What is taking place in markets right now is an irreversible sea change in the financial and economic paradigm. Modern Monetary Thermonuclear (MMT) Implosion has arrived. Not everyone got the memo.
The Trump mega deficit can no longer expand without Fed monetization. The FOMC remains entirely clueless. In absence of Fed monetization, liquidity is crashing:
The Fed rendered another quarter point rate cut today, however, more importantly, Powell expressly disavowed any connection between fiscal and monetary policy. Re-iterating the historically correct stance that Federal deficits are the domain of the President and Congress, not the Fed. That is where he is 100% wrong. The magnitude of the Federal deficit has reached proportions at which it is now tantamount to quantitative tightening on a massive scale. Which is why liquidity is collapsing.
Trump is the most profligate and irresponsible president in U.S. history, with no comparison:
"President Donald Trump, who promised during the 2016 campaign to eliminate the federal debt, has instead overseen a dramatic increase in deficits"
In order to believe that monetary policy must now finance ludicrously irresponsible fiscal profligacy requires a paradigm shift towards "Modern Monetary Theory". Helicopter money. Universal basic income etc. It should come as no surprise that the FOMC is unwilling to facilitate Trump profligacy, no matter how hard he pounds the table.
Trump's biggest mistake of his presidency was replacing the dovish Fed chief Yellen with the hawkish Powell. It was an unprecedented and shameful move to prematurely "retire" Yellen. One that will cost him the presidency.
According to Zerohedge and this article below, the brinkmanship between Powell and Trump is all about underwriting the trade war. That's no longer true. The standoff now is about financing the remainder of Trump's term in office. The trade war is merely the mechanism by which Trump coerces the Fed.
"Probably to Powell’s deep and never-to-be-expressed frustration, the Fed is setting monetary policy in a way that increases the likelihood that Trump will be re-elected next year."
Quite the contrary, by ignoring the deficit, the Fed is setting monetary policy in a way that assures Trump will not get re-elected next year. Worse than an interest rate increase, the Fed is ignoring collapsing market liquidity.
The casino action today was deja vu of August. The usual selloff and rebound back to breakeven, as Skynet ran the stops in both directions.
Trump needs the Fed on his side more than ever. Can you tell?
Trump needs the Fed on his side more than ever. Can you tell?
He knows what lever to pull:
Aside from collapsed liquidity, the question on the table isn't what's the same as last time, it's what is different from last time.
The deflation trade is spent:
This is the third time in a row that Powell said:
"Fuck Trump"
"Fuck Trump"
We are only owed so many warnings
"FedEx CEO Fred Smith is “basically implying that we’re going to import” a global slowdown"
AT&T CEO Randall Stephenson on Tuesday shares similar economic sentiments"
“I think there is a lot of whistling past the graveyard about the U.S. consumer and the United States economy versus what’s going on globally.”
“You can’t have that kind of slowdown in business investment and not find its way into the consumer ultimately.”
"Retail sales in the first half of the year were also hit by smaller tax refunds for the average taxpayer [TRUMP], trade tariffs [TRUMP], and the longest government shutdown in US history [TRUMP] "
Mind the gaps
