Washington Spenders, Wall Street Gamblers—Bad Spawn Of The Money-Printers

There can no longer be any doubt that the Federal Reserve is wreaking havoc with economic rationality on both ends of the Acela Corridor. There is an absolute fiscal and monetary trainwreck coming down the pike at full speed ahead, but—

• Washington is actually pretending that even the phony spending caps and stale budget authority cancellations being proposed by the GOP is going too far on the fiscal retrenchment front;

• Wall Street is again bidding-up a vastly over-valued stock market and trading the benchmark 10-year UST at the absurd level of -250 basis points after inflation.

In a word, the Fed has destroyed the price signalling mechanism of the financial markets. That enables Washington to borrow monumental sums from future taxpayers with heedless insouciance, while the Wall Street casino takes leave of anything that even remotely resembles the economic and financial fundamentals

In this context, even the Fed’s recent conversion to inflation-fighting is badly tainted. In November 2021 the financial markets were in screaming bubble mode, with the S&P 500 at 4700, the 10-year yield at 1.5%, bitcoin at $70,000 and the CPI already at +6.8% on a Y/Y basis (black line).

So any minds not clouded by Keynesian catechism and confirmation bias ( i.e. inflation is “transitory”) would have thrown on the monetary brakes long before the November 2021 bubble peak.