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Swamponomics: Goodbye Sound Money, Hello Price Inflation?


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Swamponomics: Goodbye Sound Money, Hello Price Inflation?

In November of 2020, President Donald Trump signed an executive order that prohibited American investments in firms that are either owned or controlled by the Chinese military. The president’s order stated that the People’s Liberation Army (PLA) poses a threat to the United States by exploiting America’s capital, which it has been doing through a plethora of ways that do not include an invading army.

Straight Outta NYSE

The New York Stock Exchange (NYSE) announced that it would delist China Mobile Ltd., China Telecom Corp Ltd., and China Unicom Hong Kong Ltd. sometime between January 7 and January 11. These telecommunications businesses do not generate revenues, nor do they have operations in the U.S. The only type of presence the companies have in the U.S. is that they are listed on a stock exchange.

It is a major blow to China Mobile, a $117 billion company that has been on the NYSE since 1997. Its initial public offering (IPO) more than 20 years ago was also historic because it signified a new era of globalization in capital markets. That said, Beijing has threatened to retaliate by coming up with a blacklist of U.S. companies. It is unclear if this escalation in tensions would affect the phase-one trade agreement between China and the U.S.

Peak SPAC Hysteria?

Just how crazy has the blank-check frenzy become on Wall Street? It may have reached peak hysteria.

Netflix has produced an ultra-successful series called The Queen’s Gambit. It is about an orphaned chess prodigy who aims to become the greatest chess player in the world during the Cold War era. So, would you invest in a company named after the smash-hit television series?

Queen’s Gambit Growth Capital made quite the buzz in the business world. The special purpose acquisition company (SPAC) – a shell company that only exists to buy another business – is trying to raise $225 million. Before you laugh, the SPAC is registered with the Securities and Exchange Commission (SEC). According to its S-1 description:

“A blank check company newly incorporated as a Cayman Islands exempted company for the purpose of effecting a merger, amalgamation, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities, which we refer to throughout this prospectus as our initial business combination.”

If you ever launch a SPAC, the best name for it would be Seinfeld, since these blank-check companies are all about nothing anyway. Or, if you want to piggyback off some other pop culture phenomenon, why not Tiger King SPAC or some other Netflix hit?

The Year of Our Lord and Savior: The Money Printer

As Liberty Nation regularly reported over the last nine months, 2020 was the year of the printing press. Federal Reserve Chair Jerome Powell ignited the money printer go brrr blitzkrieg, allowing the machine to run overtime in the vaults of the Eccles Building. From an explosion in the money supply to a spike in the balance sheet, the U.S. central bank was flexing its muscles like two wrestlers in World Wrestling Entertainment (WWE). But just how much did the Fed print this year?

Here is a look at the Fed’s M2 money stock data beginning from March:

The Fed’s balance sheet has stabilized after topping $7 trillion, but it is still growing gradually. When it slipped, the market reacted negatively. With Powell and Co. poised to maintain unlimited quantitative easing and historically low interest rates, the balance sheet will inevitably balloon in 2021. Take a gander at the current balance sheet:

Powell told both reporters and Congress that the Fed is not out of ammunition and that it can fire the bazookas anytime it needs to during and after the COVID-19 pandemic. He said at a press conference following the November Federal Open Market Committee (FOMC) policy meeting:

“When I say we’re not out of ammo, I’m looking at a couple of our tools, mainly, as I mentioned, the asset purchase program. There’s a number of dimensions in which we can adjust that if we deem it to be appropriate. Right now, we like the job it’s doing. If the facilities are extended, we could certainly look at new facilities. If things deteriorate, that would be the case where you’d want to maybe continue the facilities and maybe change them, and maybe you have new ones.”

Indeed, the Fed still has options at its disposal, mainly introducing subzero interest rates and buying stocks. But will the central bank employ these extraordinary measures when the next economic collapse paralyzes the United States stock market and the broader economy? The Fed’s newest mandate – or so it seems – is to do whatever it takes,  à la former European Central Bank (ECB) chief Mario Draghi.

But this mandate has been adopted by central banks worldwide. According to the Bloomberg Global Money Supply Index, the supply of money in 12 of the world’s biggest economies has exploded by $14 trillion to more than $90 trillion over the last year.

Goodbye, any semblance of sound money. Hello, consumer price inflation!

~

Read more from Andrew Moran.




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