Normal Is Not an Option

Paying for the Sins of the Past Were you forwarded this email? [Sign-up to The Daily Reckoning here.]( [Unsubscribe]( [Daily Reckoning] Normal Is Not an Option - The Fed has backed itself into a corner… - The never-ending emergency… - More apoplexy is on the way… Recommended Link [Urgent: Market Doomsday Indicator Flashing Red]( [Read more here...]( This little-known “[market doomsday indicator]( has appeared before nearly every major financial crash in recorded history. And now after years of silence, it has begun to ring out again… With some experts already predicting that we could see a dow drop of 80% or more practically overnight. Then I’m urging you to drop what you are doing and [watch this now.]( Because if you miss [this warning]( now, it could already be too late… [Click Here To Learn More]( Baltimore, Maryland April 23, 2022 [Addison Wiggin]Dear Reader, When price inflation sets in, more workers find it hard to do more than buy gas, pay their rent or mortgage, keep up with credit card debt and medical bills. According to a recent CNBC poll, one in five working Americans already runs out of money between paychecks. “The economic consequences of this are huge,” Jim Rickards commented on the report. “If you buy coffee at the grocery store instead of going to Starbucks or go jogging instead of paying a visit to the gym, then service and retail industries all around the country start to suffer.” Decreased spending habits “can be followed by layoffs at some of those outlets and even more cuts in discretionary spending as the laid-off workers tighten their belts.” We don’t need an inverted yield curve or any other fancy economic indicator to tell us the knock-on effect on the economy is a recession. What’s a Fed monetary mandarin to do? I recently interviewed Christopher Leonard, [author of The Lords of Easy Money]( to ask that very question. Can the Fed afford to raise rates to “curb” inflation? The Fed’s Weapon of Choice We began the conversation with this chart: [IMG 1] Source: Macrotrends You can quickly see the Fed’s weapon of choice in fighting economic mayhem is to drop the fed funds rate. Each gray line represents a recession — the stock market Panic of 1987, the Tech Wreck of 2000, the Global Financial Crisis in 2008 and the government-inspired economic lockdown of 2020 all led to extended periods of lower rates than the market would dictate… most recently — since 2008 — 0% to negative real rates. The Conundrum The conundrum for monetary policy enthusiasts is simply put: Leave rates too low for too long and you get massive misallocations of capital and supply chain disruptions because the cost of producing goods is not accurately aligned with the demand. You make too much stuff, it sits around in shipping containers and warehouses waiting for demand to catch up. Throw in a pandemic, you get disruptions of an epic proportion… and price inflation at or approaching historical highs: [IMG 2] As my guest pointed out, the current trajectory of price inflation looks eerily similar to the spike immediately following the breakdown of the Bretton Woods exchange rate system in 1971. And again nine years later when Paul Volker was hailed as the great champion over runaway inflation of the time. Recommended Link [Urgent Note From Jim Rickards: “You’re Running Out Of Time!”]( [Read more here...]( [Your exclusive “Pro level” upgrade to Strategic Intelligence is ready to be claimed.]( This is your chance to claim 3 exciting new benefits along with a whole new level of service. Hurry… you only have until the timer hits 0 to act. After the timer runs out, you’ll forfeit your chance to upgrade… and you may miss out. Please don’t waste any time. Just click below to see how to confirm your upgrade: [Click Here To Claim My Upgrade]( The Fed Is Caught in Its Own Trap “Today’s genius economists,” friend and fellow gloom-and-doomer Marc Faber writes in the April 2022 edition of his excellent Gloom Boom and Doom report, “tend to belittle Arthur Burns, who was Fed chair from 1970–1978,” making him Volker’s predecessor. “But to be fair to him, Burns increased the fed fund rate to 13% during his tenure. I seriously doubt today’s uneducated Fed members will be able to achieve even an increase to 3%.” That begs the question, as Faber puts it, can “the Fed possibly increase interest rates sufficiently to curb inflation without endangering the entire financial system?” The answer Marc Faber gives is a resounding no. During my discussion with Christopher Leonard on the current Federal Reserve, the so-called “Powell Fed,” we talked about not just their impotence in the face of drastically rising consumer prices, but their inability to even sell the idea of bringing rates back to historically “normal” levels. Mad Monetary Scientists “The most critical element of the Powell Fed,” Christopher says, “is that Jay Powell, when he became chairman of the Federal Reserve, inherited a project from his predecessor, Janet Yellen, and in a way her predecessor Ben Bernanke.” That is, he inherited the process of trying to, quote, “normalize monetary policy,” after years of using low rates as a monetary elixir to save the banking system and then to prop up financial markets. “The Fed in 2008, 2010, pushed down this very experimental path of keeping interest rates at zero,” says Leonard, “and then critically doing quantitative easing, which is just pumping trillions of dollars into the banking system.” Leonard continues: The entire time this is happening, it’s acknowledged within the Fed, within the top policy committee, the FOMC, that we can’t keep doing this forever. We’re creating imbalances and distortions in the market. And so we have got to start raising interest rates above zero to a historically normal rate of even 3% or 4%. While at the same time, we need to start withdrawing some of this high-powered money from the Wall Street banking system. Recommended Link [Crazy “Back Door” Way Into Alt Coins]( [Read more here...]( Virtually hundreds of tiny cryptocurrencies have shot up 1,000’s of percent over the last year... And our crypto expert James Altucher has found a weird "back door" way into these types of fast moving cryptos completely free. One that requires NO monetary investment on your end... (just a few minutes of your time). I know that sounds crazy, but it’s 100% true... James will explain everything in less than 2 minutes. [Click Here Now]( When Jay Powell walked onto the job in 2018 and inherited the process of trying to make things normal again, trying to raise interest rates to a level that’s not just normal but even low by historical standards… he’s trying to get rates back up to 3% and at the same time, trying to withdraw some of this cash from Wall Street, put in through quantitative easing. That was one of the most fascinating episodes in history, looking at what happened when the Fed really tried to normalize, so to speak, in a concentrated way in 2018: It caused the markets to short-circuit and fall. The Never-Ending Emergency The Fed haven’t built sprawling infrastructure like the Social Security Administration, we summarize Mr. Leonard, but they have, particularly over the last decade, only expanded its footprint. “In other words,” says Chris, “back in 2008, it was an emergency procedure when the Federal Reserve went out and bought mortgage bonds for the first time in the heat of the crisis in ’08. But that emergency procedure became downright routine in the following years. And since COVID, the Fed’s been buying $120 billion worth of assets a month, including $40 billion of mortgage bonds. Now it’s saying it’s going to hit the brakes. Even slowing the asset purchase program, let alone reducing it, has caused apoplectic fits (stress) in the financial system in the past: a system that has lived off the grift of Fed policy for years. Unfortunately, for all, there’s more apoplexy on the way. The only real question is how much pain the Fed is willing to allow before it starts easing again. Regards, Addison Wiggin for The Daily Reckoning P.S. My interview with Chris Leonard took us on an important journey behind the curtains of the Fed: [The Lords of Easy Money: How the Federal Reserve Broke the American Economy.]( That’s the point of The Wiggin Sessions — to help you understand the crazy world we live in. Just a few minutes of your day, each day, with The Wiggin Sessions will dramatically improve your understanding of what’s happening in the worlds of finance, the global economy, even politics (yech). To do that, I pick the brains of some of the brightest independent minds in finance. Until recently, The Wiggin Sessions were only available to the Financial Reserve — our highest level of paid readership. Now they’re available to you for free. That’s correct: for free! By clicking [this link]( you will receive a free subscription to The Wiggin Sessions and offers from us and our affiliates that we think might interest you. You can unsubscribe at any time. [Go here now.]( By submitting your email address, you will receive a free subscription to Wiggin Sessions and offers from us and our affiliates that we think might interest you. You can unsubscribe at any time. [Privacy Policy.]( --------------------------------------------------------------- Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [Addison Wiggin][Addison Wiggin]( is the executive publisher of Agora Financial, LLC, a fiercely independent economic forecasting and financial research firm. He's the creator and editorial director of Agora Financial's daily 5 Min. Forecast and editorial director of The Daily Reckoning. Add feedback@dailyreckoning.com to your address book: [Whitelist us]( Additional Articles & Commentary: [Daily Reckoning Website]( Join the conversation! Follow us on social media: [Facebook]( [LinkedIn]( [Twitter]( [RSS Feed]( [YouTube]( The Daily Reckoning is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to Paradigm Press delivering daily email issues and advertisements. To end your Daily Reckoning e-mail subscription and associated external offers sent from The Daily Reckoning, feel free to [unsubscribe here.]( Please read our [Privacy Statement](. For any further comments or concerns please email us at feedback@dailyreckoning.com. If you are having trouble receiving your Daily Reckoning subscription, you can ensure its arrival in your mailbox [by whitelisting The Daily Reckoning.]( [Paradigm Press]© 2022 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized financial advice. We expressly forbid our writers from having a financial interest in any security they personally recommend to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of a printed-only publication prior to following an initial recommendation. Any investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. Email Reference ID: 470DRED01[.](