In response to an FT article of January 23rd entitled, “The new kings of the bond market”, which suggested that banks had ceded their command over fixed income to exchange-traded funds and active portfolio traders, we responded with a riff on the sorry consequences of recent financial developments: a bromide which turned out to be singularly well-timed in view of the extraordinary upheavals suffered just a few, short weeks later:-
In the drive to prevent (viral) death by means of mass (economic) suicide, our Overlords have begun to order the cessation of activities in all ‘non-essential’ businesses.
While one can sympathise with the sentiment, it is, sadly, yet another example of the ignorant doing harm by trying to do good, since it shows absolutely no understanding of the complexity of the modern economy or of the elevated degree of interdependency which exists within it.
Markets have paradoxically both been on edge – and in the throes of euphoria – since the repo shock in mid-September, being at the same time alarmed and yet strangely reassured by the Fed’s frantic backpedalling and the $400+ billion boost to its balance sheet which this entailed. Extreme levels of overstretch are everywhere apparent.
In line with the trends – both real and monetary – whose development we have long been documenting, China’s economic situation continues its sharp deterioration. Much of this is principally domestic in origin even if patently being aggravated by President Trump’s ‘Trade War’ – something which is actually providing a not entirely unhelpful, political fig-leaf for the regime. Here, we present a short, but concentrated overview of the nation’s woes. [CLICK FOR PDF: 19-08-19 Cracked China]
Charts prepared just ahead of the June FOMC, then a detailed synopsis of the economic and financial conditions informing the July decision, prepared for TV appearances on CNBC Europe’s Squawk Box and IG-TV’s Jeremy Naylor show [CLICK HERE FOR PDF: 19-08-20 FOMC June & July]
When Fed Chairman Jay Powell cleared his throat to speak at the Council for Foreign Relations late in June, the air was one of rapt attention, fully in keeping with that remarkable feature of the Modern Age, the heed we pay to the pronouncements of men such as he.
This concludes our rehabilitation of Say’s Law with a summary of the principal Austrian School arguments against that form of capital consumption which comes about when artificially cheap and too-easily monetized credit promotes increased consumption at the same time that it is fostering an outbreak of that ‘Destructve Creation’ we call ‘malinvestment’.
Here I have considered in much more detail whether there is such a thing as a ‘Consumer’ in isolation? I ask if a person’s role as producer is not more important. I look at the part played by interest rates, capital, and entrepreneurs, as well as by the state. I argue that worship of that False God – the ‘Consumer’ – not only slows economic progress in general and encourages heavy-handed and often harmful policies of intervention but also that it leads directly to the wastefulness of Boom and Bust.
I’ve entitled this episode of Cantillon Effects, ‘Duck Hunting’, not because I have any sudden urge to blast waterfowl out of the sky, but because a number of economic canards clearly need shooting down before they can find a safe place to roost in the general consciousness and there begin to breed even more confusion than already exists.
With his latest sophomoric outpourings, Ray Dalio confirms our impression that here we have a man who is undoubtedly a first-class money-maker but who has recently quit that lucrative last in order to display his second-rate intellect by peddling distinctly third-hand ideas.