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Is Powell Serious About Lowering Inflation

With headline CPI tumbling 0.1% more than expected to 5.0%, the hearts of those waiting for a Fed pivot were gladdened. With every Fed Chairman pivoting since Greenspan started that gift to the rich after the 1987 stock market crash, it’s no wonder the market refuses to decline, because every time there is a slight sign that interest rates will start falling, the Wall St. dogs start salivating and hold the stocks. But with the CPI still at 5.0% and with rates ranging from a high of 5.096% on the 6-month note to 4.797% on the 1-year T-Bill, real rates are still negative. The 10-year rate at the end of this year was 3.515% and the 30-year was 3.737. So, obviously, the markets are believing that serious inflation is not a long-term threat.

There are three people who I have had on my show in the past who are not going along with most everyone, including gold bugs who think a Fed pivot is a certainty. Those three are David Stockman, Danielle DiMartino Booth, and Tom Luongo. All three have held that Chairman Powell is dead serious about not only lowering inflation but also fixing the huge pathology in the capital markets cause by the Pivot. The capital markets are broken because of it. Not only are we getting huge misallocation of capital because of a decade worth of zero rates, but additionally, it is a main reason for the massive redistribution of income from the middle classes to those who were already wealthy. Tom and Danielle appear to be closest to agreement on Powell’s motives. I have not questioned David about it though I should, if I have him on my show again soon. In other words, Danielle and Tom seem to think that Powell is really trying to fix this capital market problem. Tom, especially, thinks it’s even bigger than that. He sees it as an anti-Davos move on the part of Powell as well as the New York Fed and major money center bankers who do not want to give up their positions to a central government managed banking system, aka Modern Monetary Theory (MMT). This anti-Davos desire of course runs counter to the radical Democrat Party of our day who are hellbent on creating a communist state in the U.S., though for political reasons they won’t admit that. 

But there may be another reason Powell may be stingier than almost everyone believes, and that is because of a desire to defend the dollar and save the empire. Alasdair Macleod wrote this in his article “Time to Trash Triffin,” published last Thursday: 

Increasing numbers of national governments are abandoning the US sphere of influence. Opportunities from trade with Asia compare favorably with rising currency and banking risks in a dollar-centric world. Against an imploding banking system in long-established financial markets, China’s renminbi looks like a safe haven. Thanks to a savings-driven economy, China’s consumer price inflation remained very low, when those of the western alliance soared. 

Now we face a credit crunch, as banks struggle to reduce their operational gearing which has become uncomfortably high. Consequently, borrowing rates will be driven higher, taking interest rate control out of central banking hands. Higher interest rates and therefore bond yields due to a credit crunch will escalate the banking crisis, which is only in its early stages.

Consequently, central bank credit will be inflated to prevent the commercial banking network from collapsing and to fund rising government budget deficits. It is the prospect and realization of these conditions that will lead ultimately to a collapse of fiat currency values, and foreign holders of dollars, euros, and sterling are only beginning to understand the danger. Note that the enormous amount of U.S. dollars foreigners still hold in U.S. Treasuries only are about $7 trillion but overall hold about $30 trillion. If Alasdair is right then we can see a massive decline in the purchasing power of the dollar, all of which is bullish for gold.

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