The goal of this post is to chart the rise (and potential peak) of ‘capitalism’ … as I understand it. This caveat is key. To study a social system, we must first define it. To many people, capitalism is a ‘mode of production’ (a definition inherited from Marx). The view that I take here, however, is that capitalism is primarily an ideology — or what Jonathan Nitzan and Shimshon Bichler call a ‘mode of power’. Capitalism is a set of ideas that justify the modern social order....Economics from the Top Down
Have We Passed Peak Capitalism?
Blair Fix
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ReplyDeleteDo you take the red pill or blue pill ?
ReplyDeleteIt should be the real economy that sets where inflation is, where profit margins are, where employment is etc, but for years now the equity market leads the economy. The eye of Horus is the economy and we pay CEO’s casts amounts of money to produce nothing, we pay them to speculate.
The CEO’s are Shepard’s of the equity price. The minute the equity price falls they run to their sheds to get their axes and start cutting costs. We can see hiring freezes, lay offs. The eye of Horus is delighted that bond yields are down while ignoring the fact why bonds yields are going down. That is the pricing in of a recession and what that will mean for earnings. We end up with this feedback loop of insanity that eats itself.
The $ is desperately seeking an emerging market crises as the strength of it is about to do some very real harm to those loaded up with $ denominated debt and who can’t export to get enough $”s to cover what they have borrowed. Along with not being able to import what they need.
The EU is a complete mess and are in real trouble because if they think hiking rates is a way to get out of this mess. How can they when the bond market vigilantes are sitting waiting ready to pounce on the spreads of the Southern European markets. They are holding meetings just so to organise another meeting because they don’t know how to get out of what they have created.
Here’s how I see it. Both the FED and the ECB couldn’t have made it any clearer that they are going to do whatever it takes to bring down demand, by taking a wrecking ball to high asset prices and with it the economy. How resilient the consumer/ job market is will determine how far and how deep they go.
There is going to be some real pain for the emerging markets and for parts of Europe until they FED and ECB have completed what they have set out to do. The real pain will be used to get support on the geopolitical map. For example $ swap lines will be given to allies only. If you even think of joining China and Russia you won’t get any. Don’t even think about moving away from the EU or in this time of stress from the bond vigilantes you are on your own. The real pain is going to be used to try and hold the Washington rules based order together.
If you don't know it by now they don't give a Damn about you. They are the trade union of the rent seekers.
In the past when it looked like the EUR was going to fall vs the USD the Fed and ECB got together to maintain a stable exchange rate via unlimited swaps…. Same could happen now…
ReplyDeleteLooks like it has already started.
ReplyDeleteStarted a couple of months ago and has already doubled.
https://mobile.twitter.com/Analystlearner/status/1542814471558774786?cxt=HHwWhIC-uc7llukqAAAA
You know that Matthew Pines the national security guy that models the unthinkable.
ReplyDeleteThere was already a white paper in place a national security strategy for geopolitical purposes.
While things like Basel III and SRF (and stablecoin regs) can help cram down more USTs into private balance sheets, and repo facilities like SRF/FIMA can help keep USTs “money good”, they may not be enough, and certainly seem more like temporary band-aids than enduring solutions.
The UST market has grown enormously but also become concentrated, opaque, and increasingly illiquid (in times of stress).
Demand for USTs as “safe and liquid” collateral is thus a very fragile demand—UST “moneyness” is really only secured by functioning repo markets/facilities.
https://mobile.twitter.com/matthew_pines/status/1541120810802450432?cxt=HHwWgMC8vcrNlOMqAAAA
China, Indonesia, Malaysia, Hong Kong, Singapore and Chile will each contribute at least 15B yuan ($2.2B) or US$ equivalent to a RMB Liquidity Arrangement in Beijing’s latest step to push the internationalization of RMB. The funds will be placed with BIS.
https://mobile.twitter.com/Byron_Wan/status/1540696858283999232
China Creates Yuan Liquidity Reserve Pool With BIS, Five Others
World Dollar Liquidity is contracting at a record -21% annualized rate.
WDL = Monetary Base + Foreign CB Holdings of Securities Held at the Fed.This is the “official” liquidity… imagine how things are getting in the offshore funding market.
The market for US sovereign debt is:
ReplyDelete-Highly concentrated (top 10 dealers have 74% of the market),
-Opaque (given little data on bilateral uncleared repo), and
-Illiquid (as trading firms that make up ~50% of volume pull out at first sign of trouble).
https://mobile.twitter.com/matthew_pines/status/1540126465647427586?cxt=HHwWhIC-4Ym30N8qAAAA
USD (DXY) strength is a symptom of a slow motion run on “dollar substitutes” (aka contraction in eurodollar/shadow banking).
Collateral scarcity (engineered) + vol driven dealer b/s contraction pushes everyone down the “moneyness” curve.
“Maturity transformation” sputtering…
https://mobile.twitter.com/matthew_pines/status/1539788264021819392
A simply amazing chart showing the hierarchy of the global offshore US-Dollar system.
ReplyDeletehttps://mobile.twitter.com/matthew_pines/status/1539795412126687233?cxt=HHwWgoCz6Zzxud4qAAAA
Global “eurodollar” system has metastasized via moral hazard of Fed backstop (swap lines, repo/credit facilities, “ersatz discount windows”, etc.) in an instability-crisis ratchet.
Origin of “Eurodollar” is because early deposits were held at Eurobank (Soviet accounts).
Swap lines born out of first Eurodollar crisis.
Wholesale shadow banking, not for thee (retail)—sound familiar (stablecoins/CBDC)?
If the Fed is “implicitly backstopping” euro$ system (which is not ex ante regulated to avoid blow-ups), what does that tell us about the “implicit” size of the Fed balance sheet?
Will be a live question over the coming months…,
The logical endpoint of this is global “viral governance” where US regs override other sovereigns (swap lines/USD clearing for friends only…)
Play this out a few moves ahead, in context of growing Eurasian power confrontation, OPEC iffy-ness, & economic (only?) war w/ China…
The term “viral governance” comes from this white paper.
https://mobile.twitter.com/matthew_pines/status/1539756005512339461
They have already war gamed it and playing it by the play book.
The whole thing will collapse the instant that 'foreign nations' realise that the only 'reserve asset' they have is the power to tax in their own currency.
ReplyDeleteAnd it is that which is the balancing asset at the central bank, not the 'foreign promises that likely will not be delivered' that currently sit there.
As soon as one makes the leap, the cascade will follow.
Matthew was involved in the modelling why he now has developed an unhealthy fascination with the plumbing of the US treasury markets.
ReplyDelete“ and increasingly illiquid (in times of stress).”
ReplyDeleteThat is because the “stress” is caused by the Fed forcing so many reserves onto depositories that everything becomes “illiquid “… including USTs..,
The “stress” is caused by the initial CB asset purchases…
In March 2020 the Fed added like 1.2T reserves onto depositories in like a week….
ReplyDeleteSo banks had to sell USTs and they became “illiquid!”…
And to make matters EVEN WORSE.., YOU GUYS think these people are smart!
His prediction...
ReplyDeleteFlow problem:
(Petro$-UST recycling): JP Morgan lends (creates) $ to Glencore ($ deposit)
Glencore pays $ to Saudi Aramco / $ end up at Saudi Monetary Authority / Saudis Monetary Authority buys USTs with $.
Stock problem:
(FX reserve diversification):
Exporting nations with large existing UST and eurodollar holdings diversify on the margin away from UST/$ to recycle excess surpluses into
1) non-G7 inside money in friendly jurisdiction (yuan) and
2) outside money (gold, BTC).
Note that Russia has no US Treasuries , nor direct $ balances at US banks -- only eurodollar deposits at Bundesbank & Bank of Japan. Freezing these reflects on all G7 fiat.
Sanctions explicitly carved out energy/commodities and self-sanctioning by corporates.
China is long-$ and short commodities (fossil fuels, metals/rare earths, grains). Strategic imperative to secure reliable commodity and energy sources.
If Russia and Asia marginally accumulate yuan in CHN banks, PBoC can issue bonds to soak it up (proto-petroyaun).
Makes no sense to accumulate fiat that will devalue against commodities.
PBoC becomes commodity central bank on friendly terms with largest commodity/energy producers, has large stockpile, shipping capacity, and can let RMB appreciate to achieve domestic economic objectives. Giving their middle classes more purchasing power.
Chinese capital account: closed right now, or was closed but exporting nations may bet that it will marginally open in the future (at least to them).
US capital account: open right now, but exporting nations may worry it may suddenly close in the future (especially for them).
The west will re-arm defense spend, pricing geopolitical conflict/instability premium, restock LNG/SPR spend-down, factory inventories, supply chain risk hedge, re-build (Green New Deal), Reshore (just-in-time to just-in-case).
This will all require fiat financing.
Add aging population with embedded social obligations and credit demand from state will inexorably grow -- and critically, this demand is NOT rate sensitive.
Western CBs will have to support gov borrowing (from QE/SRF to implicit YCC/RV hedge funds to explicit YCC).
But if critical inputs/energy sources become strategically scarce, potential for conflict rises, across all economic domains: cyberwar, trade war, currency war, grey-zone hybrid war, deniable sabotage, etc.
Domestic impulse towards price controls, wealth taxes, class war, etc.
This is a new paradigm. The structure of the international system is fracturing. This system is irreducibly complex.
Dynamic coupling and feedback loops will drive the global order to a new, irreversible equilibrium.
This phase transition will be long and chaotic.
Buckle up.
" In March 2020 the Fed added like 1.2T reserves onto depositories in like a week…. "
ReplyDeleteYou still haven't explained why they done it. You think they done it because they believe reserves increase bank lending and they loan out their reserves.
Which clearly isn't the case because Warren spoke with them.
You find yourself in a catch 22 Matt.
Why don't you even consider they did it slow down bank lending when you've pushed that theory for over 2 years.
They only allowed what was needed bank lending to go through.
Why don't even consider they did it to strip $ billions on interest income out of the economy because it had been shut down ?
You don't even consider these things it is all art degrees and think they lend out the reserves. Alf and Warren has already told you 100 times they don't believe it.
She why keep pushing that nonsense ?
Alf worked at the heart of it.
ReplyDeleteNever believed for one second they loan out reserves. None of them believe it. It is their propaganda nudging unit.
Why can't you handle that simple fact. I worked for one of the big banks none of the management believed it not one.
So starting from the premis nobody who pulls the leavers believes they lend out their reserves.
Why did they do it Matt ?
Why In March 2020 did they add like 1.2T reserves onto depositories in a week ?
Why ?
Because they had an art degree ?
The 2 year theory...
ReplyDelete"Look, look, Look, they've loaded up the banks with trillions of reserves and it's crushed loan growth."
That's probably why they did it in March 2020 to slow down demand ?
" No, no, no, they have art degrees "
Are you sure ?
" Yes, yes, yes they think the loan out reserves"
Are you sure ?
Are you sure they don't know how it works as what they did totally backs up your theory ?
" yes, yes, I'm sure they have art degrees"
Honestly buddy talk to yourself in a mirror so you can hear yourself.
"Exporting nations with large existing UST and eurodollar holdings diversify on the margin away from UST/$ to recycle excess surpluses into
ReplyDelete1) non-G7 inside money in friendly jurisdiction (yuan) and
2) outside money (gold, BTC)."
Whenever anybody talks in this way they always fail to explain who is on the other side of the trade and why.
Who is selling Gold and BTC for dollar assets and why? Who is taking the Dollar assets and issuing Yuan against them?
Nobody can be 'short' something without somebody else being 'long'. Nobody can get rid of these things. All they can do is change the relative exchange rate until the short and longs balance out.
Other than banks discounting, it's all just changing ownership tags. We need to start looking at it like that.
“ You still haven't explained why they done it.”
ReplyDeletelol it’s not up to me to explain their actions it’s up to them…
What they have said is that they do it to add reserves to “lend out!”… and increase the “money supply!”
Now they are going to reduce reserves to “quantitative tighten!” as they say we are having “inflation!”…
So I take them at their word which means they are stupid….
Meanwhile you guys and the MMT people all think they are geniuses and are conducting a secret clever conspiracy against the poors…
“ Currently, banks hold a large amount of reserves, which constitutes the largest component of the monetary base. If banks were to loan these reserves, they would effectively increase the money supply.”
ReplyDeletehttps://files.stlouisfed.org/files/htdocs/pageone-economics/uploads/newsletter/2011/201104.pdf
Checkmate…. AGAIN….