Friday, 29 July 2022 — Burradoo, New South Wales, Australia

[6 min read]

Dear Reader,

Oh recession, recession, wherefore art thou recession?

Would a recession (or depression) be less distasteful if called by any other name?

2022 continues to take the world down a strange journey, with surprises around every corner.

What we’ve seen is the increasing failure of those at the helm, aka the central planners, to steer the proverbial ship away from disaster.

Not only that, but there are clear signs that these individuals may well have been the reason why society keeps experiencing problems.

Economic downturns…

Increasing wealth inequality…

Social unrests…

International conflicts…

Divided societies…

Breakdown of moral and family values…

I could go on for hours on each topic.

But today, I want to focus on the state of the global economy. The powers that be have driven society into an insurmountable level of debt, and their biggest concern now is not how to get us out of the debt pile…

Instead, they want to bring us a new definition for ‘recession’.

I kid you not. They want to gaslight people, right in front of our eyes.

Downturn, recession, depression…it’s all a game

The US is officially in a recession. Two quarters of a decline in GDP. The first quarter saw GDP decline 1.2% and last quarter it fell 0.9%.

But watch the mainstream media channels tell you this isn’t a recession.

Recession is an economic term that commands more attention than it deserves. It belongs to the halls of parliament, inside a lecture theatre, or in a press conference.

You have to go through six months of this and then wait another month to find out that you’re in it!

It’s backward looking, much like a PCR or rapid antigen tests to confirm you have some flu-like virus when you have a fever, sore throat, aching joints, and a congested cough.

I’ve never understood the obsession over reporting who’s sick. Focus on the solutions, and ones that work!

People aren’t stupid. They feel it.

Households have been tightening their belts for several months as food, housing, petrol, and heating bills have risen rapidly. I doubt there’s anyone who hasn’t found it more difficult to make ends meet in the past year.

Those who’ve lost their jobs and see their mortgage repayments rise don’t need someone to tell them it’s a recession!

If it’s been painful up until now, things could get much tougher moving forward.

Even in Australia, we’re a bit behind with interest rate rises. But we’ll catch up real soon. There’s another meeting next Tuesday.

The cause of the illness came from the treatment

The very reason for our boom-bust cycle is because we have a small group of people making decisions to dictate how the economy should work.

And they get it wrong over again.

Yesterday morning we woke up to the announcement by the Federal Reserve Open Market Committee that it would raise the Federal funds rate by 0.75%. This was in line with market consensus.

The markets rallied strongly after this announcement was made public. Our ASX 200 Index [ASX:XJO] closed almost 1% higher. It was mild compared to other markets — the NASDAQ Index rose more than 4% and the S&P 500 Index rose 2.6%.

Gold managed to rally nicely as well — trading almost US$30 higher to sit at US$1,740 an ounce (AU$2,490) within an hour after the rate rise.

And not surprisingly, cryptocurrencies led the pack. Ethereum [ETH] managed to rally more than 15%.

Contrast this with early June when the Federal Reserve raised rates by the same amount, but the market was unprepared for it.

What we’re seeing is the markets hanging onto the words of the central planners. They end up taking a wilder roller coaster ride than needed.

But who can blame them? Years of literally zero interest rates have meant it’s harder to make an honest living relying on your salary or wages. The game is in investing and speculating in some asset.

You name your poison — stocks, properties, commodities, cryptos, or derivatives.

So the central banks shift society into allocating more into speculating on capital rather than real productivity. And when speculations fail, they paper over it with bailouts, handouts, and creating new debt to keep the game going.

Now that the central banks are reducing the currency supply and calling time earlier than many expect, you’re seeing the global economy implode on itself.

All this is happening as these central bankers take turns telling the people that this rate hike cycle is to stabilise the economy and ensure there is full employment and low inflation. All while people are losing jobs, and inflation (which they claimed to be ‘transitory’) is at 40-year highs.

On the precipice of a debt bloodbath

Many Australian borrowers are now in a dreadful predicament. They were lured by cheap loans and bullish forecasts on property prices to secure their dream of owning their home.

It seemed so right at the time. After all, as recently as last November, the RBA assured us that the first rate rise would come in 2024.

If only people remembered these economists’ track record about never seeing a recession or a market crash in their lifetime! They would’ve spared themselves a world of hurt.

So the media is now echoing the anger of the people who felt duped by the RBA Board of Governors, which has left them deeply indebted. Things could get worse as the rate rises continue.

With defaults likely to become more common, could the central banks power forward to normalise the economy and then leave it to the governments to placate the masses who literally lose everything?

Or will we see them walk back from their deadly waltz and cut rates?

Or could there be a financial system collapse that we’ve never seen before?

A plague on these central planners’ houses, though many will lose theirs because of them.

I hope you’re not among the victims. If that’s the case, follow me here for an opportunity to take advantage of the imminent destruction of the fiat currency system.

God bless,

Brian Chu,
Editor, The Daily Reckoning Australia

Dear Reader,

All over the US, fights are breaking out. In the kitchen. In the bedroom. All over the place.

‘Do we have to go to such an expensive restaurant’, asks the head of the household. ‘Couldn’t we stick with Mickey D?’.

‘I just wanted to try something different…a place where we can sit down.’

‘Uh…I don’t think we can afford to sit down.’

CNBC reports: ‘Nearly half of all Americans are falling deeper in debt as inflation continues to boost costs’:

‘Nearly 40% of consumers cannot put any money at all into savings, according to a recent analysis of household financial health and readiness by the American Consumer Credit Counseling, while about 19% said they had to reduce their savings rate.’

The poor family dog. He hears the shouting and cursing…the wife yelling…and the husband using four-letter words. He sees the lamp hit the wall. But he really doesn’t know what to make of it.

Maybe she’s right; her husband is a tightwad bore. Or maybe he has a point: his wife is a spendthrift flibbertigibbet. He doesn’t know. Neither do we.

Where the buck stops

But we know who to blame. Thanks to the Fed, the poor couple has had nearly 10% of its income pruned off by inflation. And now it faces a recession. Can it refinance its house? Forget it. Can it get better jobs at higher wages? Where? Will it get another round of stimmies to fatten its accounts? Don’t count on it.

GM ‘curbs some hiring’ as profits fall by 40%.

Spotify says it’s laying off 10% of its staff.

Employers all over the country are looking carefully at their payrolls…

…while consumer prices rise.

‘Major brands keep raising prices as their costs grow’, says The Wall Street Journal. Coca-Cola, Huggies, Dove, and Big Macs — all going up ‘as costs increase for everything from wood pulp to wages’.

Meanwhile, we also discover — on the front page of the WSJ — that a ‘Beijing Spy Campaign Targeted the Fed’…what a waste of time that was. The Fed is no master mechanic, no magician, no expert technician. It knows nothing worth knowing. It produces nothing worth producing. It has no secrets nor ‘sensitive information’ worth protecting. It offers no services. It has no skill…no expertise…no insight.

Every projection it makes turns out to be wrong. Inflation, for example, turns out not to be ‘transitory’…and nowhere near the Fed’s prediction. Every idea it has — from its 2% inflation target…to its ‘neutral rate’ — is foolish. And everything it does (mostly, inflating the economy with fake money) is essentially fraudulent.

Apart from that, it is a fine organisation of wonderful people who only have the best interests of all of us at heart. And what a swell haircut Jay Powell has!

Dust to dust

The Fed has only one real tool — liquidity (cash or credit) — and only one real decision to make: add to it or subtract from it. Either pour some more liquor into the punchbowl or take the punchbowl away. Either inflate the economy with more credit (by lowering interest rates and ‘printing’ more money) or kill the credit-based expansion that has been going on for the last 40 years.

After 12 years of heavy inflating, the stock market hit an all-time high in November of last year. But then consumer prices began to rise. ‘Who could have seen that coming?’ asked the Fed. And all of a sudden, the Fed had to stop inflating. And that meant it couldn’t backstop the stock market. Instead of lowering rates, it had to raise them.

The Fed quickly realised — about five years too late — that it was ‘way behind the curve’, with its key lending rate far below actual inflation (CPI). It has been trying to catch up ever since.

The flow of money and credit is getting pinched off. Slowly. But relentlessly. Naturally, asset prices are falling…and the black crepe is coming out. Bells are ringing. Mourners are gathering. And trillions of dollars’ worth of assets have already been buried.

But it has much further to go. So as long as the Fed stays on course — with its ‘tightening cycle’ — the ‘primary trend’ will be down. And a lot of ‘wealth’ will drop dead. Stocks have further to fall. Bonds will probably go down over the next 20 years. And the real estate downturn has barely begun.

Meanwhile, inflation cuts into family budgets and sets off the aforementioned arguments. The typical household doesn’t notice or care that stocks are falling. It relies on income for its wealth, not capital gains. And incomes are falling along with asset prices.

Note to the Chinese: it’s ‘Inflate or die’. Everything else is detail.

Stay tuned...

Regards,

Bill Bonner,
For The Daily Reckoning Australia