It’s ALIVE I tell you

And so it all begins looking a lot more familiar. The Fed may tighten interest rate policy, but the front loaded stimulus will be felt for years to come regardless. The real question for the markets after a correction is how to stabilize the money flows. The Fed, the Garden Hose and the Swimming Pool…

In the proposed melt-up, how does the system create these maladjustments in order to fuel runaway speculation (after working so well for so many years to induce programmed growth). One catalyst for a melt-up is share buybacks, or reducing the size of the stock market float, while the money supply in aggregate expands. Normally companies suspend their plans to buy back shares when either economic conditions deteriorate, or earnings decline.

There is a secondary effect when foreign central banks buy US shares and hold them (closely) on their balance sheets. The low volume on this selloff suggests the owners of their stock are not offering them up for sale. The market is merely repricing the product, without the annoying laws of supply and demand entering into the picture.

At present both conditions are anticipated, a recession, and pressure on earnings while the wage price spiral courses through the system. For decades asset inflation did not spill over into CPI, and now it is thought, somewhat absently, that rising CPI will not affect asset inflation, or the wage price spiral is necessarily deleterious to corporate earnings.

While the US restores businesses which were off-shored, the labor market should remain tight and economic growth robust, and inflation persistent. There are two caveats to that, one being a long period of immigration suppression. Republicans complain about illegal immigration even while the numbers are very low compared to a decade ago.

The high media visibility of asylum seekers, people who really NEED to get out, not just those looking for work, distorts the public perception. And there is another element to this I want to explore, the notion that former immigrants are now disembarking, fleeing to their home countries amid the chimera of out of control violence, the threat of political revolution, and higher prices for consumer goods in America. Since most of them came here the conditions in their home country have improved and the quality of life back there is much slower, and more secure, and more family oriented.

The error of the economists ways seems obvious, the initial effects of globalization were to lower wage costs for corporations, Those differences began to smooth out. (The age of Colonialism waned) Then the crypto currency market figured out a way to bypass the corrupt forex system, and that has an effect as well, moving money across borders in ways that will commoditize global wages, (at the very moment robotics does the same thing) bringing global living standards a bit closer than they were. The US meanwhile needs to add jobs to restore it’s fractured domestic supply chain. The spread between CPI and asset inflation is narrowing, and the correlation between the two is direct. Should the wage price issue continue that will lift stock prices as well.

There is a lot more of course. The big question when you predict a Melt-Up is when? The 1987 crash did not fool many experts. In 2000 the combined elements of a brokered election, Y2K, and the terrorist attack worked to erod confidence. In 2008 the economy was strong, and the housing market (ostensibly) leveraged the markets downward. Now by analogy we have Covid, the insurrection, and the leveraged crypto market and the monetary base is three times larger than it needs to be, albeit to cushion the blows.

That massive money supply number feeds into inflation, of course, and the Fed’s puny efforts to walk back some of it are making a very small dent in the problem, while Republicans revert to their fiscally conservative ways. The auguries of social conservatism, would be to reduce economic growth through diminished government debt. They are committed to a method of accounting their spiritual leader would never countenance on his own portfolio. While new debt issues decline competition increases.

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