KEJI - Weekly Commentary: Global Ring Of Fire

2024-04-06 04:39:19 ET

Summary

• Money Market Fund Assets surged $70.5 billion last week to a record $6.111 TN.
• Our understanding of the most momentous financial and economic occurrence of the past century has been terribly undermined over the decades.
• Credit growth remained strong throughout much of 1929, though the expansion was dominated by broker call loans (for speculation) and real estate lending.

Money Market Fund Assets (MMFA) surged $70.5 billion last week to a record $6.111 TN. MMFA have ballooned $1.553 TN, or 34.1%, since the Fed initiated its "tightening" cycle in March 2022. In just over four years since the onset of the pandemic, MMFA have inflated $2.477 TN, or 68.2%.

April 5 - Bloomberg (Christopher Anstey): "Former Treasury Secretary Lawrence Summers said that the surge in US payrolls in March illustrates that the Federal Reserve is well off in its estimate of where the neutral interest rate is, and cautioned against any move to lower rates in June. 'This was a hot report that suggested that, if anything, the economy is re-accelerating,' Summers said… Alongside other factors including an 'epic' loosening in financial conditions, 'it seems to me the evidence is overwhelming that the neutral rate is far higher than the Fed supposes,' he said."

"Epic" loosening in financial conditions, indeed. I find the debate over the so-called "neutral rate" interesting, if not so relevant. The critical debate goes undebated: Are we today in the fateful "terminal phase" of history's greatest Bubble? Affirmative, with today's loose conditions and powerful speculative impulses having proved impervious to Fed rate hikes. While extraordinary, today's backdrop is not without precedent.

For students of market and economic history, there are too many alarming parallels to the waning days of the "Roaring Twenties." I again this week found my thoughts returning to the conclusion of Ben Bernanke's November 2002 speech, "On Milton Friedman's Ninetieth Birthday": "Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."

"It follows, then, that the height of the recent boom and the depth of the depression are fundamentally the outcome of Federal Reserve credit extension. The recent cycle may therefore properly be designated a central banking phenomenon. The exaggerated character of the last boom and the slump is understandable only in the light of the superimposition of a central banking system upon our former system. And an understanding of what was taking place in our banking system, largely as a consequence of the enactment of the Federal Reserve Act, is essential to an explanation of the causes of the depression. If the recent cycle has proved so puzzling to so many students of its devious course and manifold phases, it is because the full effects of the creation and operation of this central banking system upon the commercial banks have not been widely nor adequately understood; nor, furthermore, have the influences of the changing structure of the American banking system upon the structure of production been fully realized." Banking and the Business Cycle, C.A. Philips, Ph.D., T.F. McManus, Ph.D. and R.W. Nelson, Ph.D., 1937

Our understanding of the most momentous financial and economic occurrence of the past century has been terribly undermined over the decades. Great contemporaneous insights and analyses of the causes of the Great Depression were repudiated by the historical revisionists. Rather than recognizing the major impact Federal Reserve operations exerted over the historic "Roaring Twenties" Bubble period, revisionists extraordinaire Friedman and Bernanke turned history on its head by blaming the collapse on Fed tightening and their failure to print enough money.

From Bernanke's speech: "For the early Depression era, Friedman and Schwartz identified at least four distinct episodes... Three are tightenings of policy… The first episode analyzed by Friedman and Schwartz was the deliberate tightening of monetary policy that began in the spring of 1928 and continued until the stock market crash of October 1929. This policy tightening occurred in conditions that we would not today normally consider conducive to tighter money: As Friedman and Schwartz noted, the business-cycle trough had only just been reached at the end of 1927…, commodity prices were declining, and there was not the slightest hint of inflation. Why then did the Federal Reserve tighten in early 1928? A principal reason was the Board's ongoing concern about speculation on Wall Street."...

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