Fed Oracle Zoltan Poszar: The US Fed Must Crash The Market. By Tyler Durden.
Of course, on its face this would seem preposterous: after all, the Fed’s entire legacy over the past 13 years has been merely creating hyperinflation among financial assets (and creating the largest wealth and social divide the US has ever seen), while doing everything it could to keep real-world economic inflation subdued to avoid the risk of an inflationary meltup (like the one we have now). …
Crashing the market in a hyperfinancialized world such as this one, where the value of financial assets is now more than 6x US GDP would immediately lead to a major recession, if not outright depression.
And yet, without a sharp slowdown in the economy, … the runaway inflation crisis that has crushed Biden’s approval rating will only get worse until we finally reach a breaking point where the Fed will lose all control over inflation expectations, sparking what may become hyperinflation, currency debasement and collapse (as BofA warned last week) …
We even suggested how the Fed could achieve its objectives of burning out inflation and sparking a much needed economic reset: push oil to $200 (which incidentally would explain why the Biden administration is pressing so hard for a war in Ukraine as a conflict there would instantly push oil to $150, sparking an inflationary tsunami around the globe and crashing the global economy as JPMorgan explained recently). …
After launching the lunacy of helicopter money, also called Modern Market Theory by socialists posing as finance gurus and market experts, the Fed is out of choices.
Even so, Zoltan’s argument is that while the Fed should avoid a recession as it will crush the only benign form of inflation — wage inflation — Powell has to do something and that something is to, well, spike volatility — another word for crash markets. …
Then maybe the Fed should watch an unprecedented social panic unleashed the next day when the S&P plunges more than 50% to its ex-Fed fair value, and flee to a non-extradition country when yields — not just overnight rates but long-term rates too — explode into the double digits as hyperinflation is unleashed.
Still, Zoltan is confident that “lower risk assets won’t kill growth” (oh yes it will), and his solution to contain inflation and “to improve labor supply, the Fed might try to put volatility in its service to engineer a correction in house prices and risk assets — equities, credit, and Bitcoin too…”
In short: crash everything.
While many would have previously dismissed this proposal as the deranged rambling of a “conspiracy theory” website such as this one (with the one asterisk, of course, that all conspiracy theories discussed here eventually come true) the fact that a former Fed staffer — one who has both the NY Fed and Powell’s ear — is suggesting a market crash as a much needed inflationary catharsis should spark great fear among the market bulls who still expect Powell to step in and do what he did in March 2020 when the Fed started buying up risk assets for the first time. …
So while it is debatable that the Fed will crash the market just to contain inflation (we sincerely doubt it), the fact is that thanks to the former NY Fed repo guru, this is now a part of the conversation and it is likely that as Zoltan’s view gains traction, Biden will confront the Fed chair with just this choice: shock the markets, crash stocks, and hammer inflation before the midterms (and certainly 2024) as the alternative is a historic rout for the Biden admin and Democrats.
The growing financialization and debt levels of the past three centuries is not sustainable. We are near the climax.
Not updated for a couple of years, but the general picture is clear enough:
