Will Liquidity Work?

Since the 70’s we have been treated to central planners planning our centrals. In the 60’s we had a recession that grew into the inflation of the 70’s which grew into the inflation of the 80’s. The inflation of the 70’s was attempted to be controlled by a command economy, for example you could buy gas on alternate days. Didn’t work. What we got was stagflation. In the 80’s interest rates went to 18% It broke the back of inflation. It nearly broke the country. 18% is what slopped up the excess liquidity. It was effectively the top of the mountain and we have been sliding back down that mountain since 82. We are now at 0, and once again we are flooded with liquidity.

Everybody and his brother is going to be begging for a bailout. Everybody has been practicing bad business practice except maybe Buffet and now when the piper wants paid they want YOU to pay to make them whole. You are inclined to let them because you own part of the bad business practices and their bailout is your bailout, but its stupid to bailout if the bailout doesn’t work. The central banks have no mojo. Bernake and Jellen have destroyed the world and Powell is following suite. It’s all politically driven at this point. Sending people checks won’t help.

We have been under a state of monster inflation for a long time. That inflation has expressed itself in the stock market. When a market moves over 100% off trend in a positive direction either the universe changed or the positive movement is inflation. 3394 was the peak and the inflation is now in deflation. What will happen next IMHO is we will over deflate and re-inflate again except it won’t be in stocks it will be in commodities. We will see the inflation there. We will see it in the price of bread and gas not in a return to 3394.

I read this account from a respiratory therapist treating COVID in NOLO. This is an experienced guy on the front line. RT understands lung disease cold. If I was the brain RT were the skilled hands who made my will happen in the patients life and they have my respect.

Covid-19 RT experience This article should give you some idea of what we are facing in the 20% who have a bad course. According to Cuomo, who has well over 10,000 diagnosed cases, 50% of his infected that are critical are under 50. So if you’ve been playing the odds that this is an old peoples disease and granny lived a good life, you might want to re-access your odds.

Regarding inflation v liquidity. Liquidity is what pumps inflation. So when Mnuchin writes you a check, the price of a loaf sooner or later is going to 10 bux a loaf. Stick that in the risk hopper as well. In 1980 I bought a house and my mortgage was around 12%. That really happened. Do you think you could own property at 12%? Do you think your kid could? Do you think your kid could buy your house at 12%? What does it take to break the back of inflation? What does it take to climb back up the mountain?

4 Replies to “Will Liquidity Work?”

  1. I do not understand the logic behind the government sending checks to people. The people that lost their jobs get unemployment payments, why not just make those payments a little bigger?
    Do you think the government can survive a 26+ trillion dollar deficit, being that they are willing to add another 2-4 trillion to prop up the economy for this?

    We have a friend that lives in San Francisco and she is telling us about the large parties that are still going on with young people pouring in and out of the houses. We will not win the war against this virus and shutting down our economy will not work for Americans do not listen. The self righteous attitude of so many will keep the virus spreading. This will last a long time.

    1. We are far more in debt than those numbers imply. Virtually all of the pensions are underfunded. Except for stock buybacks and 401K accumulators, worldwide entities have been selling out from equity risk for 2 years. Family offices hold more cash than ever. Buffet is sitting on more cash than ever. Apple has a ton of cash. If accumulators quit accumulating, the market will find a bid at a much to a much much lower price and re-establish liquidity, and that price where liquidity is re-established will be the new reality. You may wish for the halcyon days of yesteryear but your wishes won’t do the dishes. The reason the government sends out checks is because they can. It’s a kind of vote purchasing program in an election year. In the end I think it will do more harm than good, but I guess to stay in power you have to scale the hill in front of you and worry about the mountain later or maybe never.

      There is no war against the virus. There is only a war against how quickly it spreads. The virus will come regardless and its coming will be relentless. We are presently suffering under the illusion of control

  2. mdonfire
    Thank you for providing a view that is contrary to “the herd”, but much needed in my opinion. I also believe that the economic expansion and the bull market hasve been long in the tooth. Unfortunately, what we are now seeing is that vast parts of our citizenry are stretched thin financially. It is sad to see how many have very little savings to fall back on. I do lay part of the blame on the the expansionist policies of the Federal Reserve, and the government who had encouraged it’s citizens to spend, spend, spend like there is no tomorrow. Now, it appears as if Big Business, Wall Street, Congress, and our Federal Government are all concerned that the excess is unraveling and exposing just how fragile the economic situation really is.

    1. It’s not just our FED but every FED. The FEDS everywhere would like to monetize their debts on the back of the citizen using inflation. The idea is to move half your money on your balance sheet over to their balance sheet over the course of 50 years and they somehow believe they can control that. The bailout bill proves they can not. They created the bubble through hyper excessive liquidity which corporations used to lever up their share prices. I’m not sure where it’s going to go but I think it unlikely it’s anywhere good. Powell claims he will do what it takes What it will take is to raise interest rates when deflation is complete and inflation has taken firm root

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