We had the ‘New Economy’ into 2000. This was the economy where tried and true creators of value and wealth were shunned for the revenue-free start ups that were going to lead us into a brave new world. The new economy worked well until tried and true traditional laws of economics and finance once again asserted and the pitch was revealed for the scammy promotion that it was.
Now we seemingly have entered a phase of ‘New Economics’, where things like gold’s correlation to the yield curve no longer matter. The rising yield curve indicates stress upon the system, against which Dear (Monetary) Leader [DML] continues full inflationary speed ahead, buying those long-term bonds with newly printed money. That is called inflating, yet it is keeping the yield curve from looking even more bullish (bearish for markets and the financial system). And gold goes the wrong way, along with many commodities.
There are no signs of inflation because they are inflating, see? They are buying bonds to keep yields low (or lower than they would otherwise be). They are inflating to keep the signs of inflation low here in Wonderland.
For the last little while things have not made sense. Meanwhile the stock market is rising with gusto and what feels like a desperate attempt to prove something; to prove that bullish is the way to be and that everything is okay in the rapidly heating economy. But considering the promotion and considering that laws of economics really do not change, the conclusion is that when this ends (up for serious debate) it is going to end really badly.
If there is no inflationary boogy man laying beneath the surface and if deflationary liquidation is not in near future, why on earth has the yield spread not gone down? Why on earth for that matter is the DML continuing the systematic inflation in the face of rapidly improving economic data? He should declare job done and stand aside as the organic economy takes over and momentum takes takes us the rest of the way to 6% unemployment and better.
With the inflation that he has somehow managed to get into the system while keeping the lid on prices and inflation expectations thus far, you think about things like champagne bottles and corks, slingshots, etc. Or may trap doors. The transition to inflationary or deflationary resolution doesn’t seem like it will come by up or down escalators. Those are much too slow and gradual.
This is either going to resolve in an unbelievable failure – with criminal implications to come – or Ben Bernanke truly is ‘The Hero’ per the Atlantic magazine cover. All or nothing. That’s our Ben. That’s our DML.