Countdown
Welcome to a new week, the last of October 2020!
Another week of markets treading water whilst awaiting the next “stimulus” fix, knowing that its coming down they pipe, for if it didn’t, well……let’s not worry about letting air out of MOAB.
It feels fitting to have a US presidential election in late 2020, same day as the Melbourne Cup, November 3rd and almost as hard to pick a winner.
2020, the year that Covid “green lit”, any and all unconventional fiscal and monetary policies as conventional, by all sides of politics.
We mean ALL sides of politics, even the current conservative Australian administration recently handed down spending, deficit and debt policies that had its “Left” Labor party rivals drooling with envy.
And currently, in the US, the current “new” fiscal stimulus package is being held up by an argument over a mere USD200b, in a (another) multi trillion dollar package.
All this is happening just as the populist “Modern Monetary Theorists” are gaining serious traction. Tearing down any remaining resemblance of fiscal restraint appears to be the primary objective. After listening to their main cheerleader this week (through Macro Voices), Professor Stephanie Kelton, we think they’ll get there. Very persuasive.
This MMT lot believe the only problem with what money printing has been done so far is the size, or more specifically, lack of “size”!!! As in not enough money printing and “stimulus”. An attractive proposition to any Bureaucrat.
So, as they make their way into the corridors of US Fed and ECB policy buildings, they’ll stretch your imagination beyond what you thought was possible. How much money can a government can truly print, WITHOUT consequence. We’re going to find out very soon. More on this to follow over the next few weeks.
As we’ve mentioned before, it’s not really who wins in the US that matters, from a monetary point of view, what matters is, for now, US treasuries still occupy the “bedrock” of the current financial system.
It’s also important to remember the contribution, for now, of the US economy to global GDP. Represented below.
The US represents 4% of the world’s population and 24.42% of GDP, according to World Bank numbers.
Unfortunately, it’s hard to watch, but the economic and ideological social divides in the US seem irreconcilable right now.
The financial policy outcome of who wins the US election should matter little to investors portfolio’s, what matters is recognition that the financial system as we’ve know it, since Brenton Woods in 1944, is in its last innings.
Add this to the, hard to watch, seemingly irreconcilable, social and ecnomic divides in the US and it makes for some worrying reading.
Investors are well advised to steel themselves for more violation of their fiscal peace and the associated response of Global Central banks to prevent any change to status quo.
Recognising key risks is essential. One key risk being written off as “manageable” by the MMT crew is inflation. The confidence of the aforementioned Professor Kelton to control inflation, from where and whence it came, is outstanding. It’s just not been done before.
Some central banks are directly warning of inflation, for example, the Reserve Bank of Australia (RBA) had this to say a couple of weeks ago, “not to increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3 per cent target band’.
So, interest rates are almost 0% and inflation is x + whatever they say it is, or whatever the increase is in your living costs?? 3%+ is ok?
How does one plan to combat this? It’s really time to think about one’s asset allocation with this background.
We are moving to a different phase now.
The very consistent message from our benevolent Central banks, particularly in NZ and AUS is we should worry about how low Gov debt is and increase it immediately.
For those feeling a little alarmed, the RBA had this chart below in a presentation from earlier this month.
We’ve got so much “catching up to do”, they say, if you want to catch Japan that is.
We also now know, from the last six months, directly injecting money into peoples bank accounts for doing nothing, has no downside. No wonder MMT is super popular.
With all this “background” above we still find it amazing how few investors own gold, let alone profitable, low cost producers.
We might touch on the possibility of gold returning, in some form, to the bedrock of this financial system in coming weeks.
For now, it’s fair to say that just about anyone can see that we stand at the doorstep of an epochal change in the global monetary system. The Great Keynesian Experiment is failing, as the monetary growth needed to service the existing global debt is finally exceeding the capacity of the system to provide for itself. Put another way, the global central banks are now permanently in a mode where only the continual and rapid creation of additional fiat currency can feed The Beast of exponential debt.
We wonder what former Managing Director of the IMF and current European Central Bank President, Madame Christine Madeleine Odette Lagarde, has to say about all this.
