Narrative Investment

The sunk cost fallacy is the belief that prior commitment to some action requires continued commitment in order to regain the prior investment. Another way of stating this is throwing good money after bad. You invested in a project that is not going well but you keep putting money into it thinking that success will not only justify the next investment but recoup the prior investment. Despite this being a well know error, even very smart people fall into the sunk cost trap.

That may be something we are seeing with the Federal Reserve. Back when prices started to edge up, they created a narrative that explained the rising prices as the result of supply chain issues. Those supply chain issues were caused by the crackdowns during Covid that closed down the global economy. The narrative said that once the crackdowns ended, the supply chains would eventually return to normal and prices would then return to normal as well.

For reasons that no one has bothered to explain, this narrative was extremely attractive to the political class. They loved this story. The most likely reason it was so appealing is it promised them a triumph without effort. There would be a period of inflation then prices would re-normalize and they could take credit for it. They invested in this narrative based solely on future gains. Maybe this is why the Federal Reserve stuck with this story. It took pressure off of them.

We will never know why they invested in this crackpot idea but we can guess as to why they are continuing to invest in it. Even though they have stopped with the “transitory” messaging, the actions of the central bank make clear they still believe. Raising rates by three quarters of a percent is not a bold move. Given that we have double digit inflation and a global energy crisis, it is a grudging move. They still believe inflation is transitory but are raising rates for other reasons.

Maybe one reason they are sticking with the narrative is the markets seem to be deeply invested as well. Economic history says that these levels of inflation require a monetary shock to arrest them. The way to cure double digit inflation is to radically reduce the money supply, thus inducing a recession. The steep recession clears away the free riders and inefficient elements in the economy. This is like starting fresh with clear signals about the proper money supply.

Even though there are plenty of geezers kicking around Wall Street who remember the 1970’s and the actions of the Volker, everyone seems to be convinced that the rate hikes are short term. They can only believe this for two reasons. One is they think Powel is a coward and will never do what Volker did. Insiders have determined that the politics at the highest level are against a bold move and Powell is not a man willing to challenge the politicians on monetary policy.

The other possibility is they are just as invested in the transitory narrative as everyone in the political class. Wall Street is now hooked on hopium. They are sure that in time everything will work out. China will come back on-line, the war against Russia will come to an end and the flow of free money from the Fed will return to normal. In other words, they are investing in the original narrative because they have come this far, they may as well see it to the very end.

Of course, there are secret reasons that could explain things. Perhaps we are living in a simulation and the people controlling the rules of our universe have changed the rules such that double digit inflation is good. Maybe the ruling class has come to believe that only by making everyone poorer will Gaia be happy with us. It is possible that everyone in power has gone insane. There is a case to be made that we have crossed out of the domain of reason into the world of fantasy.

Sticking with what we can know, the best guess is that the Federal Reserve, Washington and Wall Street are simply committed to the narrative. They may have stopped using the phrase “transitory” for public relations reasons, but they are still committed to the transitory narrative. To change course as economic history suggests would mean abandoning their investment in the narrative. Even though that is the right course, they are psychology unprepared for it.

There is some history here. It has been forgotten that the two Fed chairs prior to Volker were a lot like Powell. Burns and Miller were both doves when it came to policy and they are credited with what came to be known as stagflation. Supposedly, the great lesson learned during the Volker tenure was that bold action from the central bank is the key to heading off catastrophe. The official narrative says that timid policy by the central bank is what caused the Great Depression.

Like a family business run by the third generation, the people running economic policy have no experience with tough times, so they are unprepared to take the bold actions the age requires. These are all men who rose up in good times, when ticking the right boxes is what mattered. Questioning orthodoxy was the best way to end a career, so the careerists in the system are all men who never question orthodoxy. Powel is simply this generation’s Arthur Burns.

The thing is though, the people in the 1970’s were in a world that said stagflation was impossible based on current economic theory. They could be forgiven for thinking that the recession would cure the inflation on its own. The current batch of economic leaders have the benefit of having lived through the 1970’s and 1980’s. They have either come to believe that this is not the same situation or they are so invested in that narrative they are no longer able to change course.

There is always the prospect that they are right. Maybe if given enough time global markets will normalize, energy flows will return to normal and the inflation we are seeing will slowly decline. There is no evidence of this happening in the short term but wait long enough and anything is possible. As the founder of modern economics famously said, in the long run we are all dead. None of us live in the long term, which is what makes this explanation uncompelling.

We may be seeing one of the terrible side effects of narrative politics. This is the belief that a good story often repeated can change reality. Elites have come to believe that saying it makes it real. This is why they invest so heavily in creating narratives and having them repeated by their media organs. Everything is about messaging rather than objective measures. Team Biden is now selling the story that gas prices are falling at historic rates, despite record high gas prices.

In a world where the people in charge are sure that all they have to do is create a really good story and that story will become true, there is no reason for them to ever reconsider the narrative. Once they commit, they are committed. This means anyone questioning the narrative is an enemy. Public policy ceases to be about trade-offs and is instead about the friend-enemy distinction. Friends repeat the narrative and enemies question the narrative.

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109 thoughts on “Narrative Investment

  1. OR perchance the Ruling Creatures want us crushed- or dead.

    Your fallacy here Mr Z is proceeding from a notion of the common good, this is contradicted by the Ruling Creatures words, deeds, and interests.

    The truth is they remain strategically competent (or lucky) and that if you get the Strategy right you win despite a mountain of errors at the tactical or operational level: see Great Britain vs Germany.

    Also true- strategy is mentally less taxing than tactics – tactics require skill and effort while strategy requires taking stock of the big picture and knowing what’s important.

    In this case what’s important has been taken care of – we are passive if bitchy serfs. We are utterly atomized.
    The atomization is self interest by the way: Americans are 90% Libertarian meaning selfish. I simply see what Sherman saw at Shiloh, what Pitt the Elder saw in the 7 years war, that if the property is touched by the hard hand of war (or economics) the fight is over.

    What’s important is we are a giant island (inherited) and we have nukes (inherited) and above all what’s important is to stay on top.

    We were able to work or fight as a nation before because the elites were cohesive enough to lead us, lacking that we are an atomized mass of cells, a mist really. We the People I mean.

    What’s happened is our elites interests are opposed to ours, as Z pointed out the logic of Empire is you must crush your own as well as the foreign.

    The matter isn’t closed but not hopeful for us at present.!

  2. If you’re a highly neurotic Woke woman, everything is a crisis. Changing your toilet paper roll precipitates unbearable anxiety.

    • Well, it does in my house. If I don’t get the roll facing the wall so the paper hangs *right*, I get a lecture. 😉

  3. Got really close to dipping a toe in the TRS pool. Space aliens hooking young whites on drugs and ruining their lives….TRS peeps would say (((space aliens))). Suddenly the narrative would match perfectly. I personally consider the space aliens reference to be all inclusive. Many different demos are white hating these days and (((space aliens))) are not exclusively at the controls, but still very much a dominant part of the problem.

  4. Volcker seems to get all the credit, but there was also something called supply side trickle down policies. Encouraging more supply shifts the price curve back.

  5. Inflation may be the least of our worries. To have a first world economy you need price stable and abundant energy. Without that you have nothing. The idiots running the country have signed on to the Green New Deal. They are actively destroying Coal and Oil production. No amount of windmills can make up for it.

    When TPTB finish with their project everything will go down. All production to include food production will be curtailed, (fertilizer is made from hydrocarbons). Not to mention transportation being wiped out. Now anyone can decide for themselves if this was done deliberately or just through stupidity. But people will die.

    • Does this mean you’re not excited about the field trip the Green Death Cult is imposing on us?

      You know the trip. It’s the one back to the late 1700s.

    • I fail to see the downside with your scenario. Consider it a boon for “accelerationists”. Nothing will get the populace focused on change faster than being cold, hungry, and in the dark.

  6. I suspect that Z is right. The Fed never stopped believing that inflation was transitory. The Fed just figures that it was taking a bit longer than expected to fall and that the Ukraine war made the issue worse.

    Now, with the economy slowing fast, the Fed is even more sure that inflation will come down very quickly. It’s one of the reasons that Powell didn’t offer forward guidance yesterday. He’s letting the market know that he thinks that there’s a decent chance the Fed won’t need to hike. Not 100% but a decent chance.

    He might be right or wrong. Who knows. But what does seem to be a longer-term issue is that inflation is back as a force. Inflation wasn’t much of an issue for the last 30 years. The Fed could lower rates, the economy could run hot, it didn’t matter; inflation never turned up.

    But now, if the Fed keeps rates too low or the economy runs hot, inflation will come back, much like it did in the 1970s. This means no free lunch anymore. If you want to keep interest rates low to push the economy and to deal with the huge amount of debt, you get inflation, which is politically very unpopular.

    What’s more, the Fed risks losing the bond market. For now, the bond market is willing to follow the Fed’s lead and trust that it will get down inflation. But if the Fed pivots before inflation is dead, the bond market may take matters into its own hands. And if that happens, look out below.

      • By not accepting money losing bets on debt way below the rate of inflation.

        Five year securitized debt was at 1.75% last fall. Last week, same issuer had to pay over 4.5% on effectively identical collateral.

        • For nearly half a century, there was almost no inflation.

          As I mentioned, banks use t-bills as collateral so they’re not that worried about the actual interest rate, but other investors are interested.

          But even the banks or HF are going to have a hard time with -4% a year real returns on their t-bills. That makes the hurdle for what they’re using those loans secured by the t-bills a lot higher. (Granted they pass around those t-bills over and over so a lot of loans are made on the same bill.)

          This isn’t the 1940s where the govt can run financial repression. They tried it last year and they’re already having to pull back.

          But you could be right. However, we’re screwed anyway in that case. A financial system that allows the govt and corporations to borrow at significantly negative real interest rates for years on end isn’t a real financial system – and the economy that it creates will be anemic at best.

          • Is there a special definition of “inflation” that means something other than the nominal cost of every worldly good increasing massively year after year?

            Because the fifty years of *that* inflation we’ve seen out here where things exist and are exchanged for labor is somewhere between 1000% (even with “hedonic” adjustments) and 10,000% (just the numbers).

        • “For half a century I have been waiting for the prophesied bond vigilantes”
          Yeah I was a fan of Robert Prechter back in the Bernanke Days. Helicopter Ben won that battle going away.

        • The vigilantes are as dead as can be, just as in Japan and Europe. They did exist 30-40 years ago. Once the central banks were comfortable enough to back the bond market, all that risk was transmitted to the currency market. The risk is still there, lurking, but now in currencies.

      • The Fed doesn’t control the bond market. It leads the short end of the bond market, say 3 month to a year or so bonds. The longer end of the curve 2+ years makes its own rates. But even on the shorter end, the bond market doesn’t have to follow the Fed’s lead.

        Basically, if the bond market doesn’t think that the Fed will really tackle inflation, investors will just start increasing rates on their own. The Fed can’t stop it.

        Well, the Fed can try to hold down rates, but it’d have to print like crazy, which would mess with the currency. (Japan is having that exact issue right now.) But, ultimately, the bond market is bigger than the Fed.

        Treasury bonds are used for many things besides just a pure investment. Banks use T-bills as collateral, so they don’t always care that much what the rate is; they’re not holding t-bills for the interest but to get loans.

        That said, the bond market as a whole isn’t going to sit around earning 5% on BBB-rated bonds while inflation consistently runs 6-8%. Investors will push up rates to earn a positive real return or just not lend, which will crash the system.

        • Is there not the assumption that there is no other place for one’s money that *loses* less than those bonds? Seems to me that must be taken into account. A 5% rate in a 8% inflation is better than zero % one might assume. I’ve parked money on and off in accounts at 2% for years now, waiting for opportunities to open or things to stabilize. Hell, little old ladies still have cash in local bank accounts. Those have been negative yield for years. But I admit to economic illiteracy.

    • You make great points CoaSC. I do think that no or low inflation is another narrative. Look at asset prices. The price of everything except groceries, plane tickets and ?? are way up. It is just that it became debt financed because of interest rates.

      I think the no/low inflation mantra is inaccurate – just another successful narrative – more post modern use of human ingenuity spent on, “managing perceptions.” Now, the inflation is in fuel, food and the rest of life’s essentials.

      The economic unraveling continues. What should you do? Exacerbate it with embargoes on commodity superpowers! Replace your existing population! Inflame a race war in your multi-racial democracy! Indoctrinate your children and eliminate education standards in the face of 2 rising super powers holding their students to the highest standards!

      It truly boggles the mind. Someday, one of us is going to stand at the pulpit and speak out in detail about the rot and treachery we are throwing in the garbage bin to burn and name the key perpetrators whose genius dreamt it all up. These imbeciles and agents of evil are unfit to rule.

      • People need to remember that the Fed doesn’t print dollars. It’s prints bank reserves, which are like bank tokens that can only be used with other banks.

        When the Fed does QE, it exchanges bank reserves for treasuries or MBS. That’s just an exchange of assets. The Fed doesn’t add dollar one to the economy.

        But it does push banks to re-do their portfolios and look for more risky assets to own because bank reserves are safer than bonds. In essence, the banks swapped very safe and low yield treasury bonds for ultra-safe, no yield bank reserves. Therefore, to get the risk-level of their portfolios bank into balance, the banks need to increase their risky assets, so they buy corporate bonds or stocks or real estate.

        This creates asset inflation.

        Real world inflation is caused when either banks print more money via loans or the government deficit spends via the fed increasing its balance sheet through buying bonds from the banks. That’s why we had inflation from Covid but not in the Great Financial Crisis of 2007-2009.

        • This is a great explanation. I really appreciate it and your knowledge.

          If the prices of assets, (stocks, bonds, real estate, private equity investments …) go up I don’t understand why that isn’t real world inflation. Those assets affect the real world prices of those particular assets. Am I missing something or is asset price inflation also, “real world”, inflation.

          Just taking a minute to stop and listen to our terminology, “real world” inflation vs. “asset” inflation is illuminating. As if assets are a part of the imaginary world and food and fuel are part of the real world. If an asset is just a claim of ownership of something real, something that produces wealth, then that seems to me to be a real world asset. However, if that claim is over valued because its price is bid up relative to its income producing ability, perhaps the twisting of language is an admission of the departure of the reality of something’s true worth.

          The day of reckoning cannot be postponed forever. Indeed, the oligarch’s day of reckoning is the austerity and expropriation project they call, The Great Reset.

          • Well, increasing asset prices could increase real world inflation via the wealth effect if rich people decided to spend more because their portfolios are higher.

            How much the wealth effect impacts rich people spending is debatable. From what I’ve seen, it can have a small effect, but, frankly, most rich people don’t spend much more if their portfolios/net worth increase a fair amount. However, they do reduce their spending when their net worth falls.

            You’re correct about how assets are valued and how the price people pay for them changes that value. For example, the simplest way to think about the stock market’s return is this equation:

            Return = Dividend Yield/Share Buyback + Earnings Growth + Change in P/E

            Dividend yield is knowable. Just look it up. A good estimate for the stock market’s earnings growth is GDP growth since it’s tough for corporations to grow earnings faster than the economy, at least for very long.

            That leaves change in price-to-earnings, i.e. how much investors are willing to pay for a $1 of corporate earnings. Sometimes investors are willing to pay more for that $1, sometimes less – and that impacts returns.

          • Good conversation CoaSC.

            If we look at both sides of the transaction the price inflation is not limited only if the rich person cashes out and spends the money.

            For people who want to purchase assets, their price has been pushed artificially higher. For those whose incomes are outpaced by asset price inflation, they get less for more, or priced out of the market altogether. If anything, the rich person cashing out to the next greater fool, and buying goods and services further prices people out of the market. Furthermore, for those who can purchase the asset they now hold an asset that needs even greater earnings to get paid back their inflated principle.

            I think the concept at play here is borrowing from the future. The asset price inflation raises the barrier to entry and decreases the real value of the asset – the real value of the earnings that it yields.

            Moreover, if the consumers they rely upon to buy products are dependent on the government and its debt, then they are borrowing from themselves, (Paul Krugman baby!). In the end, you can’t borrow from yourself. It is a preposterous notion. Yet. to Z-Man’s point he wove that into the narrative.

            I think understanding that there are two sides to a transaction is yet another example of how far the ruling class has departed from reality. “It isn’t a problem. We are only borrowing from ourselves.” At one point we called borrowing taking on debt. At some point the perception managers changed the vocabulary so it is now only referred to as credit. “I Joe Consumer have a lot of credit available”, as he takes on more debt. “We have a credit crisis.”

            Inducing pension funds that are underfunded and other low risk tolerance yield seekers, (as distinct from investors), to go farther out on the yield curve is going to yield something most have not counted upon – the largest ponzi scheme in the history of the planet and its great unraveling.

            Thank you for the stimulating conversation. I learned a lot from you. Great topic today too.

    • As economist John Lott demonstrates, inflation was and is much higher than the reported numbers, and actual inflation was well above 2% for the last 40 years….Just compare things like college tuition, restaurant food, and auto and gas prices…But of course with the more accurate old methods of measuring inflation, the Government would have been massively in the hole due to inflation escalators in entitlements…

      • Any old guy with a working memory knows we have had inflation for decades. How can many here dismiss this just because now it is worse?

      • The elements the CPI tracks has been manipulated to “adjust’ inflation numbers since they began tracking such things, depending on the administration in charge and their goals. They don’t give a sh*t about the paycheck-to-paycheck people or the middle class.

    • In a severe liquidity crisis the FED will monetize nearly anything. In plainer language, they can provide emergency “credit” (by buying up risky assets or loaning against it) for assets of nearly all types. They’ve done this many times in the past, and they’ll do it again. For us old-timers, it’s amazing how many times they have saved the system just in the past few decades. They can create money (credit) without limit, but the problem is ultimately that money may lose its value. One of these times their luck will probably run out, and then it’s look out below.

  7. I see inflation abating for the rest of the year, to let’s say five or six percent. But this will only be because the recession is starting to bite, and bite hard by November. The Fed will declare victory later in the year, and begin to loosen as the political impact hits from the recession (worse than the inflation). As productivity falls, and foreign direct investment goes into reverse, weakening the dollar, inflation will rage forward worse than ever in the Spring/Summer of next year.

    As the Congress floods the zone with across the board stimmy, interest rates far too low to deal with that, and tax receipts collapse, causing even more debt creation, it’s inflation as far as the eye can see until we have that “Volker moment.” However the “Volker moment,” whenever that is, would cause the Treasury to reorganize its debt into 100 year bonds, collapse all equities, RE, etc. Either way, the country faces ruin.

    In the long run it’s better to have ruin via debt reorganization than via runaway inflation. The politics will be far different five years from now as the middle class will no longer exist. Just a smoldering hole where the biggest economic bubble in history was sitting.

    • That’s what happened in the 1970s. Recession would knock inflation down from ~10% to 3% or 4% or 5%, but as soon as the economy recovered, inflation snapped back.

      It’s why Volcker finally had to hammer the economy so hard that it finally killed inflation. Also, some of the reason that inflation finally died in the 1980s was the energy supply increased and the Boomers were no longer flooding into the economy putting pressure on all goods and services.

      Volcker did kill inflation by himself. Supply and demand issues worked themselves out over the previous decade.

      Regardless, I suspect that we may be in a similar situation as the 1970s where inflation comes down with slow economic growth but pops right back up again when the economy recovers. But who knows. We’ll see.

    • “Secret” weapon is that the major banks are holding hundreds of billions in cash reserves. It is easily conceivable that the Gov will lower the reserves thresholds to free up this money to start making loans with it. I guess the Fed is thus removed from the equation and will be operating on its own track.

      • Fractional reserve banking is mostly a myth. Banks lend when they think it’s a good deal, not because they are trying to keep some loan to reserves ratio correct.

        That’s not to say that they’re completely unaware of loan to collateral situation, just that they can have all the reserves that they want and they still won’t make loans if they don’t like the risk/reward. The opposite is also true.

        Banks have been extremely well capitalized since the GFC, but lending in the Eurodollar market has been very light, especially to Mom and Pop business. The big banks have stuck with the big companies. It’s one of the reasons that economic growth has been so slow over the past 13 years.

        The banks were traumatized by the GFC. They’re all terrified that they’ll be the next Lehman Brothers, so they only make safe loans.

        • Let me clarify, I am talking about the reserves they were required to hold as part of the stress test legislation arising from the great recession

          Prior to this the reserves requirements were comparatively non existent. Hence the too big to fail

          But I think you would be mistaken to think they wouldn’t make loans with these reserves if prodded by the government because the government would be backstopping / covering these loans

          • It’s a fine line. You have things like the Basel 3 that keep banks in line, so there is some oversight. But that can be manipulated.

            That said, banks are so timid these days that it doesn’t matter.

    • “In the long run it’s better to have ruin via debt reorganization than via runaway inflation.”

      I agree. It is the only way for the new regime to claim legitimacy and moral authority – aside from it being more explicit and more just.

  8. I’m not a fan of Warren Buffett, I think he’s a terrible person, not as bad as Elon Musk, but not a “kindly grandpa.” More like a psychopath grandpa. However, his investor letters from the 1970’s show he got it, and got it long before Volker came on the scene. Much of what he said came from his father’s writings, which is to be expected. He calls inflation a tapeworm that eats the profits of even the healthiest businesses. Looking at what’s going on, this is exactly what’s happening. Diesel costs alone are killing bottom lines across the board. Few people understand just how this one input, diesel, affects the economy.

    What is old Warren doing right now? He’s buying Occidental stock hand over fist. Not to mention other diversified Energy investments. Warren knows that when there’s a problem like this, Energy is a great hiding place. He’s not buying Lululemon like so many others on Wall Street. This is where experience does count in the world. I generally dislike most old people, but when old people, even mean psychopaths, occasionally do and say things that are smart, I listen, because I’ve been on the planet half the time.

    One more thing about Volker. He was a Carter appointee. Really the only good thing Carter did, but not with the intentions of what happened. Volker was in many ways part of the problem for the previous 20 years of his career. What he did in ’80-’82 was nothing less than a Hail Mary pass after 20 years of monetary failure. The country was exhausted with inflation. It was sick of the present. It was sick of Disco. The country had already been through a decade of inflationary hell before the solution appeared. We’re just in year one of the current debacle. There will be years of people screaming for stimmy before the solution appears. Because we’re all too human, we need to feel pain for a set of years before our thick heads come up with solutions.

    • I actually think that Buffet is on the spectrum or something like that. He’s not a normal guy.

      Munger isn’t autistic, but he does seem to be a serious hard-ass who don’t give two shits about other humans. That’s not to say that he isn’t a good manager of a business, and, eventually, that’s probably good for people.

      • Munger is evil as far as I can tell. He has said some things that paint him as a sociopath. Buffet is a fraud, he’s made a lot of his money by being so big that he can change the rules to favor him or to make a weakened company an offer they can’t refuse. He’s a sanctimonious prick who has the kindly grandfather act down pat.

        • Kill the pipeline to save the environment? Perfect! Uncle Warren can transport the oil and gas with a much higher risk of environmental impact via his choo choo train monopoly!

          Doesn’t that illuminate how the incentives align between the oligarchs and the useful idiots known as, environmental/climate-change activists?!

  9. Raising rates by three quarters of a percent is not a bold move.

    I’m gonna guess one reason for this is that nobody wants to trigger a recession and create massive unemployment right before an election. My money says after the election, we’ll be getting the stick.

  10. My best guess is TPTB feel the best solution to inflation/recession/malaise/etc is WAR. My assumption is war is what we will get.

    MIC manufacturing creates jobs, this stimulates economic activity. NFL drags out people in camo to sing an anthem, this eases peoples’ minds and creates placebo unity.

    I think we’ve seen this before.

    • Just this morning the Nimitz-class carrier USS Ronald Reagan sailed into the South China Sea.

      Xi spent two hours on the phone with the White House reminding Blinken and Sullivan of China’s red lines for Taiwan.

      Interesting times.

  11. Ha, ha, an Austrain economist malgré lui!

    And don’t forget the Greenspan put.

    Spare the interest rate and spoil the dollar may be elite’s preferred strategy, supposing the leading elites will soon be unmoored from the national economy and needn’t denominate its assets in a fiat currency. An America existing as a pan-Asian satrap offers benefits to the ruling class that may not be available in a recovering economy. Keep ’em poor, keep ’em obedient.

    Yesterday you mentioned a positive correlation between cooperation and deception. Economic policy going forward may tend to validate the suggestion.

  12. “It is possible that everyone in power has gone insane. ”

    Possible? Self-evident. Regardless if they are correct about inflation or not, they are still self-evidently insane. Ask any birthing person.

  13. I have good friend I used to work with at a large public company. Smart guy, now the treasurer of the company. At the time he had about 40% of his net worth tied up in company stock through the 401K match, stock options and restricted stock grants. I strongly suggested he should not have such a large percentage tied up in anything, especially since his job was also tied to the company. He said that since the stock price was down, he wanted to wait until it recovered. I asked a simple question: If you didn’t currently own any company stock, would you go out today and buy what you currently hold? The answer was a resounding “no”. But his ego just would not let him take the loss.

  14. This always reminds me the line from Pride And Prejudice, “Would Mr. Darcy then consider the rashness of your original intention as atoned for by your obstinacy in adhering to it?”. Even a dame like Jane Austen understood deeply the stubbornness that propells men of power.

  15. Yesterday we touched on whether nastiness in politics started with the Clintons. But there is no doubt that narrative politics started there. I recall seeing press releases every day that touted some minuscule new program to support something good. “Here is a new $5 million program to support cute babies and puppies!” It was all about winning each days’ narrative. Today’s press secretaries and political consultants grew up thinking this was the only way to govern.

    • Right. Cable TV and the “news cycle” started getting big in the 1990s. The Clintons just realized its power and treated politics as it was a daily war to control the message.

    • The Boy from Hope

      I remember they also hired Hollywood producers to work their public relations

  16. I think the other thing underlying their addiction to hopium is the fact that they really have no idea what things cost. Money really is all but meaningless to them except in the abstract. To them, food comes from the fridge. I suppose if you really held their feet to the fire, they’d grudgingly admit that Juana the Maid fills the fridge by going to the market, and that this involves the exchange of money for goods, but they don’t really believe it. You could tell them a gallon of milk costs six dollars, or sixty quatloos; it’s all the same to them.

    I think this also explains the pure fantasy of the “Build Back Brandon” bill that we’re apparently getting now. Oooh, a trillion… is that a lot? It sounds like a lot. But maybe it’s not. Better make it TWO trillion, just to be safe! And so on, like with “aid” to Ukraine. Oooh, a billion! Is that a lot? Better make it two!

    And of course Build Back Brandon won’t contribute to inflation, because it’s being spent on “infrastructure.” Whatever that is. Roads, bridges… do we even need those? I mean, so long as there are well-maintained landing strips for the private jets, who cares? They don’t drive; they are chauffeured everywhere, and of course you proles should all be taking “high speed rail” or riding bikes, in propitiation of Gaia.

    How much of this could be avoided, I wonder, by simply making Congresscritters *live* in “their” districts six months out of the year, entirely on their official, legally-mandated salary.

    • make them live in their district, 12 months a year, drink the tap water, send their kids to public schools (in their district), and make they and their families walk the streets at night (without security detail). things would change pretty damn fast under those conditions. oh, and use the medical facilities in their district.

    • Looks like a huge chunk is going to keep Obamacare afloat for three more years, but no worries they’ll make it up by having the pharmaceutical companies negotiate with themselves on what they should charge the government.

      It largely looks like a play of the same old game, all the spending is frontloaded, all the “savings” going to pay for it are backloaded; the spending will happen the savings will not. They’re going to print the economy to death in short order.

    • That’s a start. All their investments, including spouses and adult children living in their home, should be placed in a blind trust for their tenure. And they shouldn’t be able to register as a lobbyist for five years after they leave office.

    • Just throw them into the black neighborhoods they so feverishly praise as being our greatest strength.

    • Severian, you have a point. I grew up lower middle class—that is to say, we had a job, but little else. I remember moving when the rent increased $15, such was the tightness of finances. Hard for me to imagine these Congress “critters” could have any realistic connection, economically, with the typical American these days.

      America has led the world as an environmental leader simply because it has balanced its prosperity against environmental damage. Environmentalism is a rich man’s game. Impoverish the country and see what you get. Africa, India, and China are not going to play that game while they try to get out from under.

  17. Economic history says that these levels of inflation require a monetary shock to arrest them. The way to cure double digit inflation is to radically reduce the money supply, thus inducing a recession.

    That isthe lesson that a lot of people took from the last bout of serious inflation ended in 81-82. Its entirely possible, even likely and its also wrong, or at least incomplete. Because money supply growth resumed in 1983, and hit a higher rate of growth within a year, and then continued that growth pace for decades – all coincident with falling inflation rates.

    There a two sides to the inflation equation. One is the volume of money. The other is the amount of goods and service available in the market. The supply shock caused by CoVid was at least as large of a factor in todays inflation as the growth in the money supply. In fact, early in the pandemic private debt decreased and savings increased. The fiscal and monetary stimuluses were largely replacing private debt with public debt.

    Anecdotally, shortages and inflation both increased in Q1 21 – after the lockdowns were lifting and the stimulus money distributed, but coincident with the vax mandates and people leaving the workforce rather than complying. The pandemic and government responses to it over the lat two+ years broke the global supply chain in some fundamental way. Their action over the last year and continuing now have not addressed that, and in fact are making the situation worse.

    So this isn’t a problem of monetary policy and wont be fixed by tweaking that policy. Its analogous to thinking that the only problem with the Soviet Unions’ economy was not getting the interest rate right.

    • We have 4 decades of malinvestment and money printing under our belts. During that time we gutted the industrial capacity of the nation and graduated 2 generations of our best and brightest in software development and computer science.

      Up until now we have largely avoided the natural consequences of such a massive misallocation of resources. This could be the beginning of the end or it could be just a hiccup in the miles of bad road ahead of us.

      • My vote goes with “beginning of the end”. I really see no way that this can be avoided at this juncture.

        Our supposed allies in the world have shown themselves to largely be just as delusional in their understanding of the prerequisites for the preservation of national power. Their economies are premised upon racial/social doctrines that have swallowed the leftist “blank slate” doctrine, and they are just as busily degrading the racial makeup of their countries, while simultaneously (and largely as a corollary of this) ruining their educational systems as are we. Demoralization and failure are baked into the cake, and there will be no counterexample emerging from the US’ satrapies; in some cases, they are further advanced upon the road to civilizational failure than the US (and since they are engaged in purity spirals, incentivising them to surpass our – so-called Leader of the Free World – bad example, this should come as no surprise).

  18. Nice ending to the post! Well done.

    They have been saying for decades that they are, “managing perception.” That is an admission that everything they do is performative. Beneath it all, they are stuck in a Chinese finger trap. They inflate, “introduce liquidity”, and then the market wants to correct. They inflate again, (“inject liquidity”, “lower interest rates”). The bubbles pop and a natural and healthy wealth transfer opportunity from the, “rich”, regime actors arises. Assets should be liquidated and transferred from paper asset inflation pirates to the prudent invested in viable wealth producing activity arises. Next, they bail out their fellow oligarchs by buying their debt at inflated prices, “expanding the balance sheet.” Wealth production and prudence is disincentivized and punished. Political connections and gambling are rewarded. Meanwhile the government is sodden with ever more debt whose interest is serviced with debt. Interest rates must lower or the interest cannot be paid. They are trapped and each move only tightens the pressure.

    Peter Schiff calls this the Fed and the US Govt’s, “Monetary Roach Motel.” The rate hikes are performative. If they can dupe the market actors all educated on the same crackpot monetary theories and infantile economics and market behavior tropes, the system will resume functioning and the day of reckoning will be averted. Like the praetor releasing the bird, the oracle reading the entrails, the tribesman doing a rain dance, the Fed raises and lowers rates hoping the masses go along. If they go along today, the rulers return to their feasts and orgies -crisis averted; “wealth”, preserved.

    Here is an interesting note on another common thread here; the conservative as the shadow of the Progressive. I listened to the Claremont’s roundtable last week and without flinching they said that inflation is a good way to deal with debt. History shows it is an effective and useful tool they said. No mention of its effect on the poor and middle class, nor the option of an organized and managed debt jubilee.

    I think taking a page out of Schiff’s book is wise. At some point the system will be fully discredited and those who advocated for it or parroted its tropes will be discredited with it. Better to be wrong for a long time, but right in the long run. This establishes credibility and is a nomination for leadership when it is sought out in desperation after the regime fails.

    The rhymes with Weimar are getting stronger and more numerous by the day.

    • I agree with your points but can’t help but repeat the joke that Schiff has predicted 10 of the last 3 financial crises. “Do you need more gold in your portfolio? Contact me.”

      • Yeah. It is an amazing joke. I do believe he is sincere, though he has been wrong for a long long time. His being the butt of that, rightfully so, is made up for by his, “I am the 1%” videos he made at Occupy Wall St. That makes for some good theater. It is great fun watching the degenerate left being the unwitting tools of the ruling class, even as they shake their fists at it.

    • Perhaps the ruling class is not a monolith. Perhaps the managers and actors, oops I mean politicians all believe in tropes and theories. They are like a wind-up clock. But, behind the scenes, some very clever and sober actors know what is happening. They will not take the losses that are coming. No. They are going to have their loans paid back one way or another.

      Perhaps that explains ESG, Climate Catastrophe and The Great Reset. Perhaps those are all parts of a program to inflict an austerity program on the West in stealth with their willing compliance. Just a thought.

      • Perhaps. But it’d also explain why Blackrock, the Chinese, Gates and no doubt others are buying real property hand-over-fist.

        • Ben: As the saying goes, land is the one thing they’re not making more of. And the privacy and self sufficiency that owning land provides (hard work goes without saying) comes at a premium in a world where they plan for 95% of the population to be bug eating bugmen.

        • Yes. And if via ESG you can:

          – Use the Climate Catastrophe hoax to make it effectively illegal to own essential (fossil fuel) energy assets. During divestment by the public, you can scoop up the assets for pennies on the dollar. Not just the land, but the essential inputs to civilization.

          – Use “diversity” to install more women and blacks who are just yesmen sinecures in positions of authority as well as a tool of enforcing ideological conformity.

          Perhaps it just makes too much sense in hindsight. However, I think it is intentional. Is that tinfoil talking or an intuition that is more or less correct? I don’t think Larry Fink is ignorant.

          Will it work? They have a huge number of tigers by the tail. We have to be seen as the most reasonable alternative as they shock more and more normies out of their slumber and drive them into our arms. We have to be at our best and to have standing – making us the most obvious choice. It is up to all of us to be the King of our blocks.

      • I might agree. The politicians and media types are narrative-agree’ers. They are unfit and unable to truly challenge any idea, especially one that gets their careers in trouble. But there are shadowy people in finance that don’t care about public perception, and many are intelligent and pragmatic. I’m sure there are some conversations going on, like in that movie Syriana, between administrative goons and real-world players.

    • Peter Schiff is a living example of every problem looks like a nail to a man that only has a hammer.

      Or in Schiff’s case a 2,7mm allen wrench.

  19. For reasons that no one has bothered to explain, this narrative was extremely attractive to the political class. They loved this story.

    This comes to mind:

    “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design. To the naive mind that can conceive of order only as the product of deliberate arrangement, it may seem absurd that in complex conditions order, and adaptation to the unknown, can be achieved more effectively by decentralizing decisions and that a division of authority will actually extend the possibility of overall order. Yet that decentralization actually leads to more information being taken into account.”

  20. Tying this to the article from yesterday, right now the government is trying to claim that the definition we have used as a recession for generations – two quarters of negative GDP – is not AKSHULLY the true definition of a recession. They are not providing a new, clear definition we can use going forward in its place, instead claiming that their “experts” will decide when we are in recession, while also claiming that this is how it has always been. The self-serving nature of this is obvious to everyone except for the shill media, as they are dutifully claiming that two quarters of negative GDP is not a recession. The White House is trotting out these economist hacks (of course I am being redundant here) to claim that, no, recessions were never two quarters of negative GDP. In response people are easily finding old quotes from those hacks where they talk about a recession as being, well, two quarters of negative GDP.

    So, it is not just that they are lying, but they are lying in such an incompetent and ham-fisted way that nobody could possibly believe that these are the people who should be running the country. Their insane desire for power and prestige is undermined by their lack of intelligence and competence. Like, it used to be we had GOOD liars running our country.

    • Mycale: What’s a woman? What’s a recession? Fwiw, conservatards have their own share of new definitions and euphemisms. Pet peeve warning for all commenters here: Do not EVER refer to me as a “senior citizen” or “elderly.” I am OLD, dammit.

      • Ha, I just finished the first season of a new series on FX called “The Old Man.” It’s a good show, with Jeff Bridges and John Lithgow, but what really drew me to it was the great title.

  21. our central bankers (et al) should have to live with the repercussions of their edicts, ala Mike Tyson…”everyone has a plan until they get punched in the face”. At the very least, could they please live their proclamations as a lesson to a pleb like myself so as I follow and can see the edge of the cliff before I’m pushed off it?

  22. The actions that the Federal Reserve can take are very limited, basically fooling with interest rates, which is fixing the price of money. Fixing the price of any commodity, including money, usually turns out to be a bad idea.
    Powell himself, and his predecessors, proposed to change interest rates and then observe what happens, hoping that the move rectifies the problem but making no guarantees. If the economy fails to improve, more interest rate changes might be needed. They are performing an experiment on the population.
    They freely admit this because to maintain that they know the actual remedy for inflation would be either an indictment of the government’s enpixelation of trillions of dollars to fight the Wuhan flu or an admittance that they are, in fact, actually incapable of providing the service for which Congress has authorized them. The country got along very well for the 93 years there was no central bank but it’s unlikely that it, as with other federal agencies, will be disbanded as long as the US continues to exist.

  23. The Eloi (aka “cloud people) lived in a world of abstractions that is utterly divorced from the physical world. And how could it not be so? The Morlocks (aka “dirt people”) live perforce in the physical world. They know that the artificial tokens they get paid with have increasingly less purchasing power. I think Orwell says somewhere that the working class feels the physical world through the rumbling in its belly.

    This farce of an economic system the USA has is all smoke and mirrors, and it’s running in empty. If there are any bright sparks among the Eloi, they’re praying for just one more day, one more week, one more month of the status quo, which is crumbling rapidly. There is no panacea for this. The jig is up for the GAE.

  24. To boil down today’s post;

    (And borrow a phrase from Cathy Newman)

    “So what Z us saying is, there are no adults in the Ruling Class; they are all children eating nothing but candy, with nobody to stop them from getting sick”.

    Got it.

  25. All true, but what to do?

    At the personal level, no one can change the insanity playing out in DC, so fretting over it is about as useful as shaking your fist at the oncoming hurricane and yelling “go away bad hurricane.” As long as the couch is soft and there is plenty of beer and Fritos, normie will content himself with raging along with Tucker on Fox TV every night.

    But nature intends for normie to become extinct when the storm arrives, so if you want to be among the survivors, you will have to earn it. Get smart, get out of the big city, find a safe haven, stock it, arm up, and wait out the maelstrom. Then disappear into the fog and ready yourself to make a difference when the time for remedy is ripe.

  26. Loose money benefits the oligarchs by inflating/keeping inflated the assets they have attained, and it immiserates the under classes by making them poorer via inflation. The official inflation rate is predicted to hit 10 percent next month; the actual rate is closer to double that. Powell will increase the Fed rate by another .50 basis points or so in September then another .25 or so in November and then stop.

    Powell also faces the actual economic problem of a national debt that cannot be serviced if rates reflect reality.

    I can’t say this for certain, but I think we are seeing oligarchs for the first time openly lobby against rate hikes. Of particular concern is Larry Fink, who lobbies against hike while he simultaneously serves as the Fed’s point man on bond purchases.

    Even with all its previous problems, the Fed has never before been a political animal to this extent, and is serving as an open arm of the oligarchy. It is setting the United States up for economic collapse at the expense of everyone else.

    • > The official inflation rate is predicted to hit 10 percent next month; the actual rate is closer to double that.

      The Federal Reserve has access to real data, and I would argue 3/4 percent increase IS dramatic in their minds, and any higher simply unthinkable. If you use older inflation models, we’re close to or already surpassed 1970’s inflation, with no way of clamping down on deficit spending and facing the collapse of the dollar as the world reserve currency.

      The might be holding on to hopium since it’s the only thing left, since the car is already over the cliff.

      • Fear is certainly an issue. It has been generally accepted that interest rates can go back to historic norms only very slowly. To raise rates to quickly not only means recession, but the potential collapse of the global financial system due to a lack of liquidity. Prior to Covid, the Fed made it clear they were going to very slowly, almost glacially, wind down their holdings and raise rates.

        My own view is that we are at the end of a long cycle that started in the last century. America has now run out of places to send extra dollars. That means the old system of seigniorage has run its course. The collapse of oil prices tipped the Soviet Union into a crisis for which it was not equipped to handle. The multicurrency era is going to tip the American empire into a crisis for which is it is not prepared to address.

        • While I’m not a good bug by any stretch, it seems to me that the simplest way to shore up the dollar in a multi-currency world would be to back it with gold. The current regime doesn’t have the discipline to do this, as it would end deficit spending immediately. Nonetheless, I just don’t see a lot of foreign demand for a rapidly inflating fiat currency, so it’ll be a real conundrum for the regime. Let’s hope they figure something out.

          • Actually, demand for dollars is nearing all-time highs. The two best performing currencies in the current crisis are the dollar and the ruble. It turns out that money backed by force is better than money backed by metal.

          • Drew: The price (and supply) for gold and silver is so heavily manipulated it’s hard to estimate what the real value is of anything. Dollars remain in demand simply because they’re the most secure currency in an insecure world – which is insanity given the massive currency printing and real inflation rate.

            Copper, which has numerous industrial, plumbing, and electrical uses, was rising in price quite a bit 6-12 months ago. The Chinese were buying it up. Now, due to recession and decreased production (in the US, but particularly in the EU) demand and price are both down. But its uses and usefulness hasn’t changed – so its price reflects . . . what, precisely?

          • I am no expert, but it seems to me a fiat currency can be successful if backed by a commodity, by production of real goods, by integrity in the government, or by force, or a combination of any of the above. And the less you have of one, the more you need of the others. The US doesn’t have gold, production, or integrity, so force (and lots of it) it is.

    • Tend to agree. Amplifying your last comment. Some economics writer said, correctly I think, that the USA’s having the privilege of being the world’s reserve currency since approximately 1945, effectively gave it the unique power to “export” its inflation. This was even true during the waning years of the gold standard and is claimed as the primary reason we abandoned it in 1971: too many claims against our dwindling gold. Since then, foreign entities public and private invest in dollar denominated debt and effectively subsidize the continued inflation in the USA.

  27. > Team Biden is now selling the story that gas prices are falling at historic rates, despite record high gas prices.

    The fact we are rapidly depleting our strategic oil supplies for simple PR reasons is proof enough they’re going to run the country into the ground, and it’s just a matter of who is in office when it happens.

    • Clearly it will be the EVIL Republicans who control Congress in November. All their fault.

      I still can’t believe McCain dies and we immediately get Mittens to fill in as the “bi-partisan” maverick.

  28. Why should the wealthy, who control the Federal Reserve, care about inflation at all? They won’t even notice $10/gallon gas or more expensive food, for example.

    Unless the elites care about the plight of the lower classes, what reason is there for them not to accept high inflation? Why not keep injecting more new money (quantitative easing) into the money supply to keep interest rates, which do affect them, low?

    • Exactly. This is in fact what is happening, although “wealthy” in this context is a handful of people who do control everything on the economic front.

      The artificially low rates are a bigger fraud than even Covid.

    • Good point.

      And it made me think of how the “new money” can be spent by the people who have it first before the new inflation sets in. It’ll be the people who – on the net – receive these monies last that have to deal with the new inflation.

      At least that’s what I read in Rothbard.

    • Elites are never monolithic. Bad results based on the rules of the game offer the opportunity for some elites to challenge other elites within the rules in which they operate. They do not care about inflation because people are suffering. They care about it because within every elite system, there is a way of keeping score. in our system, economic figures are one metric.

      This is why they are now trying redefine the word recession.

    • I’d say to ask Louis XVI and Czar Nicholas II why elites should worry about the lower class’ cost of living, but they were killed for, you know, not being sufficiently worried about the lower class’ standard of living. There are plenty of elites who have died for failing to deliver a minimum standard of living to the peasantry, so perhaps the current elites will find that a compelling reason to care.

      • Your point is compelling, as is my pessimist postscript: In the two historical episodes you cite, there was a revolution and (in my opinion), the country as a whole was worse off after than before. Certainly so, in Russia’s case.

        I suppose there might be historical examples of an elite that reformed itself in time, but I’m not aware of any. 🙁

      • The French Revolution was primarily a revolt of the gentry rather than the peasants.

        Most revolutions are started by the middle classes or aristocrats. Peasants tend not to revolt because they know no matter who is in charge, they’ll still be peasants.

    • Line: Absolutely true. Which is why I expect they’ll continue increasing or providing ’emergency’ bonuses to all the EBT cards as inflation grows unabated. The real test comes when/if all their federal paper becomes useless because nothing is being produced or shipped, or their favorite chicken or fast food isn’t available at the 7-11.

    • Historically speaking… the only way to get the ‘elites’ to care was to threaten them with extreme violence.

      Them’s just the facts ma’am.

  29. One of the reasons that it is so difficult to extract people from a cult, is that they are so far invested, they don’t want to admit they were wrong to be invested in it in the first place. Time to get out of the Uniparty cult. It was a Ponzi scheme. All that you invested is lost. Sanity is more valuable than anything invested in a cult.

  30. The Cloud People keep saying the lies they expect us to believe because all they have ever seen their entire lives is a Babylonian Monetary System. Perhaps they believe their own lies as the Gospel, for they sure do get mean and nasty anytime someone questions it. However as some ancient Greek said one time, the gods will drive them insane before he finishes them off. This old saying does have a place in our society.

    First they go crazy lying about a fiat monetary system that is dying right now, and once it fails, the people will be hanging them from lamp posts once their supply of cheap couches, big screen TVs, Chinese -made grills, and brats dry up, but not necessarily in any particular order. A few big power black-outs would certainly add a nice coup-de-grace to it all. This whole epic known as the Collapse of the American Empire would make a great Greek Tragedy.

  31. Back during the Bush the Lesser era there was some horse’s ass–might have been Karl Rove–pontificating on to some journalist about how the administration was creating their new reality in the Middle East and all naysayers could do about it was to step back and seethe.

    But old reality had other plans…

    Similiar thing happening today. These people have convinced themselves that through the miracle of modern media they can coax the people into believing the new reality they are seeking to impose worldwide. It’s why the gloves are coming off in many ways. Dissent won’t be tolerated, be it within the borders of the West or in the form of the Russian bear.

    The denouement to this might well destroy us all but these people will go down with their ship…

  32. this phenomena is consistent with the obscene incompetence demonstrated by TPTB. since they are unfamiliar with the proper management of the country, they are free (in their minds) to believe whatever fantastical nonsense appeals to their vanity. it’s all good though; they won’t stay in power much longer as they crash food and energy production…

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