Authored by Economic Prism’s MN Gordon, annotated by Acting-Man’s Pater Tenebrarum,

Orchestrated Larceny

The government continues its approach towards full meltdown. The stock market does too. But when it comes down to it, these are mere distractions from the bigger breakdown that is bearing down upon us.

Prosperity imbalance illustrated. The hoi-polloi may be getting restless. [PT]

Average working stiffs have little time or inclination to contemplate gibberish from the Fed. They are too worn out from running in place all day to make much of it.  This fact accounts for the limited inkling the populace has for why there is a great prosperity imbalance between wage earners and the creams.

If there was a better understanding of the scope and scale of the orchestrated larceny being conducted, practitioners of mass money debasement would be tarred, feathered and paraded down Main Street.

This seems a small penalty for turning markets into casinos and debasing the rewards of an honest day’s work.  Instead, they preserve their misplaced stature through the backwards process of taking the absurdly simple and twisting it up into the inordinately complex.

Several months ago, roughly in mid-May, the yield on the 10-Year Treasury note briefly eclipsed 3 percent.  This prompted numerous articles – including one of our own – on the possible end of the great Treasury bond bubble.  But then, just as quickly as a pickpocket disappears into a crowded street, the yield on the 10-Year Treasury note slipped back below 3 percent.

Now, as the days grow shorter, the yield on the 10-Year Treasury note is again pushing above 3 percent, at roughly 3.22 percent.  The yield on the 30-Year Treasury note – the long bond – is about 16 basis points higher.

10-year yields are trying to get above the 3% level again – and this time it looks like they may actually mean it. [PT]

Both are trending up, though generally at a slower incline than the Fed’s technocratic increases to the federal funds rate.

Hearing Voices

No doubt, it is discrepancies like these that compel central bankers to seek metaphysical guidance.  On Monday, for example, Minneapolis Fed President Neel Kashkari did something uncommon.

The man with the crazy eyes – and even crazier ideas – went derelict from his duty of staring at daily Treasury yield  curves.  Instead, with focus and intensity, he directed his full energy into the ether.

Neil Kashkari – it is not too hard to believe that he hears voices. The main question is really: who let him out?  [PT]

From the soft banks along the upper reaches of the Mississippi River, in a moment of weighty meditation, he closed his eyes and opened his ears.  Between slow, deep breaths Kashkari heard first a whisper.  Then soon a murmur.  Before he knew it, he heard voices.  The voices of interest rates.  They were speaking to him.  Here, Kashkari shares what the voices said:

“The bond market is saying, ‘hey we’re not so sure that the U.S. economic growth is going to be very strong in future years.’”

Apparently, these divine words from the bond market, though counter to the Fed’s dot plot, have convinced Kashkari there is no need for further increases to the federal funds rate. Kashkari, without question, is an extreme economic interventionist.  He is also a crackpot.  Though he wears his burdens on his sleeve.

If you recall, as federal bailout chief, he functioned as the highly visible hand of the market.  When the sky was falling in early 2009, Kashkari awoke each morning, put on his pants, drank his coffee, and rapidly dispersed Hank Paulson’s $700 billion of TARP funds to the government’s preferred financial institutions.

Incidentally, the experience had an ill effect on Kashkari’s mental health.  Soon after, he became a hermit, took to a cabin in the Sierra Nevada Mountains – near Donner Pass – and pursued his life’s new purpose of chopping wood.  We thought we had seen the last of him.

These people were ruling the roost in early 2009 – Hank the Hunk and Neil the wood-chopper. One couldn’t have asked for a more sane couple to stuff $700 billion in taxpayer moolah down the banks’ throats. [PT]

But alas, it is impossible for true believers to amiably exit the trappings of public life for good.  After a failed California gubernatorial campaign in 2014, losing to retread Governor Jerry Moonbeam Brown, Kashkari resurfaced as Minneapolis Fed President in 2016.

We suppose this position was his reward for the abuse heaped upon him from grandstanding Senators while handing out vast sums of taxpayer dollars – your dollars – to Wall Street banks.

Are the Voices in Fed President Kashkari’s Head Speaking Lies?

Still, Kashkari’s current employment is not without merits.  He brings an odd mix of madness and clarity to the position.  In particular, he makes no bones about just what it is the Fed is doing.

Kashkari, taken at his word, is all for the perpetual bubbles that result from endless Fed induced credit creation.  This, based on his vision of monetary policy, is how to improve economic output, create jobs, and deliver a world of full employment.  Quite frankly, it is nonsense.  But at least he is open about it.

Others at the Fed make occasional ventures towards tighter monetary policy so as to later have more wiggle room to cut rates.  On Wednesday, in a Q&A with Judy Woodruff of PBS, Fed Chair Jerome Powell delivered contrary guidance from Kashkari’s.  According to Powell:

“The really extremely accommodative low interest rates that we needed when the economy was quite weak, we don’t need those anymore.  They’re not appropriate anymore.

“Interest rates are still accommodative, but we’re gradually moving to a place where they will be neutral.  We may go past neutral, but we’re a long way from neutral at this point, probably.”

The liquidity-sucking vampire Jerome Powell, shortly after rising from his coffin at dusk. Upon hearing what he recently said about the economy, we thought he may have uttered what is colloquially known as “famous last words” – but obviously, there is no such thing as “last words” for the undead. [PT]

Following Powell’s remarks, the yield on the 10-Year Treasury note jumped 15 basis points.  This notable spike brings with it several questions…

Are the voices in Kashkari’s head speaking lies?  Could a long run secular rising interest rate cycle, where the price of credit becomes more and more expensive, be upon us?

How all of this plays out is anyone’s guess.  The current American experience of debt servitude establishes that the transition to a cycle of rising interest rates will be accompanied by mass defaults.  Moreover, there is a massive 80 year buildup of public, private, and corporate debt to be purged from the financial system.

We suspect the reckoning will be extraordinarily disruptive.