Today, the PPI Final Demand YoY index printed for October was it was still agonizingly high at 8% YoY (The Fed likes to see 2% for inflation).
True, PPI Final Demand YoY is down from its recent peak of 11.7% YoY in March. But notice that M2 Money YoY (liquidity) has collapsed following the Covid surge (green line).
Then I have this update on Sam Bankman-Fried of FTX and Alameda Research notoriety.
As Sam Bankman-Fried’s crypto empire imploded last week, costing him effectively all of his $15.6 billion fortune, other digital-asset billionaires sought to make clear that their steep losses in 2022 wouldn’t be similarly fatal.
Cameron Winklevoss, 41, who along with his twin brother Tyler founded cryptocurrency exchange Gemini, posted an 11-part series of tweets emphasizing that Gemini “has no exposure to FTT tokens or Alameda and no material exposure to FTX,” referring to Bankman-Fried’s trading house and crypto exchange.
And despite Spam Bankman-Fried’s disaster for his investors like Tom Brady, Steph Curry and the Democrat party, the crytpo market has done some recovery with most cryptos this morning.
The evidence from the last thirty years is clear. Keynesian policies leave a massive trail of debt, weaker growth and falling real wages. Furthermore, once we look at each so-called stimulus plan, reality shows that the so-called multiplier effect of government spending is virtually inexistent and has long-term negative implications for the health of the economy. Stimulus plans have bloated government size, which in turn requires more dollars from the real economy to finance its activity.
As Daniel J. Mitchell points out, there is evidence of a displacement cost, as rising government spending displaces private-sector activity and means higher taxes or rising inflation in the future, or both. Higher government spending simply cannot be financed with much larger economic growth because the nature of current spending is precisely to deliver no real economic return. Government is not investing; it is financing mandatory spending with resources of the productive sector. Every dollar that the government spends means one less dollar in the productive sector of the economy and creates a negative multiplier cost.
When society decides to use a certain part of the resources generated by the productive sector for non-economic return activities, be it social spending or mitigation of threats, it can only do it by understanding how much of the productive capacity of the economy is able to sustain a larger cost. When costs are not considered as a burden, but considered as entitlements that can only grow, the productive capacity is not strengthened, but weakened.
The main problem of the past decades, but particularly since 2008, is that government spending and monetary policy have become solutions of first resort to any slump in economic activity, even if that decline was created by government decisions, such as shutting down the economy due to a health crisis. Furthermore, government spending increases and loose monetary policy continued even in growth periods. This, in turn, creates an unsustainable public deficit that needs to be monetized or refinanced. Both mean a larger harm for the productive sector as the debt increase leads to higher taxes for everyone but also a soaring cost of living coming from the destruction of purchasing power of the currency.
Government spending does not boost private sector activity, even less so when the entire budget is spent on non-investment outlays. It is even worse when citizens believe that infrastructure or real economic return investments should be conducted with taxpayers’ money. If an investment is productive and economically viable there is no need to involve the government. At best, the government should only participate as a co-investor, as the example of technology and defence shows, but never as a resource allocator for a simple reason. Public intervention is always aimed at perpetuating the existing inefficiencies and maximizing the budget. Efficient resource allocation cannot come from entities that have a core interest in expanding the budget and always perceive any inefficiency or poor result as the consequence of not having spent enough.
Yes, US public debt has exploded, particularly since the 2008 financial crisis and then again the Covid outbreak of 2020.
And inflation is near a 40-year high.
Then we have 19 consecutive months of negative wage growth in the US.
Biden is apparently doubling down on “Green Schemes” now that the US House of Lords (aka, Senate) remain under Keynesian control (aka, Democrat). So watch for inflation to start increasing again.
What do Bernie Madoff and Sam Bankman-Fried have in common? Greedy investors who apparently didn’t bother to monitor what was going on.
Yes, had they monitored FTX, Bankman-Fried’s company, they would have noticed that FTX held less than $1bn in liquid assets against $9bn in liabilities.
Generally, with buyer beware, the onus falls on investors to monitor what is going on. But The Fed’s completely dropped the ball on Bernie Madoff where investors didn’t seem at all curious about earning supercharged returns. The same is the case for FTX.
FTX had partnered with Ukraine to process donations to their war efforts within days of Joe Biden pledging billions of American taxpayer dollars to the country. Ukraine invested into FTX as the Biden administration funneled funds to the invaded nation, and FTX then made massive donations to Democrats in the US.
The SEC’s Gary Gensler blew it again. After his agency failed to warn investors about Terra and Celsius—whose collapses this spring sparked a trillion-dollar investor wipeout—the Securities and Exchange Commission chair allowed an even bigger debacle to unfold right under his nose. I’m talking, of course, about the revelation this week that the $30 billion FTX empire was a house of cards and that its golden boy founder, Sam Bankman-Fried, is the crypto equivalent of Theranos’s Elizabeth Holmes (Stanford University is where Holmes was an MBA student and Stanford Law School is where both SBF’s parents are professor).
To be fair, Gensler was not the only one suckered by SBF. Nearly everyone else fell for the narrative that SBF, with his cute afro and aw-shucks demeanor, was exactly the savior crypto needed to shake off its dodgy reputation and emerge as part of the mainstream financial system. The problem is that cop-on-the-beat Gensler not only failed to spot the crime—he appeared set to go along with a legislative strategy that would have given SBF a regulatory moat and made him king of the U.S. crypto market.
While it is easy to blame Gensler, the onus still falls on investors (and their managers) to MONITOR. Buyer beware.
What will happen to Sam? Likely nothing. He is a golden child of Democrats and was the second biggest donor to Biden and the Democrats after America-hating George Soros. Just like Biden’s son Hunter will never pay for his many inappropriate antics, I doubt that Merrick “Double Standard” Garland will do much to Sam.
Steph Curry, Shaq and Tom Brady should fire their investment advisors and possibly sue then for failure to monitor. No one noticed $1bn in assets against $9bn in liabilities??
The Fed’s favorite yield curve measure, the implied yield on 3-month T-Bills in 18 months less the 3-month T-bill yield has inverted. Note that this curve inverts prior to a recession.
The new face of reckless Fed policy and Federal spending. 19 straight months of negative REAL earnings growth as America re-elects the same irresponsible fools that are turning the US into Venezuela.
Former Obama economist and Harvard University President Lawrence Summers says that the FTX meltdown whiffs on an Enron-like scandal.
“A lot of people have compared this to Lehman. I would compare it to Enron,” Summers told Bloomberg Television’s “Wall Street Week” with David Westin. “The smartest guys in the room. Not just financial error but — certainly from the reports — whiffs of fraud. Stadium namings very early in a company’s history. Vast explosion of wealth that nobody quite understands where it comes from.”
Lehman, Enron? How about Solyndra, one of the biggest political boondoggles in US history.
About two years after the Obama administration co-signed $535 million loans to Solyndra, the company filed for bankruptcy on September 1, 2011. A 2015 report from the Department of Energy found major flaws in Solyndra’s business practices and claimed the company made “inaccurate and misleading” statements to obtain the loan guarantees, and also found fault with Department of Energy oversight.
Which brings us to FTX and Sam Bankman-Fried (the son of Stanford law professor Barbara Fried and co-founder of the political fundraising organization Mind the Gap, which advocates for progressive political candidates and funds get-out-the-vote groups). Sam Bankman-Fried was a big Biden donor. What are the odds that The Federal government will impartially investigate SBF and the FTX fiasco? ZERO!
Why did FTX run into trouble?
FTX has a native cryptocurrency token called FTT, which traders use for operations like paying transaction fees. Last year, Mr. Zhao sold his stake in FTX back to Mr. Bankman-Fried, who paid for it partially with FTT tokens.
On Nov. 2, the crypto publication CoinDesk reported on a leaked document that appeared to show that Alameda Research, a hedge fund run by Mr. Bankman-Fried, held an unusually large amount of FTT tokens. FTX and Alameda are meant to be separate businesses, but the report claimed that they had close financial ties.
Binance announced on Nov. 6 that it would sell its FTT tokens “due to recent revelations.” In response, FTT’s price plummeted and traders rushed to pull out of FTX, fearful that it would be yet another fallen crypto company.
FTX scrambled to process requests for withdrawals, which amounted to an estimated $6 billion over three days. It seemed to enter a liquidity crunch, meaning it lacked the money to fulfill requests.
How did Binance intervene?
On Tuesday, Binance said it had reached an agreement to bail out FTX by buying the company. But, Mr. Zhao added in the announcement, “Binance has the discretion to pull out from the deal at any time.”
In a concurrent announcement, Mr. Bankman-Fried said the deal would protect customers and allow FTX to finish processing their withdrawals. He attempted to dispel rumors of conflict between FTX and Binance, adding, “we are in the best of hands.”
His last quote made me laugh.
Bitcoin plunged another -6% today as gold (gold line) and the S&P 500 (yellow line) rose. Moral to the story? Nothing has been the same since The Fed started tightening.
All cryptos are down today (except Litecoin). The three biggest, Bitcoin, Ethereum and Binance Coin are all down over 5%.
Why does Sam Bankman-Fried remind me of the late John Belushi?
Now that the midterm elections are over (except for counting of million of mail-in ballots, a massive moral hazard risk), President Biden has proclaimed that he isn’t changing any of his horrid policies. And apparently, neither is The Federal Reserve.
According to Real Clear Politics, the generic Republican polling data FAVORABLE (red line) is at 47.9% while Democrat polling data favorable polling data (yellow line) is at 45.4%, advantage Republicans.
Biden has been a disaster as President (energy mandates, Afghanistan debacle, endless funding of Ukraine, highest inflation in 40 years, and every time he opens his mouth. But it is the “kitchen table” issues where Biden is getting clobbered: inflation, rising gas, food and diesel prices. One Democrat Congressman, Sean Patrick Maloney, said “Let them eat Chef Boyradee.” I can’t believe how tone deaf some politicians can be.
Biden’s UNFAVORABLE polling numbers (orange line) are directly related to the US headline inflation rate. Inflation was 1.4% YoY when Biden became President and it is now 8.2% YoY (blue line).
The US midterm elections are Tuesday. I was denied an absentee ballot for some reason, but I will get my disabled body over to the local precinct to cast my ballot.
Fortunately for Democrats, the next inflation report is not due out until November 10th. Because the forecast for the next inflation report is ugly.
Headline CPI YoY = 7.9%
Core CPI YoY = 6.5%
These numbers are slightly lower than the last inflation report, but Americans are still suffering mightily under Biden’s Reign of Error.
Diesel fuel prices, the lifeline of the food industry, is up 102% under Biden’s mandates with the inventory of diesel fuel down 36%.
Inflation is relentless like Jason from Halloween.
Ever since the financial crisis of 2008 and the election of President Obama and a Democrat Congressional sweep, the US has embraced Modern Monetary Theory (MMT or borrow, print and spend without consequence). And between the financial crisis and the Covid crisis of 2008, we have seen an increase in US public debt from $10.7 trillion in Q4 2008 to a staggering $30.6 trillion as of Q2 2022. That is a staggering increase of 186% in only 14 years.
How about US Money stock? M2 Money stock has grown by 162.5% since the beginning of 2009 and the “Blue Wave” of 2008. And nothing has been the same.
The Covid outbreak in early 2020, we saw Fed money printing that has never seen before … or since. But one thing is for sure, M2 Money Velocity (GDP/M2) is near all-time lows.
Then we have headline US inflation as a function of M2 Money growth YoY.
And it is the midterm election “silly season” where no politician will discuss the complete and utter mess they have made. According to US Debt Clock, US national debt is already up to $31.26 trillion (OMG!), but the REALLY scary number that not a single politician will address is UNFUNDED LIABILITIES OF $172.4 TRILLION.
Can we go back to the gold standard? Or silver standard? Or ANY standard for that matter??
Instead, we have porous borders and patently UNSOUND money, thanks to MMT.
Confounded Interest - Anthony B. Sanders 
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