A central bank-induced crash of all assets could be deadhead if the FOMC monetary policy committee continues tightening in a down-cycle.
There has been no safe haven with bonds, stocks, and cryptos, all in or nearing bear territory.
The continuing melt-up in risk-on assets has not materialized in 2022.
Policy-driven factors continue to wreak havoc on supply chains, and compound cost-push inflation, which then eggs on the Fed to tighten in a down-cycle.
The pandemic continues.
“Policy-driven factors continue to wreak havoc on supply chains, and compound cost-push inflation, which then eggs on the Fed to tighten in a down-cycle”
WEALTH TRAINING COMPANY
China’s zero COVID policy has resulted in Shanghai being under Covid lockdown for over a month, affecting the lives of more than 25 million people
China’s unemployment rate is near a pandemic peak of 6.2%, and GDP has shrunk from 4.8% to 4.3%. Moreover, with China being the world’s factory, supply chain disruptions are ongoing, leading to scarcity and price rises.
On the geopolitical front, the Ukrainian Russian war drags on into its 83 days, and while we were able to forecast a Russian invasion back in late December, we did not envisage it would last that long. NATO countries’ rapid response to supply arms to Ukraine and its peoples’ willingness and ability to fight using advanced weapons means a war of attrition, which could have an implication on the future of Europe’s security architecture.
“China’s unemployment rate is near a pandemic peak of 6.2%, and GDP has shrunk from 4.8% to 4.3%”
WEALTH TRAINING COMPANY
In a worst-case scenario, this could end with WMD deployed, and if vast farmlands are contaminated, we could see famine in Europe and mass migration.
As noted in a piece entitled, Ukrainian crisis, Ukraine is Europe’s breadbasket, and with the war-torn country offline, that will continue to disrupt supply chains for soft commodities.
“India, the world’s second-largest wheat producer, has banned wheat export due to the heatwave” – Wealth Training Company
Ukraine’s April and early May planting season was cancelled due to war and is already impacting the global market for wheat.
India, the world’s second-largest wheat producer, has banned wheat export due to the heatwave.
So policy-driven supply disruptions are causing spiraling food inflation, and factory shutdowns in China are causing shortages of goods.
Central banks can not increase wheat supplies or produce the goods in Chinese factories.
“Throughout the quarter, we faced unexpectedly high costs, driven by several factors, resulting in profitability, came in well below our expectations” – Target’s CEO
In other words, the Fed has no monetary tools available to fight cost-push inflation
The rise in energy costs is due to sanctions on Russia, leading to higher energy costs.
Put simply, the cost of living crisis is policy-driven, and if the Fed continues tightening, we could see a central bank-induced crash and a great depression
If the price of a loaf of bread doubles and the cost of heating your home triples, tightening monetary policy will not stop you from eating bread and heating your home.
What tightening will do is collapse discretionary spending. People will have less disposable income to spend on things they would like to have or do.
Signs of economic stress are everywhere
Bellwether Target earnings underscore broke households and businesses struggling with higher costs.
“Throughout the quarter, we faced unexpectedly high costs, driven by several factors, resulting in profitability, came in well below our expectations, “ said Target’s CEO.
So will we see a central bank-induced crash as the Fed adds to cost-push inflation by driving up the cost of money?
More tightening will lead to bankruptcies which will add to supply shortages and higher prices. Does the Fed really work for the people?
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