Charles Hugh Smith: What if the “Black Swan” of 2023 Is the Fed Succeeds?

If the Fed succeeding is a “Black Swan,” bring it on.

What if the “Black Swan” of 2023 is the Federal Reserve succeeds? Two stipulations here:

1. “Black Swan” is in quotes because the common usage has widened to include events that don’t match Nassim Taleb’s original criteria / definition of black swan; the term now includes events considered unlikely or that are off the radar screens of both the media and the alt-media.

2. The definition of “Fed success” is not as simple as the media and the alt-media present it.

In the conventional telling, the Fed made a policy mistake in keeping interest rates and quantitative easing (QE) in place for too long, and now it’s made a policy mistake in reversing those policies. Huh? So ZIRP/QE was a policy mistake, OK, we get that. But reversing those policy mistakes is also a policy mistake? Then what isn’t a policy mistake? Doing nothing? But wait, isn’t “doing nothing” maintaining ZIRP/QE or ZIRP/QE Lite?

This narrative makes no sense.

The other conventional narrative has the Fed’s policy mistake as tightening financial conditions, a.k.a. reversing ZIRP/QE, too much too quickly, as this will cause a recession. OK, we get the avoidance of recession is considered “a good thing,” but aren’t recessions an essential cleansing of excessive debt and speculation, i.e. an essential part of the business cycle without with bad debt, zombies and malinvestments build up to levels that threaten the stability of the entire system?

Yes, recessions are an essential part of the business cycle. So avoiding recessions is systemically disastrous. So according to this narrative, the Fed should “do whatever it takes” to avoid recession, even though a long-overdue recession is desperately needed to cleanse the deadwood, bad debt, zombie enterprises and speculative excesses from the system.

So this narrative is also nonsense.

A favored narrative of the alt-media is that debt levels are too high and the Fed jacking up rates will crush the economy so badly it will usher in Depression and TEOTWOWKI (the end of the world as we know it). OK, we get that debt service (interest payments) rising will pressure households, enterprises and governments, but again, isn’t the discipline of capital actually costing something an important feedback in a healthy economy?

The correct answer is yes. Without the discipline imposed by capital actually costing something meaningful, then you end up with the orgy of borrowing, malinvestment, corruption and speculative excess that is currently undermining the long-term stability and vitality of our economy.

So this narrative is also nonsense. Fearing the cost of capital might crush excessive borrowing, malinvestment, corruption and speculation is to cheer on the collapse of an economy hollowed out by the near-zero cost of capital.

If higher rates disintegrate zombies (entities living off reducing debt service by refinancing debt at lower rates), that’s a good thing, not a bad thing. If marginal borrowers who were going to default anyway can no longer borrow more, that’s also a good thing. If malinvestments that only made sense with zero-cost capital are no longer funded, that’s a good thing, not a bad thing.

Another narrative has the Fed tightening financial conditions with the intention of destroying the labor market as the means to reduce inflation. OK, we get that higher wages are increase the costs of employers, but what about the past 45 years of wage suppression (See chart below) during which capital siphoned $45 trillion off of labor?

READ MORE HERE

By Published On: January 10, 2023Categories: UncategorizedComments Off on Charles Hugh Smith: What if the “Black Swan” of 2023 Is the Fed Succeeds?

Share This Story, Choose Your Platform!

About the Author: Patriotman

Patriotman currently ekes out a survivalist lifestyle in a suburban northeastern state as best as he can. He has varied experience in political science, public policy, biological sciences, and higher education. Proudly Catholic and an Eagle Scout, he has no military experience and thus offers a relatable perspective for the average suburban prepper who is preparing for troubled times on the horizon with less than ideal teams and in less than ideal locations. Brushbeater Store Page: http://bit.ly/BrushbeaterStore

GUNS N GEAR

Categories

Archives