Get Ready: This Is the Only Way to Fix the Mess We’re In

Andy Snyder|October 5, 2022

Our piece Monday morning predicting a short-term bounce was dead-on.

We’ve gotten a big bounce this week… a deceptively big bounce.

It proves once again that the charts don’t lie. All it takes is some skill and experience to read them.

But how long will the upswing last?

For that, we turn to a very important question…

“Do you try to solve a supply-side problem with a demand-side solution?”

It’s an honest query. Lots of folks who dare to think about such things have asked it. But this time it was asked by a member of the United Nations economic team – the same team that’s now begging the Fed to stop raising rates.

Its report to the world didn’t mince words.

“We think that’s a very dangerous approach.”

It’s hard not to agree. But for the U.N. to come knocking… that’s nuts.

Indeed, there are some very troubling signs out there.

For one, inflation is running at 40-year highs, yet interest rates are still quite low. By long-term standards, we’re not even back to “neutral” territory.

But yet, look at the havoc caused by even a moderate bump in the cost of money. By being the best of a weak crop of currencies, a strengthening U.S. dollar is creating economic harm throughout the world.

It puts the Fed in a rough spot. If it destroys inflation, it’ll squash the global economy, likely rewriting the rules of modern economics in the process.

If it backs down… inflation will eat us up.

Gobble, Gobble

Dare we say this is what we get? This is the pile of dung that lies at the bottom of that slippery slope we’ve so often mused about. Decades of shortsighted decisions have led to painful long-term problems.

It’s what the U.N. is inquiring about this week.

How can we fix a supply-based problem (there’s too much money) with a demand-based solution (make it too expensive for the economy to grow)?

Old-school economics will tell you the Fed’s solution will work. Slow the economy enough, the theory goes, and all that extra money will disappear.

But that takes time. And when it’s forced, it’s quite painful.

Even more, while the textbooks will tell you it’s a proven theory, it’s been used only a time or two. And in no past instances were we trying to soak up $5 trillion worth of cash that had been printed in the span of months.

It’s why we’re scratching our head these days and pondering whether the folks in charge will change paths.

Perhaps it’s time for something big… something shocking.

Nixon did it. He took us off of gold.

Volcker did it. He surprised us on a Saturday night.

Powell is doing what the playbook tells him to do. He’s doing what he can with the tiny toolbox he’s been given. But sometimes a hammer isn’t enough.

Sometimes we need a screwdriver and a crowbar to rip the whole darn thing apart.

Shock

Nixon stunned the world when he disconnected the dollar from gold. It opened the door to a generation of prosperity followed by… well, we don’t know yet, but it looks like a generation of trouble.

Volcker’s move was less daunting. He simply tricked the markets and got ahead of their guesses. It worked… but it took years.

These days, if inflation isn’t fixed within a quarter, the world panics. If economies see pain for a few months, leaders want to move in a new direction.

It’s not good.

They want the fire without the fury.

The only way to get one without the other is to shock the system and rewrite the rules.

Elections will gum up the works for the next month. Things will look rosy between now and then. After that… a world of textbooks may be out of date.

This mess won’t be solved with common sense and rational logic.

Nope. A shock is on the way.

That reminds us… Do you own gold?

Be well,

Andy