Recently, there has been a parade of central bankers along with their lackeys on Wall Street coming on the financial news networks and desperately trying to convince investors that there are no bubbles extant in the world today. Indeed, the Fed sees no economic or market imbalances anywhere that should give perma-bulls cause for concern. You can listen to Jerome Powell’s upbeat assessment of the situation in his own words during the latest FOMC press conference here. The Fed Chair did, however, manage to acknowledge that corporate debt levels are in fact a bit on the high side. But he added that “we have been monitoring it carefully and taken appropriate steps.” By taking appropriate steps to reduce debt levels Powell must mean slashing interest rates and going back into QE. The problem with that strategy being that is exactly what caused the debt binge and overleveraged condition of corporations in the first place.
Mike Gleason: David, we had you back on at the beginning of the year and you shared some amazing insights on palladium, and we’ll get to that in a bit because that market is still very interesting. But first off, you’ve been watching the Fed balance sheet closely here and I wanted to get your comments about that to begin with. Now, after the extraordinary expansion, which followed the 2008 financial crisis and a few rounds of QE, the Fed began contracting the money supply in 2017. You’ve been making the case that the withdrawal of liquidity could trigger another catastrophe.
So, let’s start with the basics here. If you would, please explain the history of the Fed’s balance sheet, and why it is something investors should be carefully watching.
David Jensen: Yeah, I think that the root of it all, the reason we’re watching so closely is the tremendous imbalance between the amount of cash, liquid cash that’s in the system versus the amount of debt. And the Fed has run interest rates from around 20% in 1980 down to 0% or 0.25% here a couple of years ago. And what they’ve done is expanded the greatest debt bubble in history. The total debt in the U.S., now on all levels according to the Fed’s flow of funds report is about $72 trillion. And to serve as that $72 trillion of debt that’s in extent, there’s only $14 trillion of liquid currency in deposits and in physical cash. So, what we’re seeing now is that the Fed needs to continually to expand the money stock with the money supply. The money supply is the annual change or the addition to the outstanding money stocked addition to the $14 trillion that’s out every year. And they need to add a substantial amount so that the debt can be serviced and so that the economy can continue to move forward.
As investors reset their clocks to accord with the end of Daylight Savings Time, they may also need to reset their expectations for future returns.
A strong body of research suggests that artificially changing the time twice a year – forward, then backward an hour – does more harm than good. It leads to sleep disruptions, heightened stress, missed appointments, wasted time (ironically), and a diminishment of productivity around these biannual time changes.
As reported in HeadlineHealth, “Circadian biologists believe ill health effects from daylight saving time result from a mismatch among the sun ‘clock,’ our social clock – work and school schedules – and the body’s internal 24-hour body clock.”
That mismatch can have dire consequences: “At least one study found an increase in people seeking help for depression after turning the clocks back to standard time in November.”
The music died many times in the past. To name a few:
- 1929 Market crash
- 1933 President Roosevelt confiscates citizen gold and declares it illegal to own more than a few ounces.
- 1971 President Nixon “closed the gold window” and severed the last link between the devaluing dollar and gold.
- 1987 Stock market crash
- 2000 Stock market and “dot-com” crash
- 2008 Stock market and housing crash
- 2019? Stock market and “everything bubble” correction/crash
- 2020-2025? “Inflate or Die” QE, bond monetization, helicopter dollars etc.