Money Flow Trading Method along with Risk Management

Antal E. Fekete

January 9, 2003

That central bankers are the quartermasters of inflation is no longer a controversial assertion. That much was admitted by central banker Alan Greenspan in his speech before the Economic Club of New York on December 19, 2002 (see: www.federalreserve.gov/BoardDocs). He observed that as long as the gold standard was in charge of money-creation the price level was relatively stable. For example, in 1929 it was hardly different from that in 1800. But, after gold was banned and central bankers were put in charge in 1933, the consumer price index nearly doubled in two decades. And in the four decades after that prices quintupled. In other words, under the watch of the gold standard the dollar preserved its purchasing power for a period of one and one third of a century, but under the watch of the central bankers it managed to lose 90 percent of it in half of that time-period.

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The Specter of Deflation
Presently the specter of deflation is haunting the world, so much so that central banker Ben Bernanke felt obliged to address the problem in a speech before the National Economists Club in Washington, D.C., on November 21, 2002 (see: www.federalreserve.gov/BoardDocs). He presented a simplistic view of deflation defining it as a general decline in prices. Actually, it would be more accurate to say that deflation manifests itself through a general decline in prices andinterest rates. Mr. Bernanke identified the source of deflation as a collapse in aggregate demand -- a drop in spending so severe that producers must cut prices on an ongoing basis in order to find buyers. Of course, this is the view of an unreconstructed Keynesian. But Keynesianism has been brain-dead for some three decades, so we ought to feel emancipated from its tyranny. We identify the source of deflation as reluctance of producers to take the loans that bankers try to push on them through ongoing interest-rate cuts. Uncharacteristically, producers are pessimistic about future profit opportunities. Instead of contracting new debt, they scramble to get out of the old, and try to retrench by reducing inventory.

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Guided Tour of the Star Chamber
Messrs. Greenspan and Bernanke claim that the Federal Reserve has the situation firmly in hand. If deflation were to develop, options for aggressive monetary policy response such as lowering interest rates are available. They admit that the zero lower bound on nominal interest rates presents a problem. Even if debtors were able to refinance loans at zero nominal interest, they may still feel excruciating economic pain caused by high and rising real rates due to the falling price level, as shown by their deteriorating balance sheet. However, Messrs. Greenspan and Bernanke reassure us that monetary policy will never lose its ability to stimulate aggregate demand and the economy, zero interest notwithstanding.

Mr. Bernanke gives us a guided tour of the Star Chamber, showing all the instruments of torture and explaining how they are to be used. The first of these is the printing press. Under a fiat money system the central bank generates inflation by this technology allowing it to create as many dollars as it wishes at essentially no cost. But it is not enough to create fiat money; you must also be able to put it into circulation or, at least, to make credible threats (sic!) to do so. Normally the Fed puts newly created fiat money into circulation through asset purchases. This particular torture instrument is used by the Fed to reduce the value of the dollar in terms of goods and services. Under a paper-money system a determined government and its central bank can always generate higher spending and induce positive inflation, we are told.

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Pushing on a String
If this has the result of pushing short-term interest rates to zero, the Fed will still not be at the end of its rope. It can further stimulate aggregate spending by expanding the menu of assets that it buys. If we do fall into deflation, we can take comfort in the thought that "the logic of the printing press" will ultimately assert itself. Sufficient injections of new money must eventually reverse a deflation.

So what may the Fed do if its target rate, the overnight federal funds rate, has fallen to zero? Why, it will change the target, that's what. It will stimulate spending by lowering interest rates further along the maturity spectrum. It will target the two-year rate by committing to make unlimited purchases of securities maturing in two years or less. But suppose that deflation is so stubborn that spending is not stimulated even as the two- year rate is pushed down to zero. Well, then change the target again, this time, say, to the ten-year rate, committing to make unlimited purchases of securities maturing in ten years or less. And so on, ad libitum. Mr. Bernanke says that lower rates over the entire maturity spectrum of public and private securities should strengthen aggregate demand "in the usual ways", and thus help end deflation.

This betrays our central bankers' ignorance of the nature of the beast. The Fed may be pushing on a string. People may refuse to spend the money in the "usual ways". It is one thing to print fiat dollars, and another to make people spend them. No problem, Mr. Bernanke says. If lowering yields on longer-term securities proved insufficient to re- start spending, the Fed might next consider offering fixed-term loans to banks at zero interest, with a wide-range of private assets (including, among others, corporate bonds, commercial paper, bank loans, and mortgages) deemed eligible as collateral.

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Operation Helicopter-Drop
But the banks may not use the loans at zero interest in the way intended by the Fed. They may not want to make further loans to their clients whose prospects to turn a profit are dim at best. The banks may find it far more attractive to invest in bonds for the capital gains guaranteed by the central bank's zero-interest policy. Business lethargy may not react to loans offered at ever lower rates. In this case Mr. Bernanke recommends the helicopter-drop of money, an idea first suggested by Milton Friedman. There must be a way to put fiat money into circulation, if not by hook then by crook! A broad-based tax- cut financed by open market purchases of securities by the Fed should do the trick. This "manna from heaven" should re-start spending. The Federal Reserve and other policymakers are far from helpless in the face of deflation, even if the rate of interest is already pushed all the way to zero.


Taking Risks out of Bond Speculation
All this talk is old hat, except for the fact that heretofore it hasn't been considered polite behavior for central bankers to flaunt their authority to create fiat money in unlimited quantities, and to boast their power to drive down the value of the dollar in terms of goods and services. More interesting than what these gentlemen say is what they don't say. They studiously avoid reference to the 100 trillion dollar behemoth: the interest-rate derivatives market, and to bond speculation. Derivatives are a tell-tale, revealing the big picture. Far from trying to prevent or to combat it, the Fed is promoting deflation. It does, in fact, act as the quartermaster of deflation. Every one of the torture instruments in the Star Chamber enumerated above is making deflation worse, not better.


What the $100 trillion derivatives market shows is that the main feature of deflation is the invisible but nonetheless real bull market in bonds. Nobody is talking about it, although the bull market in bonds that started in 1980 has been the largest of all bull markets of all kinds in all history. Fabulous fortunes have been made and will be made before it is over, thanks to the Fed that has taken the risk out of bond speculation.

The speeches of Messrs. Greenspan and Bernanke are the best example to demonstrate the charge. Speculators are told that the Fed is prepared to buy unlimited quantities of securities across the entire maturity spectrum. What is this if not an invitation to get aboard the bandwagon and share the ride to infinite riches? Come and get the bonds before we snap them up. Fear not, your investment is absolutely safe. Your friendly central banker has made bond speculation risk-free. He underwrites the unlimited capital gains you are going to make on your speculative bondholdings (or on your long positions on bond futures, or on your call options on bond futures). The figure $100 trillion shows the extent to which speculators have rallied to the call of the Pied Piper. It measures bets in the aggregate that speculators have made on ever-increasing bond prices or, what is the same to say, on ever falling interest rates.


Of course, interest rates will never go to zero. They just keep getting halved. The yield on long-term Treasury bonds was 16% in 1980. It has been halved to 8% and will be halved again to 4%, according to the script of Messrs. Greenspan and Bernanke. After that the target at successive halvings will be: 2%, 1%, 0.5%, 0.25%, 0.125%, 0.0625%, etc. As you see, it never gets to 0%.

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Falling Interest Rates Squeeze Profits
Paradoxically, falling interest rates squeeze profits. Conventional wisdom suggests otherwise: lower interest rates are considered salubrious to business. However, we ought to distinguish between a low interest rate structure and a falling one. Only the former is salubrious; the latter is lethal. Falling interest rates reveal that past investments in physical capital have been made at too high a rate of interest in view of lower rates presently available. Furthermore, even the low rates of today will appear too high tomorrow. This explains business lethargy. Expanding production would appear foolhardy as long as the decline in the rate of interest continued. Falling interest rates make the cost of servicing past investments soar. As bond prices rise, the present value of debt will rise as well. So does the cost of liquidating a liability. These increases hit the profit margin, regardless whether the fact is realized by the producers or not. If not realized, the outcome will be that much worse. As the firm is paying out phantom profits in dividends, it is undermining its own financial strength already weakened by the falling price level. At one point the firm will be unable to pay its bills and will be forced to seek bankruptcy protection. Then there is the matter of the domino-effect. Even perfectly healthy firms are hit by deflation: they may find it impossible to collect their receivables and go under after their debtors have -- all because of the falling interest rate structure.


Financial Vampirism
In the view presented here deflation is a huge wealth-transfer scheme from the producing sector to the financial sector, denuding the former of its capital, and enriching the latter with risk-free capital gains. Indeed, the beneficiaries of the falling interest-rate structure, making risk-free profits thanks to the zero-interest policy of the central bank, are the principals of the financial sector, chief among them those of the big money-center banks. Their obscene profits do not come out of thin air. Their wealth is not newly created wealth. It is existing wealth siphoned off the balance sheet of producing enterprise, forced into bankruptcy by the falling interest-rate structure. This is modern vampirism practiced by the financial sector, aided and abetted by the central bank, and its victim is the producing sector.
The bear market in stocks is not the cause but the effect of deflation. The cause is the artificial bull market in bonds financed by the central bank. If you ask the bond speculator about his obscene profits while the rest of the economy crumbles around him, he will shrug: "I play by the rules. And I did not make those rules either."


Bond Speculation Is No Zero-Sum Game
The proof of complicity of the banks in the bond-speculation-scheme is the $100 trillion derivative monster. No small-time speculators could create such a Moloch. It was created by the big money-center banks, for their own benefit, with complete disregard for the disastrous effect it has on the producers of goods and services. The total face value of outstanding bonds falls far short of the colossal figure of $100 trillion. It is against common sense, and an invitation to disaster, to allow speculative long positions to exceed total supply. Messrs. Greenspan and Bernanke have no comment on all this, except to confirm policies that are conducive to further increasing the debt behemoth and further whetting the appetite of the $100 trillion derivatives Moloch.

We are told that the sum of $100 trillion is "only a notional amount". However, the profits of the bond speculators are not notional. They are payable in cold cash. If indeed interest rates did go down, and the price of bonds did go up, say, one percent, then the speculators' profit would be $1 trillion in cash. Who is going to pay that?

Economists will tell you that the profit of one bond speculator is the loss of another. Don't buy that. It would be true only if speculation was a zero-sum game, and it was a case of stabilizing speculation. It is true that some speculative markets answer that description. An example is the commodity market trading agricultural goods. It fits the model of a zero-sum game. This is so because the risks involved in commodity trading are nature-given, having to do with the fickleness of the weather and the unpredictability of natural catastrophes such as a flood or a tornado. Human mortals are not privileged to see the future. Speculators in agricultural commodities make money by resisting the formation of price trends. But in markets where the risks are made (unmade!) by man such as the market for bonds and their derivatives, speculation is not a zero-sum game. There, speculators make money not by resisting price trends but by riding them. This is the case of destabilizing speculation.

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Power to Create Is Power to Destroy
The producers are sitting ducks in this speculative shoot-out. They have no choice. They must carry the risk of owning productive capital, without which there will be no consumer goods for Mr. Greenspan and Mr. Bernanke, or for you and me. This is an accurate description of the mechanism whereby the capital of the producing sector is surreptitiously siphoned off for the benefit of the financial sector as the rate of interest is driven down to zero. The producing sector is condemned to bankruptcy. It is a victim of plunder sanctioned by the Criminal Code. This is the essence of deflation: speculators aided and abetted by the central bank are allowed to bid bond prices sky-high, in complete disregard for the havoc that falling interest rates will wreak with the capital accounts of the producing sector, not to mention losses inflicted on stockholders. The $100 trillion derivatives market is a monument to the folly of man in delegating unlimited power to the central banker to create as much fiat money as he wishes. Former central banker Paul Volcker knows. He has been there. He is quoted as saying that "the truly unique power of a central bank is to create money and, ultimately, the power to create is the power to destroy." If the central banker has unlimited power to create, then he has unlimited power to destroy. And destroy he does, especially the savings of ordinary people.


Why Are Economists Silent?
I am aware that my warnings will be received with a great deal of skepticism. The central banker as the quartermaster-general of deflation? Arrant nonsense! Not only does the central bank has its own army of research economists, it also has the benefit of the knowledge and research of the entire profession. There can be no question that the central bank wields its awesome power while enjoying the best economic advice money can buy! Siphoning off wealth from the balance sheet of others is straight out of science fiction, my critics charge. The allegedly injured party, the producing sector, hasn't complained that its capital is open to pilferage. The media in reporting the crash of Swissair and United did not suggest foul play in plundering the airlines' balance sheets.

Yet you may dismiss my charges only at your own peril. The awareness is growing that not just the media, but the entire profession of monetary economists has been bought off by the central banking establishment in order to put the best possible spin on our fiat money system. In an interview on December 17, 2002, entitled "Our Dishonest and Corrupt Monetary System" (www.kitco.com), Dr. Larry Parks recalled that John Kenneth Galbraith, the Paul M. Warburg Professor Emeritus of Harvard University, had published a book in 1975 entitled Money, Whence It Came, Where It Went. In this book the professor wrote: "The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it." In other words, Galbraith is saying that when it comes to money, economists lie! Dr. Parks asks: why do they lie? They have tenure. Why don't they tell the truth? He concludes that the monetary economists, for the last fifty years or more, have been bought off. With Nobel-prizes, endowed chairs, research grants, board memberships, and other perks. Monetary economists have betrayed their Muse, to serve Mammon.


Off-Balance-Sheet Wizardry
That the profession of the accountants has been bought off by the financial sector came to light recently in the wake of the Wall Street accounting scandals. But in spite of the great publicity given to these scandals by the media, the problem has not been fixed. A few small-time crooks may have been apprehended, but none of the authors of the scheme whereby banks are allowed to cook their books has been charged. The truth is that banks can carry assets, such as bets in the derivatives markets, "off balance sheet". They do this in order to find shelter from the scrutiny of depositors, creditors, shareholders; more generally, from the scrutiny of taxpayers at large. Accountants, regulators, and bank inspectors know this, but that's a different matter. Apparently, they have been bribed, too. They are part of the conspiracy. This is how Dr. Parks describes the fraud:
"Fractional reserve lending is jargon for creating money out of nothing. That's what that means. In the case of derivatives, these are bets that the banks make. The banks today in the aggregate worldwide have made roughly $110 trillion worth of bets. That's all they are. Banks are making bets and creating money. One of the things that obscures this for everybody is that banks alone do not have to reveal their entire balance sheets, as all other public companies must do under Securities and Exchange Commission regulations. Banks have the option, with some of their assets, to put them in a basket that they call "held for investment". When they put assets in that basket (they could be stocks, bonds, or whatever), then those assets are held at historical costs, rather than at market value... Nobody else gets away with this except for them. The reason they get away with it is because they say, in effect: 'If we had to mark everything to market, there would be too much volatility in our earnings. We don't want you to find out.' All this is secret. It's called bank secrecy... There are winners and there are losers. The losers are the ordinary people who lose their pensions, their savings, their jobs. The winners are the financial guys... These guys have no downside... Do you know what the banks took out of the economy last year? Nearly $400 billion. The Wall Street firms who get transaction fees for moving the newly created money around took another roughly $250 billion. Between them they took out nearly three times the amount of money that the auto industry took out. But from the auto industry we got 20 million cars. What did we get from these guys? We got cancelled checks and bank statements. This is monstrous, don't you think?"


Playing with Fire
I am not predicting that interest rates will keep falling to zero and that the world economy will succumb to deflation. I just want to sound the alarm that it might, in view of the counter-productive monetary policy of central bankers. Other scenarios, no less frightening, are also possible. Paradoxically, the threat of zero-interest (deflation) and that of infinite-interest (hyperinflation) are separated only by the knee-jerk reaction of the marginal bond speculator. He may get scared by the threats of Mr. Bernanke to undermine the purchasing power of the dollar further. As he becomes persuaded by the "logic of the printing press", the marginal bond speculator may cut and run. Then other bond speculators, especially those abroad, could dump their U.S. Treasury bonds, too, and run for the exit. Quite possibly Mr. Bernanke thought that he was just "fine-tuning" the purchasing power of the dollar. Under this scenario he would destroy it. When the central banker threatens to reduce the value of the dollar in terms of goods and services, as Mr. Bernanke does, he is playing with fire. After dumping the bonds, people may dump the dollars, too. First the foreign and then the domestic holders. They need not be reminded that the central banker has the card to trump deflation -- by triggering hyperinflation. How desperate must the specter of deflation appear to Mr. Bernanke that he has seen it fit to flaunt his possession of that card!

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Congress, Not the Fed, Has the Solution
It is not too late for the U.S. Congress to act to fend off disaster. It should immediately take away the unlimited power from Messrs. Greenspan and Bernanke to create as much fiat money as they wish, and to drive down the value of the dollar in terms of goods and services. Not only are the present monetary arrangements blatantly unconstitutional, they are responsible for the destabilization of the rate of interest allowing it to swing from one extreme to the other, causing grievous economic damage along its path. The House of Representatives, to which the Constitution delegated the monetary powers, can rectify this by going back to constitutional money. It should stabilize interest rates without any further delay, and remove the threat of both zero and infinite interest, by opening the Mint to gold and silver. This is a Republic based on checks and balances. It has a government of limited and enumerated powers. Neither arm: not the legislative, not the executive, nor the judiciary may claim to have unlimited powers under the Constitution. Why should officers of the Federal Reserve be allowed to make such claims?
Free coinage, a right of the people enshrined in the U.S. Constitution, would remove the greatest threat this Republic has faced in its entire history up to now, greater even than that of foreign terrorists. This is the threat to destroy the capital of the producing sector, through the machinations of the financial sector, aided and abetted by the Federal Reserve.



Copyright 2003 by Antal E. Fekete

January 18, 2003

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CORRECTION
I am very grateful to James E. Schoenbeck for calling my attention to a mathematical error in the example I used in my latest article The Central Banker As the Quartermaster-General of Deflation. I also used the same example in earlier articles such as Wrecker's Ball of Swinging Interest Rates. Mr. Schoenbeck wrote me on January 8, 2003, as follows:
"Professor:
While I enjoyed reading your article, I take dramatic exception to your pricing of the hypothetical bond as interest rates decline. If the interest rate dropped from 16% to 0% overnight, the price on the 30-year bond with 16% coupon, $1,000 par, would go to $5,800. A nice increase, to be sure, but nowhere near the 1,000-fold capital gains of which you talk

While it is true that the value of a 30-year bond will almost double when the rate is halved from 16 to 8%, it is no longer true as it is halved further from 8 to 4%, from 4 to 2%, from 2 to 1%, etc. Below is a table showing how the value of a $1,000 investment in a 30-year bond goes up with each halving (after which the investor takes profits and rolls out to a new 30-year maturity)

16 to 8%$1,000 to $1,900- - - - - - - - - - - - - - -
8 to 4%$1,000 to $1,700or $1,900 to $3,200
4 to 2%$1,000 to $1,450or $3,200 to $4,684
2 to 1%$1,000 to $1,260or $4,684 to $5,855
1 to 0.5%$1,000 to $1,140or $5,855 to $6,675
0.5 to 0.25%$1,000 to $1,070or $6,675 to $7,142
0.25 to 0.125%$1,000 to $1,037or $7,142 to $7,406
0.125 to 0.0625%$1,000 to $1,019or $7,406 to $7,546
Wouldn't you agree that we are fast approaching a limit here? The value of the $1,000 investment will stay below $10,000 no matter how many times the rate of interest is cut into half, and will never be worth anything like $1,024,000 under any circumstances. Sorry... but making money is not that easy..."

James E. Schoenbeck
[email protected]
I concede that under the simple strategy of buying and holding the 30-year bond, or continually rolling it over to new 30-year bonds, the $1,000 investment cannot be doubled in value with each successive halvings of the rate of interest. But there are other more sophisticated strategies available involving strip bonds, and derivatives such as: bond futures, call and put options on bond futures, knock-out calls and knock-out puts, interest-rate swaps, and various combinations of these which bond speculators can use, and do use, in order to double their investment (or do even better) every time the rate of interest is halved. I quote from J. Taylor's Gold & Technology Stocks newsletter, January 7, 2003, issue (www.miningstocks.com):

"Michael B. O'Higgins was able to turn $1,000 into $415,302 by being in bonds, not stocks... If you invested $1,000 in the Dow in 1972, that investment would have been worth only $27,347 as of December 27, 2002. But had you invested $1,000 mostly in bonds during that time, your initial investment would have turned into $422,819." (Visit www.miningstocks.com for more information on this amazing but true story which can be fully documented. The point is that lenders make a killing during periods of falling interest rates at the expense of debtors.)



But even these fabulous profits could not explain the creation of the $100 trillion derivatives market coming, as it did, out of nowhere. Individual bond speculators could not possibly accomplish this feat. It was accomplished by the big money-center banks. They are responsible for the prolonged agonizing fall of the interest-rate structure, the flipside of which is the snowballing of the derivatives monster. They make up the bond market. They run it. They buy the bonds and interest-rate derivatives before the Fed can buy, since the Fed buys through services they can provide. If there has ever been socially devastating insider trading, then this is it.
My point is that Keynesian monetary policy takes the risk out of bond speculation. It makes it extremely profitable and a sure bet. This explains the persistent fall in interest rates, and the snowballing of the derivatives market, all of which spell deflation. Deflation is not merely falling prices; it is falling prices plus falling interest rates, squeezing the debtors. This deadly combination is not an Act of God. It is caused by unlimited speculation in bonds, with profits underwritten by the central bank.

Keynesian contra-cyclical monetary policy and "deflation control" is a disaster. Nostrums advocated by Milton Friedman and other monetarists are equally disastrous. Far from containing deflation, the central bank is causing it, through its counter-productive measures such as bond-buying programs widely advertised through speaking engagements such as those of Messrs. Greenspan and Bernanke, prompting more and more bond speculators to climb on the bandwagon to have a free ride to riches. Rather than relieving debt-implosion, this mindless monetary policy is, in fact, the one identifiable cause of it through the bankrupting of the producing sector.

Mr. Bernanke made a solemn vow to Milton Friedman at his 90th birthday party at the University of Chicago. He vowed that the Fed would not repeat the mistakes it had made in the 1930's in not whipping and chastizing deflation vigorously enough. This brings to mind the Biblical story of King Rehoboam, the son of King Solomon, who answered the people when they petitioned him to lighten their burden: "My father hath made your yoke heavy; I will add to your yoke. My father chastized you with whips; I will chastize you with scorpions." (First Book of Kings, 12:11.) May God save the producers of this country from the yoke and the scorpions of the Fed.
January18, 2003

Antal E. Fekete

(21) Two Cheers for Vivek Ramaswamy's Commentary on the Fed (substack.com)

Two Cheers for Vivek Ramaswamy's Commentary on the Fed
"What’s needed is a paradigm change away from the notion of monetary policy, which accepts a monetary system dictated by the central bank and politicians."


QUOTH THE RAVEN
MAR 26, 2024

By Mises Wire, Matt Ray
The 2024 presidential primaries have never been in much doubt, but Vivek Ramaswamy emerged from his presidential campaign poised for the future. In part, Ramaswamy distinguished himself with his criticism of the Federal Reserve. For most of the election cycle, scarcely a word has been said about the Fed by other 2024 presidential candidates. It is therefore worth reviewing what Ramaswamy had to say about monetary policy during his campaign.

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As Jonathan Newman noted, Ramaswamy’s principal proposal was a stable price level for the dollar. Ramaswamy promoted this idea throughout his campaign, but our focus will be an article by Ramaswamy in the Wall Street Journal that presents his case in greater detail. Ramaswamy writes:
Beginning in the late 1990s, the Fed’s scope drifted to include “smoothing out” business cycles. This was a mistake since business cycles serve a healthy function by transferring the assets and employees of poorly run companies to more capable management. Even worse, the Fed’s actions often exacerbated business cycles by creating transitions that create boom-bust-bailout cycles instead.

It is more accurate to say that once the business cycle is set in motion by credit expansion, the recession is a necessary correction, but it is preferable to refrain from credit expansion to begin with. Ramaswamy seems to grasp that any additional government intervention to prevent or delay the liquidation of malinvestments from the preceding boom will only aggravate and perpetuate the depression. Crucially, however, Ramaswamy’s stabilization policy would cause, not prevent, such an inflationary boom.

The natural tendency of the unhampered market economy is toward capital accumulation and increased productivity. Consequently, prices tend to fall, making monetary inflation necessary to achieve a stable price level. The effect of monetary inflation to offset the increase in productivity and to stabilize the price level is still to push interest rates below the rate that would have prevailed on the market and distort the structure of production.

A popular fallacy at the heart of this doctrine asserts that such inflation is justified because falling prices decrease profitable investment opportunities, but profits don’t depend on the general price level. Lower prices due to increased productivity are also reflected in lower prices for factors of production, and entrepreneurs profit from the differential between the selling price of a good and its cost of production.

Although intending to show that a stable price level is conducive to prosperity, Ramaswamy provides powerful ammunition against the theory of a stable price level by citing the 1920s as a historical example:
During the only stable dollar eras of the last century, annual GDP growth averaged 4.9% in 1922–29, 4% in 1948–71, and 3.7% in 1983–2000. The volatile dollar from 2000 to 2022 saw an average growth of a paltry 1.9%. Had the dollar remained stable since 2000, with an enduring 3.7% growth, the economy would be nearly 50% greater than it is today, and we would have avoided multiple financial crises along the way.

To demonstrate that the 1920s was an unsustainable inflationary boom that led to the stock market crash, we will review the development of the boom. All information and quotes about the subject hereafter are taken from Murray Rothbard’s groundbreaking book America’s Great Depression.
Contemporaneous with the beginning of the boom was the first inflationary push as open market purchases tripled the Fed’s stock of United States government securities between November 1921 and June 1922. When the rate of inflation slowed, the US experienced minor recessions in 1923 and 1926 until a larger inflationary surge in 1924 and the heaviest burst of inflation in 1927.

The final phase of inflation concluded around December 1928, and business activity was on the decline by July 1929, marking the end of the boom. Stock prices, which had risen by about 20 percent in the latter halves of 1927 and 1928, culminated in the stock market crash in October 1929. During these eight years, the Fed kept rediscount rates below the market, and there was a 63 percent increase in the money supply not covered by an increase in gold.
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However, Ramaswamy is correct in associating the 1920s boom with his proposal for a stable price level. In 1927, Benjamin Strong, governor of the Federal Reserve Bank of New York, confirmed that the Federal Reserve System had been directed toward the use of open market operations and other devices to stabilize the price level as much as possible since 1921. Rothbard summarizes: “We may conclude that the Federal Reserve authorities, in promulgating their inflationary policies, . . . were also guided—or rather misguided—by the fashionable economic theory of a stable price level as the goal of monetary manipulation.”

It may be useful to contrast the 1920s with the 1880s when the US economy had the highest rate of growth of any decade. Reflecting economic expectations, prices fell, with the US economy growing at its fastest rate in history. Also, congruent with the natural course of the market, capital investment led to a corresponding increase in real wages. At the time, the US had just adopted the classical gold standard following the resumption of specie payments in 1879 and had been without a central bank since 1836.

At this point, we may consider the implications of the semantic change of inflation from an increase in the quantity of money to rising prices. The continued failure to identify the 1920s as an inflationary boom is one such consequence of this semantic change. Rothbard explains:
The designation of the 1920s as an inflationary boom may trouble those who think of inflation as a rise in prices. Prices generally remained stable and even fell slightly over the period. But we must realize that two great forces were at work on prices during the 1920s—the monetary inflation which propelled prices upward and the increase in productivity which lowered costs and prices. In a purely free-market society, increasing productivity will increase the supply of goods and lower costs and prices, spreading the fruits of a higher standard of living to all consumers. But this tendency was offset by the monetary inflation which served to stabilize prices.

Just as stabilization's conclude that there is no inflation based on a stable price level, the Fed can determine that there’s no inflationary threat as long as price inflation remains around their 2 percent target. In this way, the semantic change has helped facilitate monetary policy.
Elsewhere, Ramaswamy refers to the Federal Open Market Committee as a dozen central planners. Notably, Ron DeSantis, who has also since ended his campaign, echoed Ramaswamy by endorsing a stable price level with a similar conflicting message: “The Fed should focus on stable prices. They are not an economic central planner for the American people.” However, the manipulation of the price level and the management of the currency by the central bank is a particularly destructive form of central planning. It is thus not surprising that the stable money movement led by economist Irving Fisher in the early part of the twentieth century was supported by progressives and socialists.

By 1921, Fisher had established the Stable Money League, and supporters would eventually include Norman Thomas, perennial presidential candidate of the Socialist Party, and Samuel Gompers, president of the American Federation of Labor. John Maynard Keynes was another influential economist to propose a stabilized price level in his book A Tract on Monetary Reform, published in 1923.

Ramaswamy concludes by saying the Fed “should refocus to avoid repeating its past mistakes.” However, as the original sin of the Great Depression, the Fed’s policy of a stable price level in the 1920s must rank among its greatest mistakes proposed.

The unprecedented expansion and measures by the Fed in the wake of the coronavirus panic ensure that monetary policy will once again assume greater urgency in the public mind. Better answers will be required than the stable price level, which differs from the current Fed policy only in degree. Both policies are inherently inflationary with a target price level set by the Fed. It might be an objection that a stable price level would be less inflationary than the Fed’s target of 2 percent price inflation. However, the emphasis on a stable price level can be more insidious because it can further mask an inflationary threat, especially to its exponents. J. M. Keynes hailed “the successful management of the dollar by the Federal Reserve Board from 1923 to 1928” as a “triumph” for currency management and continued his praise several years into the Depression. Likewise, Fisher infamously stated that stock prices looked to have reached a permanently high plateau nine days before the crash.

What’s needed is a paradigm change away from the notion of monetary policy, which accepts a monetary system dictated by the central bank and politicians. Only the Austrian School framework and a return to the historic definition of inflation can offer a causal explanation of business cycles and solutions to our monetary issues.

https://substackcdn.com/image/fetch/...9b35_66x52.png
QTR’s Disclaimer: I am an idiot and often get things wrong and lose money. I may own or transact in any names mentioned in this piece at any time without warning. I didn’t double-check any numbers or figures in this piece and am generally lazy with my research. Contributor posts and aggregated posts have not been fact-checked and are the opinions of their authors. Contributor posts and curated content are posted either with the author’s permission or under a Creative Commons license. This is not a recommendation or solicitation to buy or sell any stocks or securities, just my opinions. I often lose money on positions I trade/invest in. Sometimes I just lose money by misplacing it. I’m generally irresponsible. I may add any name mentioned in this article and sell any name mentioned in this piece at any time, without further warning. These positions can change immediately as soon as I publish this, with or without notice. You are on your own. Do not make decisions based on my blog. Do your research elsewhere. I exist on the fringe. The publisher does not guarantee the accuracy or completeness of the information provided on this page. These are not the opinions of any of my employers, partners, or associates. I did my best to be honest about my disclosures but can’t guarantee I am right; I write these posts after a couple of beers sometimes. Also, I just straight up get shit wrong a lot. I mention it numerous times because it’s that important that you know.

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1. Feb 25, 2018 10:02pm

1. https://assets.faireconomy.media/nfs...ar392875_2.gif BenjaminIs
2. | Commercial Member | Joined Dec 2014 | 11,198 Posts | Online Now

Good Morning Everyone

The following is an excerpt from Barton Bigg's book, Hedgehogging, where he relates a conversation with "Tim," a successful macro investor (emphasis mine).

Tim works out of a quiet, spacious office filled with antique furniture, exquisite oriental rugs, and porcelain in a leafy suburb of London with only a secretary. My guess is he runs more than $1 billion, probably half of which is his. On his beautiful Chippendale desk sits a small plaque, which says totis porcis-the whole hog. There is also a small porcelain pig, which reads, "It takes Courage to be a Pig." I think Stan Druckenmiller, who coined the phrase, gave him the pig.

To get really big long-term returns, you have to be a pig and ride your winners… When he lacks conviction, he reduces his leverage and takes off his bets. He describes this as "staying close to shore… When I asked him how he got his investment ideas, at first he was at a loss. Then, after thinking about it, he said that the trick was to accumulate over time a knowledge base. Then, out of the blue, some event or new piece of information triggers a thought process, and suddenly you have discovered an investment opportunity. You can't force it. You have to be patient and wait for the light to go on. If it doesn't go on, "Stay close to shore."

What separates the great traders from those who are just good?

The answer is knowing when to size up and eat the whole hog.

Let me explain.
To become a good trader you have to master risk management. Managing risk is the foundation of successful speculation. It's the core of ensuring your long-term survival.

After risk, there's trade and portfolio management. These are not wholly separate from managing risk. But they have the added complexity of things like thinking about when to take profits on a trade or how the drivers of your book correlate across positions, etc…

Risk and trade management are absolute critical skills to becoming a goodtrader. All good traders are masters in these two areas.

But the thing that makes great traders head and shoulders above the rest, is the skill in knowing when to go for the jugular. In sizing up and aggressively going for Totis Porcis, the full hog.

Great traders know how to exploit fat tail events - the large mispricings that only come around once in a blue moon. They swing for the fences when fat pitches come across their plate.

Examples of this are Livermore making a fortune shorting the 29' crash. PTJdoing the same in the 87' rout and the Nikkei fallout in 1990. Druck and Soros when they took down the Bank of England in 92'. Buffett, who is a master of exploiting fat tails, did it when he put nearly half his capital into AXP when it was selling for dirt cheap prices.

This is something we at MO call FET which is just short for Fat-tail Exploitation Theory.

Markets and investor returns follow a power law. Similar to Pareto's law, returns adhere to an extreme distribution of 90/10. This means, that amongst great traders and investors, 90% of their profits on average come from only 10% or less of their trades.

Let's look at the following from Ken Grant (who's worked with traders such as Cohen, PTJ et al.) in his book Trading Risk (emphasis mine):
Some years ago in my observation of P/L patterns, I noticed the following interesting trend: For virtually every account I encountered, the overwhelming majority of profitability was concentrated in a handful of trades. Once this pattern became clear to me, I decided to test the hypothesis across a large sample of portfolio managers for whom transactions-level data was available. Specifically, I took each transaction in every account and ranked them in descending order by profitability. I then went to the top of the list of trades and started adding the profits for each transaction until the total was equal to the overall profitability of the account.

What I found reinforced this hypothesis in surprisingly unambiguous terms. For nearly every account in our sample, the top 10% of all transactions ranked by profitability accounted for 100% or more of the P/L for the account. In many cases, the 100% threshold was crossed at 5% or lower. Moreover, this pattern repeated itself consistently across trading styles, asset classes, instrument classes, and market conditions. This is an important concept that has far reaching implications for portfolio management, many of which I will attempt to address here.

To begin with, if we accept the notion that the entire profitability of your account will be captured in, say, the top 10% of your trades, then it follows by definition that the other 90% are a break-even proposition. Think about this for a moment: Literally 9 out of every 10 of your trades are likely to aggregate to produce profits of exactly zero.

This power law for investment returns is ironclad. Like Grant notes, it's consistent "across trading styles, asset classes, instrument classes, and market conditions."

And here's where we get to the crux of the matter. Good traders don't know how to harness this power law while great traders do. They exploit it, using it to their full advantage.

Here's Druckenmiller on the subject (emphasis mine):
The first thing I heard when I got in the business, from my mentor, was bulls make money, bears make money, and pigs get slaughtered.
I'm here to tell you I was a pig.

And I strongly believe the only way to make long-term returns in our business that are superior is by being a pig. I think diversification and all the stuff they're teaching at business school today is probably the most misguided concept everywhere. And if you look at all the great investors that are as different as Warren Buffett, Carl Icahn, Ken Langone, they tend to be very, very concentrated bets. They see something, they bet it, and they bet the ranch on it. And that's kind of the way my philosophy evolved, which was if you see - only maybe one or two times a year do you see something that really, really excites you… The mistake I'd say 98% of money managers and individuals make is they feel like they got to be playing in a bunch of stuff. And if you really see it, put all your eggs in one basket and then watch the basket very carefully.

But how can one be a pig while still being a good manager of risk. It kind of seems like a paradoxical statement, doesn't it?

Here's how.

Your average trader picks trades that have symmetrical potential outcomes. This means that the market pricing is on average, correct. It's efficient. And the distribution of returns for these trades will fall randomly within the cone of future possibilities.
On average, these trades don't produce alpha.
https://static.seekingalpha.com/uplo...one_thumb1.jpg
Using trade and risk management, a good trader can take this symmetric futures cone and produce positive returns by reducing the downside of return outcomes through trade structure and stop losses. But their upside is limited to the average distribution of outcomes.

But great traders and investors are different. They are skilled at identifying highly asymmetric outcomes.

These trades have the potential to massively reprice in their favor. The distribution of future outcomes for these trades looks more like this.
https://static.seekingalpha.com/uplo...ve-Outcome.jpg
And not only are they skilled at identifying these skewed setups but when all the stars align they go for the whole hog and exploit the market's error. They know that these rare asymmetric opportunities don't come around often.

Great traders have this ability not because they are any better at predicting the future. Prediction is a fool's errand.

It's because they have built up a store of knowledge and context and pattern recognition skills. This allows them to more effectively assess the range of possibilities for an outcome set and identify ones that are highly skewed to the upside.

They have the experience base that allows them to aggressively size up while at the same time properly manage their risk. Simply put, they've earned the right to have conviction. And the vast majority of good traders haven't earned this right. So they're better off sticking with consistent and manageable bet sizing.

Tim from Hedgehogging stated it perfectly in saying that "the trick was to accumulate over time a knowledge base. Then, out of the blue, some event or new piece of information triggers a thought process, and suddenly you have discovered an investment opportunity."

The evolutionary process of a trader should be to focus on mastering risk management. Then trade management - riding winners to their full potential. All the while building up a library of experience and useful context that will give them tools to identify asymmetric opportunities down the road. And once they've earned the right to have conviction, they can go for Totis Porcis.

Until then, "stay close to shore."

Some final words from Druckenmiller.
The way to build superior long-term returns is through preservation of capital and home runs…When you have tremendous conviction on a trade, you have to go for the jugular. It takes courage to be a pig.

1. Feb 26, 2018 9:21pm

1. https://assets.faireconomy.media/nfs...ar392875_2.gif BenjaminIs
2. | Commercial Member | Joined Dec 2014 | 11,199 Posts | Online Now

Good Evening

I did no trades today because we had RISK ON and since my SIX trade plans would not work with Risk On therefore DISCIPLINE kept me out of the markets.

Here are my SIX trade plans.

(1) SHORT 100 units of US30 (CFD)
(2) SHORT 50 units of SP500 (CFD)
(3) SHORT 100 units of USD/JPY (In this case shorting means I expect USD/JPY to head towards 100 however this means the YEN is getting stronger against the US Dollar. This is also a safe haven trade and there is usually good CORRELATION between SHORT US30 and SHORT SP500
(4) SHORT or GO LONG EUR/USD (This trade changes depending on Geopolitical events and financial events. There is a very important Election in Italy on Sunday , March 4, 2018.
(5) LONG GOLD 100 ounces
(6) LONG SILVER 2500 ounces

If you have any questions please post them so I can answer your questions or reply to your comments.

I only put on 3 Positions for each trade plan. The STOP LOSS is set at $1000 US so three open positions on each trade plan could result in a loss of 6% of your Total Trading Capital of $50,000 US DEMO Dollars. Each of the 3 positions could result in a MAXIMUM LOSS of 2% or $1000 US Dollars for each position within the trade plan.


Benjaminis

Larry Fink’s 2024 Annual Chairman’s Letter To Investors | Seeking Alpha

Larry Fink's 2024 Annual Chairman's Letter To Investors
Mar. 26, 2024 11:15 PM

1. We believed participating in capital markets was going to be crucial for people who wanted to retire comfortably and financially secure.
2. I think the growth- and prosperity-generating power of the capital markets will remain a dominant economic trend through the rest of the 21st Century.
3. Countries aiming for prosperity don’t just need strong banking systems — they also need strong capital markets.
4. Despite the anti-capitalist strain in our modern politics, most world leaders still see the obvious: No other force can lift more people from poverty or improve quality of life quite like capitalism.
5. Retirement is a much harder proposition than it was 30 years ago - and it’ll be a much harder proposition 30 years from now.

Time to rethink retirement
When my mom passed away in 2012, my dad started to decline quickly, and my brother and I had to go through my parents' bills and finances.
Both my mom and dad worked great jobs for 50 years, but they were never in the top tax bracket. My mom taught English at the local state college (Cal Northridge), and my dad owned a shoe store.

I don't know exactly how much they made every year, but in today's dollars, it was probably not more than $150,000 as a couple. So, my brother and I were surprised when we saw the size of our parents' retirement savings. It was an order of magnitude bigger than you'd expect for a couple making their income. And when we finished going over their estate, we learned why: My parents' investments.

My dad had always been an enthusiastic investor. He encouraged me to buy my first stock (the DuPont chemical company) as a teenager. My dad invested because he knew that whatever money he put in the bond or stock markets would likely grow faster than in the bank. And he was right.

I went back and did the math. If my parents had $1,000 to invest in 1960, and they put that money in the S&P 500, then by the time they'd reached retirement age in 1990, the $1,000 would be worth nearly $20,000.1

That's more than double what they would have earned if they'd just put the money in a bank account. My dad passed away a few months after my mom, in his late 80s. But both my parents could have lived beyond 100 and comfortably afforded it.

Why am I writing about my parents? Because going over their finances showed me something about my own career in finance. I had been working at BlackRock (BLK) for almost 25 years by the time I lost my mom and dad, but the experience reminded me - in a new and very personal way - why my business partners and I founded BlackRock in the first place.

Obviously, we were ambitious entrepreneurs, and we wanted to build a big, successful company. But we also wanted to help people retire like my parents did. That's why we started an asset manager - a company that helps people invest in the capital markets - because we believed participating in those markets was going to be crucial for people who wanted to retire comfortably and financially secure.

We also believed the capital markets would become a bigger and bigger part of the global economy. If more people could invest in the capital markets, it would create a virtuous economic cycle, fueling growth for companies and countries, which would, in turn, generate wealth for millions more people.
My parents lived their final years with dignity and financial freedom. Most people don't have that chance. But they can. The same kinds of markets that helped my parents in their time can help others in our time. Indeed, I think the growth- and prosperity-generating power of the capital markets will remain a dominant economic trend through the rest of the 21st Century.

This letter attempts to explain why.
A brief (and admittedly incomplete) history of U.S. capital markets
In finance, there are two basic ways to get or grow money.

One is the bank, which is what most people historically relied on. They deposited their savings to earn interest or took out loans to buy a home or expand their business. But over time a second avenue for financing arose, particularly in the U.S., with the growth of the capital markets: Publicly traded stocks, bonds, and other securities.

I saw this firsthand in the late 1970s and early 1980s when I played a role in the creation of the securitization market for mortgages.
Before the 1970s, most people secured financing for their homes the same way they did in the Christmas classic It's a Wonderful Life - through the Building & Loan (B&L). Customers deposited their savings into the B&L, which was essentially a bank. Then that bank would turn around and lend out those savings in the form of mortgages.

In the movie - and in real life - everything works fine until people start lining up at the bank's front door asking for their deposits back. As Jimmy Stewart explained in the film, the bank didn't have their money. It was tied up in somebody else's house.

After the Great Depression, B&Ls morphed into savings & loans (S&Ls), which had their own crisis in the 1980s. Approximately half of the outstanding home mortgages in the U.S. were held by S&Ls in 1980, and poor risk management and loose lending practices led to a raft of failures costing U.S. taxpayers more than $100 billion dollars.2

But the S&L crisis didn't cause the American economy lasting damage. Why? Because at the same time the S&Ls were collapsing another method of financing was getting stronger. The capital markets were providing an avenue to channel capital back to challenged real estate markets.
This was mortgage securitization.

Securitization allowed banks not just to make mortgages but to sell them. By selling mortgages, banks could better manage risk on their balance sheets and have capital to lend to home buyers, which is why the S&L crisis didn't severely impact American homeownership.
Eventually, the excesses of mortgage securitization contributed to the crash in 2008, and unlike the S&L crisis, the Great Recession did harm home ownership in the U.S. The country still hasn't fully recovered in that respect. But the broader underlying trend - the expansion of the capital markets - was still very helpful for the American economy.

In fact, it's worth considering: Why did the U.S. rebound from 2008 faster than almost any other developed nation?3

A big part of the answer is the country's capital markets.
In Europe, where most assets were kept in banks, economies froze as banks were forced to shrink their balance sheets. Of course, U.S. banks had to tighten capital standards and pull back from lending as well. But because the U.S. had a more robust secondary pool of money - the capital markets - the nation was able to recover much more quickly.

Today public equities and bonds provide over 70% of financing for non-financial corporations in the U.S. - more than any other country in the world. In China, for example, the bank-to-capital market ratio is almost flipped. Chinese companies rely on bank loans for 65% of their financing.4

In my opinion, this is the most important lesson in recent economic history: Countries aiming for prosperity don't just need strong banking systems - they also need strong capital markets.
That lesson is now spreading around the world.

Replicating the success of America's capital markets
Last year, I spent a lot of days on the road, logging visits to 17 different countries. I met with clients and employees. I also met with many policymakers and heads of state, and during those meetings, the most frequent conversation I had was about the capital markets.

More and more countries recognize the power of American capital markets and want to build their own.
Of course, many countries do have capital markets already. There are something like 80 stock exchanges around the world, everywhere from Kuala Lumpur to Johannesburg.5

But most of these are rather small, with little investment. They're not as robust as the markets in the U.S., and that's what other nations are increasingly looking for.
In Saudi Arabia, for example, the government is interested in building a market for mortgage securitization, while Japan and India want to give people new places to put their savings. Today, in Japan, it's mostly the bank. In India, it's often in gold.

When I visited India in November, I met policymakers who lamented their fellow citizens' fondness for gold. The commodity has underperformed the Indian stock market, proving a subpar investment for individual investors. Nor has investing in gold helped the country's economy.

Compare investing in gold with, let's say, investing in a new house. When you buy a home, that creates an economic multiplier effect because you need to furnish and repair the house. Maybe you have a family and fill the house with children. All that generates economic activity. Even when someone puts their money in a bank, there's a multiplier effect because the bank can use that money to fund a mortgage. But gold? It just sits in a safe. It can be a good store of value, but gold doesn't generate economic growth.

This is a small illustration - but a good one - of what countries want to accomplish with robust capital markets. (Or rather, of what they can't accomplish without them.)

Despite the anti-capitalist strain in our modern politics, most world leaders still see the obvious: No other force can lift more people from poverty or improve quality of life quite like capitalism. No other economic model can help us achieve our highest hopes for financial freedom - whether we want it for ourselves or our country.
That's why the capital markets will be key to addressing two of the mid-21st Century's biggest economic challenges.

1. The first is providing people what my parents built over time - a secure, well-earned retirement. This is a much harder proposition than it was 30 years ago. And it'll be a much harder proposition 30 years from now. People are living longer lives. They'll need more money. The capital markets can provide it - so long as governments and companies help people invest.
2. A second challenge is infrastructure. How are we going to build the massive amount the world needs? As countries decarbonize and digitize their economies, they're supercharging demand for all sorts of infrastructure, from telecom networks to new ways to generate power. In fact, in my nearly 50 years in finance, I've never seen more demand for energy infrastructure. And that's because many countries have twin aims: They want to transition to lower-carbon sources of power while also achieving energy security. The capital markets can help countries meet their energy goals, including decarbonization, in an affordable way.

Retirement is a much harder proposition than it was 30 years ago. And it'll be a much harder proposition 30 years from now.
Asking the old age question: How do we afford longer lives?

Last year, Japan passed a demographic milestone. The country's population has been aging since the early 1990s as the pool of working-age people has shrunk and the number of elderly has risen. But 2023 was the first time that 10% of their people exceeded 80 years old,6

making Japan the "oldest country in the world" according to the United Nations.7

This is part of the reason the Japanese government is making a push for retirement investment.

Most Japanese keep the bulk of their retirement savings in banks, earning a low interest rate. It wasn't such a bad strategy when Japan was suffering from deflation, but now the country's economy has turned around, with the NIKKEI surging past 40,000 for the first time this month (March 2024).8

Most aspiring retirees are missing out on the upswing. The country didn't have anything resembling a 401(k) program until 2001, but even then, the amount of income people could contribute was quite low. So a decade ago, the government launched the Nippon Individual Savings Accounts (NISA) to encourage people to invest even more in retirement. Now they're trying to double NISA's enrollment. The goal is 34 million Japanese investors before the end of the decade.9

It will require the Japanese government to expand their capital markets, which historically had very little retail participation.

Japan isn't alone in helping more of its citizens invest for retirement. BlackRock has a joint venture - Jio BlackRock - with Jio Financial Services, an affiliate of India's Reliance Industries. Over the past 10 years, India has built a huge digital public infrastructure network that connects nearly one billion Indians to everything from healthcare to government payments via their smartphones. Jio BlackRock's goal is to use the same infrastructure to deliver retirement investing (and more).
After all, India is aging, too. The whole world is, albeit at different speeds. Brazil will start seeing more people leave its workforce than enter it by 2035; Mexico will reach peak workforce by 2040; India sometime around 2050.

As populations age, building retirement savings has never been more urgent
https://static.seekingalpha.com/uplo...024-chart1.png
Source: Working-age population (ages 15-64): UN "medium trend10

By the mid-century mark, one-in-six people globally will be over the age of 65, up from one-in-11 in 2019.11

To support them, governments are going to have to prioritize building out robust capital markets like the U.S. has.

But this isn't to say the U.S. retirement system is perfect. I'm not sure anybody believes that. The retirement system in America needs modernizing, at the very least.

Rethinking retirement in the United States
This was particularly clear last year as the biotech industry pumped out a rush of new, life-extending drugs. Obesity, for example, can take more than 10 years off someone's life expectancy, which is why some researchers think that new pharmaceuticals like Ozempic and Wegovy can be life-extending drugs, not just weight-loss drugs.12

In fact, a recent study shows that semaglutide, the generic name for Ozempic, can give people with cardiovascular disease an extra two years of life where they don't suffer a major condition like a heart attack.13

These drugs are breakthroughs. But they underscore a frustrating irony: As a society, we focus a tremendous amount of energy on helping people live longer lives. But not even a fraction of that effort is spent helping people afford those extra years.

It wasn't always this way. One reason my parents had a financially secure retirement was CalPERS, California's state pension system. As a public university employee, my mom could enroll. But pension enrollment has been declining across the country since the 1980s.14

Meanwhile the federal government has prioritized maintaining entitlement benefits for people my age (I'm 71) even though it might mean that Social Security will struggle to meet its full obligations when younger workers retire.

It's no wonder younger generations, Millennials and Gen Z, are so economically anxious. They believe my generation - the Baby Boomers - have focused on their own financial well-being to the detriment of who comes next. And in the case of retirement, they're right.

Today in America, the retirement message that the government and companies tell their workers is effectively: "You're on your own." And before my generation fully disappears from positions of corporate and political leadership, we have an obligation to change that.

Maybe once a decade, the U.S. faces a problem so big and urgent that government and corporate leaders stop business as usual. They step out of their silos and sit around the same table to find a solution. I participated in something like this after 2008, when the government needed to find a way to unwind the toxic assets from the mortgage crisis. More recently, tech CEOs and the federal government came together to address the fragility of America's semiconductor supply chain. We need to do something similar for the retirement crisis. America needs an organized, high-level effort to ensure that future generations can live out their final years with dignity.

What should that national effort do? I don't have all the answers. But what I do have is some data and the beginnings of a few ideas from BlackRock's work. Because our core business is retirement.

More than half the assets BlackRock manages are for retirement.15

We help about 35 million Americans invest for life after work,16

which amounts to about a quarter of the country's workers.17

Many are educators like my mom was. BlackRock helps manage pension assets for roughly half of U.S. public school teachers.18

And this work - and our similar work around the globe - has given us some insight into how a national initiative to modernize retirement might begin.
We think the conversation starts by looking at the challenge through three different lenses.

1. What's the issue from the perspective of a current worker, someone who's still trying to save for retirement?
2. What about someone who has already retired? We have to look at the problem from the retiree's point of view - an individual who has already saved enough to stop working but is worried the money will run out.
3. But first it's important to look at retirement in America like you'd look at a map of America - a high-level picture of the problem, the kind a national policymaker might look at. What's the issue for the population as a whole? (It's demographics.)

The demographics don't lie
There's a popular saying in economics: "You just can't fight demographics." And yet, when it comes to retirement, the U.S. is trying anyway.

In wealthy countries, most retirement systems have three pillars. One is what people invest personally (my dad putting his money in the stock market). Another is the plans provided by employers (my mom's CalPERS pension). A third component is what we hear politicians mostly talking about - the government safety net. In the U.S., this is Social Security.

You're probably familiar with the economics behind Social Security. During your working years, the government takes a portion of your income, then after you retire, it sends you a check every month. The idea actually originates from pre-World War I Germany, and these "old-age insurance" programs gradually became popular over the 20th Century largely because the demographics made sense.

Think about someone who was 65 years old in 1952, the year I was born. If he hadn't retired already, that person was probably getting ready to stop working.
But now think about that person's former colleagues, all the people around his age who he'd entered the workforce with back in the 1910s. The data shows that in 1952, most of those people were not preparing for retirement because they'd already passed away.

This is how the Social Security program functioned: More than half the people who worked and paid into the system never lived to retire and be paid from the system.19

Today, these demographics have completely unraveled, and this unraveling is obviously a wonderful thing. We should want more people to live more years. But we can't overlook the massive impact on the country's retirement system.

It's not just that more people are retiring in America; it's also that their retirements are increasing in length. Today, if you're married and both you and your spouse are over the age of 65, there's a 50/50 chance at least one of you will be receiving a Social Security check until you're 90.20

All this is putting the U.S. retirement system under immense strain. The Social Security Administration itself says that by 2034, it won't be able to pay people their full benefits.21

What's the solution here? No one should have to work longer than they want to. But I do think it's a bit crazy that our anchor idea for the right retirement age - 65 years old - originates from the time of the Ottoman Empire.

Humanity has changed over the past 120 years. So must our conception of retirement.
One nation that's rethought retirement is the Netherlands. In order to keep their state pension affordable, the Dutch decided more than 10 years ago to gradually raise the retirement age. It will now automatically adjust as the country's life expectancy changes.22

Obviously, implementing this policy elsewhere would be a massive political undertaking. But my point is that we should start having the conversation. When people are regularly living past 90, what should the average retirement age be?

Or rather than pushing back when people receive retirement benefits, perhaps there's a more politically palatable idea: How do we encourage more people who wish to work longer with carrots rather than sticks? What if the government and the private sector treated 60-plus year-olds as late-career workers with much to offer rather than people who should retire?

One way Japan has managed its aging economy is by doing exactly this. They've found new ways to boost the labor force participation rate, a metric that has been declining in the U.S. since the early 2000s.23

It's worth asking: How can America stop (or at least, slow) that trend?

Again, I'm not pretending to have the answers. Despite BlackRock's success helping millions retire, these questions are going to have to be posed to a broader range of investors, retirees, policymakers, and others. Over the next few months, BlackRock will be announcing a series of partnerships and initiatives to do just that, and I invite you to join us.

For workers, make investing (almost) automatic

When the U.S. Census Bureau released its regular survey of consumer finances in 2022, nearly half of Americans aged 55 to 65 reported not having a single dollar saved in personal retirement accounts.24

Nothing in a pension. Zero in an IRA or 401(k).

Why? Well, the first barrier to retirement investing is affordability.
Four-in-10 Americans don't have $400 to spare to cover an emergency like a car repair or hospital visit.25

Who is going to invest money for a retirement 30 years away if they don't have cash for today? No one. That's why BlackRock's foundation has worked with a group of nonprofits to set up an Emergency Savings Initiative. The program has helped mostly low-income Americans put away a total of $2 billion in new liquid savings.26

Studies show that when people have emergency savings, they're 70% more likely to invest for retirement.27

But this is where workers run into another barrier: Investing is complex even if you can afford it.

No one is born a natural investor. It's important to say that because sometimes in the financial services industry we imply the opposite. We make it seem like saving for retirement can be a simple task, something anyone can do with a bit of practice, like driving your car to work. Just grab your keys and hop in the driver's seat.

But financing retirement isn't so intuitive. The better analogy is if someone dropped a bunch of engine and auto parts in your driveway and said, "Figure it out."

At BlackRock, we've tried to make the investing process more intuitive by inventing simpler products like target date funds. They only require people to make one decision: What year do they expect to retire? Once people choose their "target date," the fund automatically adjusts their portfolio, shifting from higher-return equities to less risky bonds as retirement approaches.28

In 2023, BlackRock expanded the types of target date ETFs we offer so people can more easily buy them even if they don't work for employers offering a retirement plan. There are 57 million people like this in America - farmers, gig workers, restaurant employees, independent contractors - who don't have access to a defined contribution plan.29

And while better investment products can help, there are limits to what something like a target date fund can do. Indeed, for most people, the data shows that the hardest part of retirement investing is just getting started.

Other nations make things simpler for their part-time and contract workers. In Australia, employers must contribute a portion of income for every worker between the ages of 18 and 70 into a retirement account, which then belongs to the employee. The Superannuation Guarantee was introduced in 1992 when the country seemed like it was on the path to a retirement crisis. Thirty-two years later, Australians likely have more retirement savings per capita than any other country. The nation has the world's 54th largest population,30

but the 4th largest retirement system.31

Of course, every country is different, so every retirement system should be different. But Australia's experience with Supers could be a good model for American policymakers to study and build on. Some already are. There are about 20 U.S. states - like Colorado and Virginia - that have instituted retirement systems to cover all workers like Australia does, even if they're gig or part-time.32

It's a good thing that legislators are proposing different bills and states are becoming "laboratories of retirement." More should consider it. The benefits could be enormous for individual retirees. These new programs could also help the U.S. ensure the long-term solvency of Social Security. That's what Australia found - their Superannuation Guarantee relieved the financial tension in their country's public pension program.33

But what about workers who do have access to an employer retirement plan? They need support too.
Even among employees who have access to employer plans, 17% don't enroll in them, and the hypothesis among retirement experts is this is not a conscious choice. People are just busy.

It sounds trivial, but even the hour or so it takes someone to look through their work email inbox for the correct link to their company's retirement system, and then select the percentage of their income they want to contribute can be the unclearable hurdle. That's why companies should make a conscious effort to look at what their default option is. Are people automatically enrolled in a plan or not? And how much are they auto-enrolled to contribute? Is it a minimum percentage of their income? Or the maximum?

In 2017, the University of Chicago economist Richard Thaler won the Nobel Prize, in part, for his pioneering work around "nudges" - small changes in policy that can have enormous impact in people's financial lives. Auto-enrollment is one of them. Studies show that the simple step of making enrollment automatic increases retirement plan participation by nearly 50%.34

As a nation, we should do everything we can to make retirement investing more automatic for workers. And there are already bright spots. Next year, a new federal law will kick in, requiring employers that set up new 401(k) plans to auto-enroll their new workers. Plus, there are hundreds of major companies (including BlackRock) that have already taken this step voluntarily.

But firms can do even more to improve their employee's financial lives, such as providing some level of matching funds for retirement plans and offering more financial education on the tremendous long-term difference between contributing a small percentage of your income to retirement versus the maximum. I also think we should make it easier for workers to transfer their 401(k) savings when they switch jobs. There is a menu of options here, and we need to explore all of them.
For retirees, help them spend what they saved

In 2018, BlackRock commissioned a study of 1,150 American retirees. When we dug into the data, we found something unexpected - even paradoxical.

The survey showed that after nearly two decades of retirement, the average person still had 80% of their pre-retirement money saved. We're talking about people who were probably between the ages of 75 and 95. If they had invested for retirement, they were likely sitting on more than enough money for the rest of their lives. And yet the data also showed that they were anxious about their finances. Only 32% reported feeling comfortable about spending what they saved.35

This retirement paradox has a simple explanation: Even people who know how to save for retirement still don't know how to spend for it.
In the U.S., this problem's roots stretch back more than four decades when employers began switching from defined benefit plans - pensions - to defined contribution plans like 401(k)s.

In a lot of ways, pensions were much simpler than the 401(k). You had a job somewhere for 20 or 30 years. Then when you retired, your pension paid you a set amount - a defined benefit - every month.

When I entered the workforce in the 1970s, 38% of Americans had one of these defined benefit plans, but by 2008 the percentage had been cut almost in half.36

Meanwhile, the fraction of Americans with defined contribution plans almost quadrupled.37

This should have been a good thing. Beginning with the Baby Boomers, fewer and fewer workers spent their entire careers in one place, meaning they needed a retirement option that would follow them from job to job. In theory, 401(k)s did that. But in practice? Not really.

Anyone who's switched jobs knows how unintuitive it is to transfer your retirement savings. In fact, studies show that about 40% of employees cash out their 401(k)s when they switch jobs, putting themselves back at the starting line for retirement savings.38

The real drawback of defined contribution was that it removed most of the retirement responsibility from employers and put it squarely on the shoulders of the employees themselves. With pensions, companies had a very clear obligation to their workers. Their retirement money was a financial liability on the corporate balance sheet. Companies knew they'd have to write a check every month to each one of their retirees. But defined contribution plans ended that, forcing retirees to trade a steady stream of income for an impossible math problem.

Because most defined contribution accounts don't come with instructions for how much you can take out every month, individual savers first must build up a nest-egg, then spend down at a rate that will last them the rest of their lives. But who really knows how long that will be?

Put simply, the shift from defined benefit to defined contribution has been, for most people, a shift from financial certainty to financial uncertainty.

That's why around the same time we saw the data that retirees were nervous about spending their savings, we started wondering: Was there something we can do about it? Could we develop an investment strategy that provided the flexibility of a 401(k) investment but also the potential for a predictable, paycheck-like income stream, similar to a pension?

It turns out, we could. That strategy is called Lifepath Paycheck, which will go live in April. As I write this, 14 retirement plan sponsors are planning to make Lifepath Paycheck available to 500,000 employees. I believe it will one day be the most used investment strategy in defined contribution plans.

We're talking about a revolution in retirement. And while it may happen in the U.S. first, eventually other countries will benefit from the innovation as well. At least, that is my hope. Because while retirement is mainly a saving challenge, the data is clear: It's a spending one too.

Fear vs. hope
Before I conclude this section on retirement, I want to share a few words about one of the largest barriers to investing for the future. In my view, it's not just affordability or complexity or the fact that people are too busy to enroll in their employer's plan.
Arguably the biggest barrier to investing for retirement - or for anything - is fear.

In finance, we sometimes think of "fear" as a fuzzy, emotional concept - not as a hard economic data point. But that's what it is. Fear is as important and actionable a metric as GDP. After all, investment (or lack thereof) is just a measure of fear because no one lets their money sit in a stock or a bond for 30 or 40 years if they're afraid the future is going to be worse than the present. That's when they put their money in a bank. Or underneath the mattress.

This is what happens in many countries. In China, where new surveys show consumer confidence has dropped to its lowest level in decades, household savings have reached their highest level on record - nearly $20 trillion - according to the central bank.39

China has a savings rate of about 30%. Nearly a third of all money earned is socked away in cash in case it's needed for harder times ahead. The U.S., by comparison, has a savings rate in the single digits.40

America has rarely been a fearful country. Hope has been the nation's greatest economic asset. People put their money in American markets for the same reason they invest in their homes and businesses - because they believe this country will be better tomorrow than it is today.

This big, hopeful America has been the one I've known my whole life, but over the past few years, especially as I've had more grandchildren, I've started to ask myself: Will they know this version of America, too?

As I was finishing this letter, The Wall Street Journal published an article that caught my attention. It was titled "The Rough Years that Turned Gen Z into America's Most Disillusioned Voters," and it included some eye-catching - and really disheartening - data.

The article showed that from the mid-1990s through most of the early 21st Century, most young people - around 60% of high school seniors, to be specific - believed they'd earn a professional degree, would land a good job, and go on to be wealthier than their parents. They were optimistic. But since the pandemic, that optimism has fallen precipitously.

Compared with 20 years ago, the current cohort of young Americans is 50% more likely to question whether life has a purpose. Four-in-10 say it's "hard to have hope for the world."41

I've been working in finance for almost 50 years. I've seen a lot of numbers. But no single data point has ever concerned me more than this one.
The lack of hope worries me as a CEO. It worries me as a grandfather. But most of all, it worries me as an American.

If future generations don't feel hopeful about this country and their future in it, then the U.S. doesn't only lose the force that makes people want to invest. America will lose what makes it America. Without hope, we risk becoming just another place where people look at the incentive structure before them and decide that the safe choice is the only choice. We risk becoming a country where people keep their money under the mattress and their dreams bottled up in their bedroom.

How do we get our hope back?
Whether we're trying to solve retirement or any other problem, that is the first question we have to ask, although I readily admit that I do not have the solution. I look at the state of America - and the world - and I am as answerless as everyone else. There's so much anger and division, and I often struggle to wrap my head around it.

What I do know is that any answer has to start by bringing young people into the fold. The same surveys that show their lack of hope also show their lack of confidence - far less than any previous generation - in every pillar of society: In politics, government, the media, and in corporations. Leaders of these institutions (I am one) should be empathetic to their concerns.

Young people have lost trust in older generations. The burden is on us to get it back. And maybe investing for their long-term goals, including retirement, isn't such a bad place to begin.

Perhaps the best way to start building hope is by telling young people, "You may not feel very hopeful about your future. But we do. And we're going to help you invest in it."

The new infrastructure blueprint: Steel, concrete, and public-private partnership

I started traveling to London in the 1980s, and back then, if you had a choice between the city's two major international airports - Heathrow or Gatwick - you probably chose Heathrow. Gatwick was farther from the city. It was also in a comparative state of disrepair.

But things changed in 2009 when Gatwick was purchased by Global Infrastructure Partners ('GIP'). They increased runway capacity and instituted commonsense changes, like oversized luggage trays that cut security screening times by more than half.

"The thing about infrastructure businesses... is a lot of them tend not to focus on customer service," GIP's CEO Bayo Ogunlesi told the Financial Times. GIP wanted to make Gatwick different. In the process, they also turned the airport into a prime example of how infrastructure will be built and run in the 21st Century - with private capital.42

In the U.S., people tend to think of infrastructure as a government endeavor, something built with taxpayer funds. But because of one very big reason that I'll dive into momentarily, that won't be the primary way infrastructure is built in the mid-21st Century. Rather than only tapping government treasuries to build bridges, power grids, and airports, the world will do what Gatwick did.

The future of infrastructure is public-private partnership.

Debt matters
The $1 trillion infrastructure sector is one of the fastest growing segments of the private markets, and there are some undeniable macroeconomic trends driving this growth. In developing countries, people are getting richer, boosting demand for everything from energy to transportation while in wealthy countries, governments need to both build new infrastructure and repair the old.

Even in the U.S., where the Biden Administration has signed generational infrastructure investments into law, there's still $2 trillion worth of deferred maintenance.43

How will we pay for all this infrastructure? The reason I believe it'll have to be some combination of public and private dollars is that funding probably cannot come from the government alone. The debt is just too high.

From Italy to South Africa, many nations are suffering the highest debt burdens in their history. Public debt has tripled since the mid-1970s, reaching 92% of global GDP in 2022.44

And in America, the situation is more urgent than I can ever remember. Since the start of the pandemic, the U.S. has issued roughly $11.1 trillion of new debt, and the amount is only part of the issue.45

There's also the interest rate the Treasury needs to pay on it.
Three years ago, the rate on a 10-year Treasury bill was under 1%. But as I write this, it's over 4%, and that 3-percentage-point increase is very dangerous. Should the current rates hold, it amounts to an extra trillion dollars in interest payments over the next decade.46

Why is this debt a problem now? Because historically, America has paid for old debt by issuing new debt in the form of Treasury securities. It's a workable strategy so long as people want to buy those securities - but going forward, the U.S. cannot take for granted that investors will want to buy them in such volume or at the premium they currently do.

Today, around 30% of U.S. Treasury securities are held by foreign governments or investors. That percentage will likely go down as more countries build their own capital markets and invest domestically.47

More leaders should pay attention to America's snowballing debt. There's a bad scenario where the American economy starts looking like Japan's in the late 1990s and early 2000s, when debt exceeded GDP and led to periods of austerity and stagnation. A high-debt America would also be one where it's much harder to fight inflation since monetary policymakers could not raise rates without dramatically adding to an already unsustainable debt-servicing bill.
But is a debt crisis inevitable? No.

While fiscal discipline can help tame debt on the margins, it will be very difficult (both politically and mathematically) to raise taxes or cut spending at the level America would need to dramatically reduce the debt. But there is another way out beyond taxing or cutting, and that's growth. If U.S. GDP grows at an average of 3% (in real, not nominal terms) over the next five years, that would keep the country's debt-to-GDP ratio at 120% - high, but reasonable.

I should be clear: 3% growth is a very tall order, especially given the country's aging workforce. It will require policymakers to shift their focus. We can't see debt as a problem that can be solved only through taxing and spending cuts anymore. Instead, America's debt efforts have to center around pro-growth policies, which include tapping the capital markets to build one of the best catalysts for growth: Infrastructure. Especially energy infrastructure.

Energy pragmatism
Roads. Bridges. Ports. Airports. Cell towers. The infrastructure sector contains multitudes, but the multitude where BlackRock sees arguably the greatest demand for new investment is energy infrastructure.

Why energy? Two things are happening in the sector at the same time.
The first is the "energy transition." It's a mega force, a major economic trend being driven by nations representing 90% of the world's GDP.48

With wind and solar power now cheaper in many places than fossil-fuel-generated electricity, these countries are increasingly installing renewables.49

It's also a major way to address climate change. This shift - or energy transition - has created a ripple effect in the markets, creating both risks and opportunities for investors, including BlackRock's clients.

I started writing about the transition in 2020. Since then, the issue has become more contentious in the U.S. But outside the debate, much is still the same. People are still investing heavily in decarbonization. In Europe, for example, net-zero remains a top investment priority for most of BlackRock's clients.50

But now the demand for clean energy is being amplified by something else: A focus on energy security.

Governments have been pursuing energy security since the oil crisis of the 1970s, (and probably as far back as the early Industrial Revolution), so this is not a new trend. In fact, when I wrote my original 2020 letter about sustainability, I also wrote to our clients that countries would still need to produce oil and gas to meet their energy needs.

To be energy secure, I wrote, most parts of the globe would need "to rely on hydrocarbons for a number of years." 51

Then in 2022, Putin invaded Ukraine. The war lit a fresh spark under the idea of energy security. It disrupted the world's supply of oil and gas causing massive energy inflation, particularly in Europe. The UK, Norway, and the 27 EU countries had to collectively spend 800 billion euros subsidizing energy bills.52

This is part of the reason I'm hearing more leaders talk about decarbonization and energy security together under the joint banner of what you might call "energy pragmatism."

Last year, as I mentioned, I visited 17 countries, and I spent a lot of time talking to the people who are responsible for powering homes and businesses, everybody from prime ministers to energy grid operators. The message I heard was completely opposite to what you often hear from activists on the far left and right who say that countries have to choose between renewables and oil and gas. These leaders believe that the world still needs both. They were far more pragmatic about energy than dogmatic. Even the most climate conscious among them saw that their long-term path to decarbonization will include hydrocarbons, albeit less of them, for some time to come.

Germany is a good example of how energy pragmatism is still a path to decarbonization. It's one of the countries most committed to fighting climate change and has made enormous investments in wind and solar power. But sometimes the wind doesn't blow in Berlin, and the sun doesn't shine in Munich. And during those windless, sunless periods, the country still needs to rely on natural gas for "dispatchable power." Germany used to get that gas from Russia, but now it needs to look elsewhere. So, they're building additional gas facilities to import from other producers around the world.53

Or look at Texas. They face a similar energy challenge - not because of Russia but because of the economy. The state is one of the fastest growing in the U.S.,54

and the additional demand for power is stretching ERCOT, Texas' energy grid, to the limit.55

Today, Texas runs on 28% renewable energy56

- 6% more than the U.S. as a whole.57

But without an additional 10 gigawatts of dispatchable power, which might need to come partially from natural gas, the state could continue to suffer devastating brownouts. In February, BlackRock helped convene a summit of investors and policymakers in Houston to help find a solution.

Texas and Germany are great illustrations of what the energy transition looks like. As I wrote in 2020, the transition will only succeed if it's "fair." Nobody will support decarbonization if it means giving up heating their home in the winter or cooling it in the summer. Or if the cost of doing so is prohibitive.

Since 2020, economists have popularized better language to describe what a fair transition actually means. One important concept is the "green premium." It's the surcharge people pay for "going green": For example, switching from a car that runs on gas to an electric vehicle. The lower the green premium, the fairer decarbonization will be because it'll be more affordable.

This is where the power of the capital markets can be unleashed to great effect. Private investment can help energy companies reduce the cost of their innovations and scale them around the world. Last year, BlackRock invested in over a dozen of these transition projects on behalf of our clients. We partnered with developers in Southeast Asia aiming to build over a gigawatt of solar capacity (enough to power a city) in both Thailand and the Philippines.58

We also invested in Lake Turkana Wind Power, Africa's largest windfarm. It's located in Kenya and currently accounts for about 12% of the country's power generation.59

There are also earlier-stage technologies, like a giant "hot rock" battery being built by Antora Energy. The company heats up blocks of carbon with wind or solar power during parts of the day when renewable energy is cheap and abundant. These "thermal batteries" reach up to 2,400 degrees Celsius and glow brighter than the sun.60

Then, that heat is used to power giant industrial facilities around-the-clock, even when the sun isn't shining, or the wind isn't blowing.

BlackRock invested in Antora through Decarbonization Partners, a partnership we have with the investment firm, Temasek. Our funding will help Antora scale up to deliver billions of dollars worth of zero-emission energy to industrial customers.61

(One day, their thermal batteries might help solve the kind of dispatchable power problem that Texas and Germany are facing - but without carbon emissions.)

The final technology I'll spotlight is carbon capture. Last year, one of BlackRock's infrastructure funds invested $550 million in a project called STRATOS, which will be the world's largest direct air capture facility when construction is completed in 2025.62

Among the more interesting aspects of the project is who's building the facility: Occidental Petroleum (OXY), the big Texas oil company.

The energy market isn't divided the way some people think, with a hard split between oil & gas producers on one side and new clean power and climate tech firms on the other. Many companies, like Occidental, do both, which is a major reason BlackRock has never supported divesting from traditional energy firms. They're pioneers of decarbonization, too.

Today, BlackRock has more than $300 billion invested in traditional energy firms on behalf of our clients. Of that $300 billion, more than half - $170 billion - is in the U.S.63

We invest in these energy companies for one simple reason: It's our clients' money. If they want to invest in hydrocarbons, we give them every opportunity to do it - the same way we invest roughly $138 billion in energy transition strategies for our clients. That's part of being an asset manager. We follow our clients' mandates.
But when it comes to energy, I also understand why people have different preferences in the first place. Decarbonization and energy security are the two macroeconomic trends driving the demand for more energy infrastructure. Sometimes they're competing trends. Other times, they're complementary, like when the same advanced battery that decarbonizes your grid can also reduce your dependence on foreign power.

The point is: The energy transition is not proceeding in a straight line. As I've written many times before, it's moving in different ways and at different paces in different parts of the world. At BlackRock, our job is to help our clients navigate the big shifts in the energy market no matter where they are.

BlackRock's next transformation
One way we're helping our clients navigate the booming infrastructure market is by transforming our company. I began this section by writing about the owners of Gatwick Airport, GIP. In January, BlackRock announced our plans to acquire them.

Why GIP? BlackRock's own infrastructure business had been growing rapidly over the past several years. But to meet demand, we realized we needed to grow even faster.

It's not just debt-strapped governments that need to find alternate pools of financing for their infrastructure. Private sector firms do too. All over the world, there's a vast infrastructure footprint that's owned and operated entirely by private companies. Cell towers are a good example. So are pipelines that deliver the feedstocks for chemical companies. Increasingly, the owners of these assets prefer to have a financing partner, rather than carrying the full cost for the infrastructure on their balance sheet.

I had been thinking about this trend and called an old colleague, Bayo Ogunlesi.
Both Bayo and I started our careers in finance at the investment bank First Boston. But our paths diverged. I lost $100 million on a series of bad trades at First Boston and…well, nobody needs to hear that story again. But it led me (and my BlackRock partners) to pioneer better risk management for fixed income markets.

Meanwhile, Bayo and his team were pioneering modern infrastructure investing in the private markets.

Now, we plan to join our forces again. I think the result will be better opportunities for our clients to invest in the infrastructure that keeps our lights on, planes flying, trains moving, and our cell service at the maximum number of bars.

More about BlackRock's work in 2023
In this letter, I've shared my view that the capital markets are going to play an even bigger role in the global economy. They'll have to if the world wants to address the challenges around infrastructure, debt, and retirement. These are the major economic issues of the mid-21st Century. We're going to need the power of capitalism to solve them.

The way BlackRock figures into that story is through our work with clients. We want to position them well to navigate these trends, which is why we've tried to stay more connected to our clients than ever.

Over the past five years, thousands of clients on behalf of millions of individuals have entrusted BlackRock with managing over $1.9 trillion in net new assets.

Thousands also use our technology to better understand the risks in their portfolios and support the growth and commercial agility of their own businesses. Years of organic growth, alongside the long-term growth of the capital markets, underpin our $10 trillion of client assets, which grew by over $1.4 trillion in 2023.

In good times and bad, whether clients are focused on increasing or decreasing risk, our consistent industry-leading organic growth demonstrates that clients are consolidating more of their portfolios with BlackRock. In 2023, our clients awarded us with $289 billion in net new assets during a period of rapid change and significant portfolio de-risking.

BlackRock's differentiated business model has enabled us to continue to grow with our clients and maintain positive organic base fee growth. We've grown regardless of the market backdrop and even as most of the industry experienced outflows.

I think back to 2016 and 2018 when uncertainty and cautious sentiment impacted investment behavior among institutions and individuals. Many clients de-risked and moved to cash. BlackRock stayed connected with our clients. We stayed rigorous in driving investment performance, innovating new products and technologies, and providing advice on portfolio design. Once clients were ready to step back into the markets more actively, they did it with BlackRock - leading to new records for client flows, and organic base fee growth at or above our target.

Flows and organic base fee growth accelerated into the end of 2023. We saw $96 billion of total net inflows in the fourth quarter and we entered 2024 with great momentum.

In 2024, I plan to do what I did in 2023 - spend a lot of time on the road visiting clients. I've already taken several trips in the U.S. and around the world, and it's clearer than ever that companies and clients want to work with BlackRock.

For companies where we are investing on behalf of our clients, they appreciate that we typically provide long-term, consistent capital. We often invest early, and we stay invested through cycles whether it's debt or equity, pre-IPO or post-IPO. Companies recognize BlackRock's global relationships, brand, and expertise across markets and industries. This makes us a valuable partner, and in turn supports the sourcing and performance we can provide for clients.

Over the past 18 months, we've sourced and executed on a number of deals for clients. In addition to the STRATOS direct air capture project, our funds partnered with AT&T (T) on the Gigapower JV to build out broadband in communities across the U.S. We also made investments globally, including in Brasol (Brazil), AirFirst (South Korea), Akaysha Energy (Australia), and the Lake Turkana Wind Farm (Kenya).

Our ability to source deals for clients is a primary driver of demand for BlackRock private markets strategies. These strategies saw $14 billion of net inflows in 2023, driven by infrastructure and private credit. We continue to expect these categories to be our primary growth drivers within alternatives in the coming years.

Our active investment insights, expertise and strong investment performance similarly differentiate BlackRock in the market. We saw nearly $60 billion of active net inflows in 2023, compared with industry outflows.

In ETFs, BlackRock generated an industry-leading $186 billion of net inflows in 2023. Our leadership in the ETF industry is another testament to our global platform and connectivity with clients.

What we have seen in market after market is that if we can make investing easier and more affordable, we can quickly attract new clients. We are leveraging digital wealth platforms in local markets to provide more investment access and accelerate organic growth for iShares ETFs.

In EMEA, BlackRock powers ETF savings plans for end investors, partnering with many banks and brokerage platforms, including Trade Republic, Scalable Capital, ING, Lloyds (LYG), and Nordnet. These partnerships will help millions of people access investments, invest for the long-term, and achieve financial well-being.

In 2023, we also announced our minority investment in Upvest, which will help drive innovation in how Europeans access markets and make it cheaper and simpler to start investing.

Then there is our work with Britain's leading digital bank, Monzo, to offer its customers our products through its app, with minimum investments as low as £1. Through these relationships, we're evolving our iShares ETF franchise to meaningfully increase access to global markets.

Let me also say a few words about Aladdin. It remains the language of portfolios, uniting all of BlackRock, and providing the technological foundation for how we serve clients across our platform. And Aladdin isn't just the key technology that powers BlackRock; it also powers many of our clients. The need for integrated data and risk analytics as well as whole portfolio views across public and private markets is driving annual contract value ('ACV') growth.

In 2023, we generated $1.5 billion in technology services revenue. Clients are looking to grow and expand with Aladdin, reflected in strong harvesting activity, with over 50% of Aladdin sales being multi-product.

As we look ahead, the re-risking of client portfolios will create tremendous prospects for both our public and private markets franchises. And integrated technology will be needed to help clients be nimble while operating at scale.

These are the times where investors are making broad changes to the way they build portfolios. BlackRock is helping investors build the "portfolio of the future" - one that integrates public and private markets and is digitally enabled. We view these changes as big catalysts. With the diversified investment and technology platform we've built, we've set ourselves up to be a structural grower in the years ahead.

Positioning our organization for the future
Just as we continually innovate and evolve our business to stay ahead of our clients, we also evolve our organization and our leadership team.
Earlier this year we announced changes to reimagine our business and transform our organization to better anticipate what clients need - and shape BlackRock so clients can continue to get the insights, solutions, and outcomes they expect from us.

For years, BlackRock has worked with clients across the whole portfolio, albeit with distinctions between product structures for ETFs, active mutual funds, and separate accounts.

Now the traditional lines between products are blurring. Clients are building portfolios that seamlessly combine both active and index strategies, including liquid and illiquid assets and spanning public and private markets, across ETF, mutual fund, and separate account structures.

BlackRock has been critical in expanding the market for ETFs by making them accessible to more investors and delivering new asset classes (like bonds) and investment strategies (like active). As a result of that success, the ETF is no longer just an indexing concept - it is becoming an efficient structure for a range of investment solutions.

We always viewed ETFs as a technology, a technology that facilitated investing. And just as our Aladdin technology has become core to asset management, so too have ETFs. That's why we believe embedding our ETF and Index expertise across the entire firm will accelerate the growth of iShares and every investment strategy at BlackRock.

We'll be nimbler and more closely aligned with clients through our new architecture with the aim of delivering a better experience, better performance, and better outcomes.

Voting choice
Healthy capital markets depend on a continuous feedback loop between companies and their investors. For more than a decade, BlackRock endeavored to improve that feedback loop for our clients.

We've done it by building an industry-leading stewardship program, one that's focused on engaging investee companies on issues impacting our clients' long-term economic interests. This requires understanding how companies are positioned to navigate the risks and opportunities they face - for example, how geopolitical fragmentation might rewire their supply chains or how higher borrowing cost might impact their capacity to deliver sustained earnings growth.

To do that, we built one of the largest stewardship teams to engage with companies, often alongside our investment teams, because we never believed in the industry's reliance on the recommendations of a few proxy advisors. We knew our clients would expect us to make independent proxy voting decisions, informed by our ongoing dialogue with companies - a philosophy that continues to underpin our stewardship efforts today. For our clients who have entrusted us with this important responsibility, we remain steadfast in promoting sound corporate governance practices and financial resilience at investee companies on their behalf.

And for our clients who wish to take a more direct role in the proxy voting process, we continue to innovate to provide them with more choice. In 2022, BlackRock was the first in our industry to launch Voting Choice, a capability that enabled institutional investors to participate in the proxy voting process. Today, about half of our clients' index equity assets under management can access Voting Choice. And in February, we launched a pilot in our largest core S&P 500 ETF, enabling Voting Choice for individual investors for the first time.

We welcome these additional voices to corporate governance and believe they can further strengthen shareholder democracy. I believe that more asset owners can participate in this important process effectively if they are well-informed. We are encouraged by their engagement and the continued transformation of the proxy voting ecosystem but continue to believe that the industry would benefit from additional proxy advisors.

Strategy for long-term growth
For 36 years, BlackRock has led by listening to our clients and evolving to help them achieve long-term outcomes. That commitment has been behind everything we've done as a firm, whether it's unlocking new markets through iShares, pioneering whole portfolio advisory, launching Aladdin on the desktops of investors and so much more. Clients have been at the foundation of our mindset and our growth strategy, informing the investments we've made across our businesses.

The combination of technology and advisory, alongside ETFs, active and private markets capabilities, enables us to deliver a better client experience - leading to clients consolidating more of their portfolios with BlackRock or engaging us for outsourcing solutions. We believe this in turn will drive continued differentiated organic growth into the future.

As we do each year, our management team and Board spent time assessing our strategy for growth. We challenge ourselves to think: What opportunities will this economic environment create for BlackRock and our clients, what more can we do to meet and anticipate their needs? How can we evolve our organization, operating structure, investment capabilities, and service models and, in doing so, keep leading the industry?

We have strong conviction in our strategy and our ability to execute with scale and expense discipline. Our strategy remains centered on growing Aladdin, ETFs, and private markets, keeping alpha at the heart of BlackRock, leading in sustainable investing, and advising clients on their whole portfolio.

We have continually made internal investments for organic growth and efficiency, investing ahead of client opportunities in private markets, ETFs, technology, and whole portfolio solutions.

In private markets, we are prepared to capitalize on structural growth trends. Whether it's executing on demand for much-needed infrastructure, or the growing role of private credit as banks and public lenders move away from the middle market, private capital will be essential. BlackRock is poised to capture share through our scale, proprietary origination, and track record. And we believe our planned acquisition of GIP will meaningfully accelerate our ability to offer our private markets capabilities to our clients.

In ETFs, we will continue to lead by expanding investment access globally and through innovation. The ETF is an adaptable piece of financial technology, and over time we've been able to do more with it than just making investing more affordable. We've been able to bring better liquidity and price discovery to more opaque markets. One recent example is offering people exposure to Bitcoin through ETFs.

ETFs have been an incredible growth story in the U.S., with iShares leading the way. We believe global ETF adoption is set to accelerate as catalyst trends that we saw in the U.S. years ago like the growth of fee-based advisory and model portfolios are just beginning to take root. Nearly half of 2023 iShares net inflows were from our ETFs listed internationally in local markets, led by European iShares net inflows of $70 billion.

Active asset allocation, security selection and risk management have consistently been key elements in long-term returns. Our active teams across multi-asset, fixed income and equities are well-positioned to seize on broad opportunities arising out of this new interest rate and potentially more volatile regime. We are particularly excited about the opportunity in fixed income and how artificial intelligence is propelling performance in our systematic investing businesses.

Fixed income is going to be increasingly relevant in the construction of whole portfolios with higher yields and better return potential compared to the low-rate environment of the last 15 years. Now that the rate on 10-year U.S. Treasuries is near long-term averages, clients are reconsidering bond allocations.

BlackRock is well-positioned with a diversified fixed income platform. It's not going to be just about index, where we manage nearly $1.7 trillion. Or just about active, where we manage over $1 trillion. Some of the most interesting portfolio conversations are with allocators who are blending ETFs with active or using innovations like our active ETFs for professionally managed income solutions.

Across asset classes, the need for integrated data, technology and risk management will continue to drive demand for Aladdin. Through its dynamic ecosystem of over 130,000 users, the Aladdin platform is constantly innovating and being improved. Investments in Aladdin AI copilots, enhancements in openness supporting ecosystem partnerships, and advancing whole portfolio solutions are going to further augment the value of Aladdin.

We are honored that our clients entrusted us with $289 billion of net new assets in 2023. And over the past few months, we've seen a decidedly more positive sentiment and tone in markets and among clients that I'm very optimistic will carry into the rest of 2024.

Our ability to adapt, evolve, and grow has generated a total return of 9,000% for our shareholders since our IPO in 1999. That is well in excess of the S&P 500 return of 490% and representative of a business model serving all our stakeholders.
Total return since BlackRock's IPO through December 31, 2023

https://static.seekingalpha.com/uplo...024-chart2.png
S&P Global. The performance graph is not necessarily indicative of future investment performance.

Our Board of Directors
BlackRock's Board plays an integral role in our strategy, our growth and our success.
The diverse experiences and backgrounds of our Directors enable us to have rich discussions and debates. At each meeting, our Directors review components of our long-term strategy and foster constructive dialogue with our leadership team on strategic opportunities, priorities and risks facing BlackRock's business. This dialogue ultimately pushes us to make the sometimes tactical and sometimes transformational moves to build a better BlackRock. This includes the two transformational moves we made in January: The strategic re-architecture of our organization and our agreement to acquire GIP.

These two transformational changes are the largest since our acquisition of Barclays Global Investors nearly 15 years ago.
Following the closing of the GIP transaction, we plan to have Bayo Ogunlesi join our Board of Directors. We will continue to evolve our Board over time to reflect the breadth of our global business and to guide us as we evolve ahead of our clients' needs.

A final note
Over the past 36 years, BlackRock has grown from a company of eight people in a tiny Manhattan office into the largest asset manager in the world. But our growth is just a small part of a much larger success story.

It's part of the same story that includes my parents retiring comfortably after 50 years of hard work. The same story where America was able to endure the 1980s S&L crisis and 2008 financial crisis - and rebound quickly and with growing strength.

And it's the story that, hopefully, will include more people around the world. Nations that can outgrow their debt. Cities that can afford to power more homes and build more roads. Workers who can live out their golden years with dignity.

All of these stories are only possible because of the power of the capital markets and the people who are hopeful enough to invest in them.
Sincerely,
Laurence Fink, Chairman and Chief Executive Officer

Footnotes
1Based on a $1,000 investment from January 1960 to December 1990. Assumes reinvestment of all dividends. Past performance is not indicative of future results.
2Federal Reserve History, Savings and Loan Crisis
3OCED Economic Surveys: United States (2016)
4Securities Industry and Financial Markets Association, Capital DMarkets Fact Book (2023), p.6
5World Federation of Exchanges, Market Statistics-February 2024, (2024)
6World Economic Forum, Ageing and Longevity, (2023)
7United Nations, World Population Ageing, (2017), p.8
8The Wall Street Journal, Japan's Nikkei Tops 40000 for First Time, Driven by AI Optimism, (2024)
9Cabinet Secretariat of Japan, Doubling Asset-based Income Plan, (2022), p.2
10Note: 1. Format adapted from Adele M. Hayutin, New Landscapes of Population Change: A Demographic World Tour (Hoover Press, 2022). Data from United Nations Population Division, World Population Prospects. (latest refresh 2022), Medium Fertility Projection. 2. Peak year is defined as the year in which working age population reaches its maximum for a country. Sources: United Nations Population Statistics (as of 2022). OECD (as of 06/2023). World Bank (as of 2022).
11United Nations, UN DESA releases new report on ageing, (2019)
12The New York Times Magazine, Can We Live to 200? (2021)
13National Library of Medicine, Estimated Life-Years Gained Free of New or Recurrent Major Cardiovascular Events With the Addition of Semaglutide to Standard of Care in People With Type 2 Diabetes and High Cardiovascular Risk, (2022)
14Source 1: Bureau of Labor Statistics, Employee Benefits in the United States, (2023), p.1; Source 2: Bureau of Labor Statistics, Employee Benefits in Industry, (1980), p. 6
15BLK Estimates based on AUM as of December 31st, 2021 and Cerulli data as of 2020. ETF assets include only qualified assets based on Cerulli data, and assumes 9.5% of institutionally held ETFs are related to pensions or retirement. Institutional estimates includes assets defined as "related to retirement" and are based on products and clients with a specific retirement mandate (e.g., LifePath, pensions). Estimates for LatAm based on assets managed for LatAm Pension Fund clients, excluding cash.
16BlackRock as of Dec. 31, 2021. The overall number of Americans is calculated based on estimates of participants in BlackRock's Defined Contribution and Defined Benefit plan clients. The Defined Contribution number is estimated based on data from FERS as well as ISS Market Intelligence BrightScope for active participants across 401(k) and 403(b). Defined Contribution includes plans with over $100M+ in assets where participants have access to one or more BlackRock funds; some may not be invested with BlackRock. The Defined Benefit number is estimated based on data from public filings and Pension & Investments for the total number of participants across the 20 largest U.S. Defined Benefit plans that are not also Defined Contribution clients of BlackRock.
17U.S. Bureau of Labor Statistics, Labor Force Statistics from the Current Population Survey, (Feb. 2023)
18Represents the total number of active public schoolteachers enrolled in defined benefit plans with assets managed by BlackRock. Excludes Virginia, Alaska and Pennsylvania pension clients, as the states' DB plan is not the default plan for its participants. Public school teachers count from the National Center for Education Statistics, projection for 2022 school year. Pensions participation rate based on data from the U.S. Bureau of Labor Statistics: 89% as of March 2022.
19Social Security, Life Tables for the United States Social Security Area 1900-2100, Figure 3a
20Social Security, When to Start Receiving Retirement Benefits, (2023), p.2
21Social Security, Summary: Actuarial Status of the Social Security Trust Funds, (2023)
22Dutch Government, Why is the state pension age increasing? (translated from Dutch)
23U.S. Bureau of Labor Statistics, Civilian labor force participation rate, (2000-2024)
24U.S. Census Bureau, Survey of Income and Program Participation (SIPP), (2022)
25Federal Reserve, Economic Well-Being of U.S. Households in 2022, (2023), p.2
26BlackRock, Emergency Saving Initiative: Impact and Learnings Report, (2019-2022), p.2
27BlackRock, Emergency Savings Initiative: Impact and Learnings Report, (2019-2022), p.12
28BlackRock, What are target date funds?
29AARP, New AARP Research: Nearly Half of Americans Do Not Have Access to Retirement Plans at Work, (2022)
30CIA: The World Factbook, Country Comparisons: Population (2023 est.)
31OECD, Pensions at a Glance 2023, (2023), 222
32Georgetown University Center for Retirement Initiatives, State-Facilitated Retirement Savings Programs: A Snapshot of Program Design Features, (2023)
33Parliament of Australia, Superannuation and retirement incomes
34Human Interest, The power of 401(k) automatic enrollment, (2024)
35BlackRock, To spend or not to spend? (2023), p. 2-5
36Source 1: The Wall Street Journal, The Champions of the 401(k) Lament the Revolution They Started, (2017); Source 2: Social Security Office of Retirement and Disability Policy, The Disappearing Defined Benefit Pension and Its Potential Impact on the Retirement Incomes of Baby Boomers, (2009)
37U.S. Chamber of Commerce, Statement of the U.S. Chamber of Commerce, (2012), p. 3
38Harvard Business Review, Too Many Employees Cash Out Their 401(k)s When Leaving a Job, (2023)
39The Wall Street Journal, Why China's Middle Class Is Losing Its Confidence, (2024)
40The Wall Street Journal, Covid-Era Savings are Crucial to China's Economic Recovery, (2023)
41The Wall Street Journal, The Rough Years That Turned Gen Z Into America's Most Disillusioned Voters, (2024)
42Financial Times, How Adebayo
contrarian bet led to $12.5bn BlackRock tie-up, (2024)
43American Society of Civil Engineers (ASCE), 2021 Report Card For America's Infrastructure, (2021), p. 5
44International Monetary Fund, Global Debt Is Returning to its Rising Trend, (2023)
45Fiscal Data: U.S. Treasury, Debt to the Penny, (Debt was $23.4T in March 2020 and $34.5T in March 2024)
46The Wall Street Journal, A $1 Trillion Conundrum: The U.S. Government's Mounting Debt Bill, (2024)
47US Department of Treasury, Table 5: Major Foreign Holders of Treasury Securities
48As of March 2024. Net Zero Tracker, Net Zero Tracker | Welcome (last visited March 18th, 2024)
49Associated Press News, The year in clean energy: Wind, solar and batteries grow despite economic challenges, (2023)
50BlackRock iResearch Services global survey, sample size n=200, May-June 2023. Survey covered institutional investors' attitudes, approaches, barriers, and opportunities regarding transition investing. 83% of EMEA respondents surveyed have net zero by 2050 or other date as a transition objective across their portfolio. https://www.blackrock.com/corporate/...ing-survey.pdf
51BlackRock's 2020 Letter to Clients, Sustainability as BlackRock's New Standard for Investing, (2020)
52Reuters, Europe's spend on energy crisis nears 800 billion euros, (2023)
53The New York Times, Germany Announces New L.N.G. Facility, Calling It a Green Move from Russian Energy, (2022)
54Texas Fall 2023 Economic Forecast
55Federal Reserve Bank of Dallas, Texas electrical grid remains vulnerable to extreme weather events, (2023)
56U.S. Energy Information Administration: Electricity Data Browser
57U.S. Energy Information Administration, Solar and wind to lead growth of U.S. power generation for the next two years, (2024)
58BlackRock Alternatives, CFP, 2023
59Kenya Power, Annual Report & Financial Statements, (2022)
60Reuters, BlackRock, Temasek-led group invest $150 mln in thermal battery maker Antora, (2024)
61Business Wire, Antora Energy Raises $150 Million to Slash Industrial Emissions and Spur U.S. Manufacturing, (2024)
62Oxy, Occidental and BlackRock Form Joint Venture to Develop STRATOS, the World's Largest Direct Air Capture Plant, (2023)
63As of June 30, 2022. "Energy companies" refers to corporations classified as belonging to the GICS-1 Energy Sector.
2024 BlackRock, Inc. All rights reserved.

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Larry Fink

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Larry D. Fink is Chairman and Chief Executive Officer of BlackRock, Inc. Mr. Fink has led the firm since its founding in 1988, keeping client centric solutions and innovation at the forefront of his leadership. Mr. Fink leads the Global Executive Committee, which sets the strategic direction of the Company and works across businesses to ensure BlackRock is prepared to solve for our client’s most critical investment challenges. Mr. Fink is frequently sought after by government leaders, policy makers and some of the world’s largest organizations for guidance on how to navigate the increasing complexities of the global financial markets. Prior to founding BlackRock in 1988, Mr. Fink was a member of the Management Committee and a Managing Director of The First Boston Corporation. Mr. Fink joined First Boston in 1976 and quickly became one of the first mortgage-backed securities traders on Wall Street. During his tenure at First Boston, Mr. Fink was co-head of the Taxable Fixed Income Division, which was responsible for trading and distribution of all government, mortgage and corporate securities. Mr. Fink also started the Financial Futures and Options Department and headed the Mortgage and Real Estate Products Group. Mr. Fink serves as a member of the Board of Trustees of New York University and is Co-Chairman of the NYU Langone Medical Center Board of Trustees. Mr. Fink also serves on the Boards of The Museum of Modern Art (MoMA), the Council on Foreign Relations and Robin Hood, the New York City charitable organization. He is also Co-Chairman of The Partnership for New York City, which works to engage the business community in efforts to advance the City's economy and maintain its position as the center of world commerce, finance and innovation

(21) Congress Could Unload the Fed’s Weapon - by Quoth the Raven (substack.com)

Congress Could Unload the Fed’s Weapon
"To ensure sound economic outcomes, it is imperative to establish strong fiscal and monetary rules that provide an institutional framework limiting the burdens of government actions on our lives..."

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QUOTH THE RAVEN

MAR 27, 2024

By Vance Ginn, AIER

John Cochrane’s The Fiscal Theory of the Price Level examines the relationship between fiscal policy and inflation, which many consider to be the increase in the price level of a basket of goods and services. An influential and accomplished economist at the Hoover Institution, Cochrane is one of the most forward-thinking economists today. His approach challenges conventional wisdom and presents a compelling case for reevaluating our understanding of the economy.

I learned much from reading the book and while interviewing him about it on my Let People Prosper Show podcast. I highly recommend reading this extensive book, though I have reservations about fiscal policy trumping monetary policy when considering the influence on inflation.

Cochrane begins by laying out the foundational principles of his theory. He emphasizes the roles of government debt, taxes, and inflation expectations on prices. He argues that traditional economic models, which focus primarily on the role of central banks in controlling inflation through monetary policy, such as those by Milton Friedman, overlook the substantial effect of fiscal variables on prices.

By uniquely integrating fiscal considerations and the public’s expectations about those factors into economic analysis, Cochrane aims to provide a more robust framework for understanding and predicting inflationary trends. He delves into various theoretical and empirical aspects of fiscal theory, drawing on a wide range of literature and evidence to support his arguments.

He explores the implications of government budget constraints, the role of Ricardian equivalence that assumes a balanced budget over time, and the potential limitations of conventional monetary tools in controlling inflationary pressures. His thorough examination of these issues provides readers with a comprehensive understanding of the complexities of studying the relationship between fiscal policy and inflation.

Cochrane’s arguments are persuasive and well-supported, but some aspects of his analysis warrant scrutiny.

One area of contention is Cochrane’s emphasis on the primacy of fiscal policy in driving inflationary dynamics, particularly his assertion that the Federal Reserve plays a secondary role compared to Congress in shaping inflation outcomes. While Cochrane makes a compelling case for the importance of fiscal variables, the penultimate creator of inflation is the Fed when it creates more money than the goods and services produced.

Milton Friedman, who extensively studied the role of the Fed in economic activity and inflation, said: “Inflation is always and everywhere a monetary phenomenon. It is a result of a greater increase in the quantity of money than in the output of goods and services which is available for spending.”
The Fed controls what’s called “high-powered money” of various assets on its balance sheet. These assets include mostly Treasury securities from the tens of trillions of dollars in debt issued by the federal government. It also includes mortgage-backed securities, lending to financial institutions, federal agency debt, and other lending facilities.

I agree with Cochrane that federal deficits give ammunition to the Fed when it purchases Treasury debt, grows high-powered money, contributes to more money chasing too few goods and services, and results in inflation. But other assets on the Fed’s balance sheet also matter, especially since the Great Financial Crisis in 2008 when the Fed started quantitative easing.

Cochrane’s framework overlooks the significant role of monetary policy in influencing inflation expectations and shaping the broader economic environment. While fiscal policy can play a role in determining long-term inflation trends, as the debt distorts interest rates in the market, the Fed’s control of the money supply to target the federal funds rate and influence other rates along the yield curve remains a potent tool for managing expectations.

While we should challenge Congress to adopt a fiscal rule for sustainable budgets to relieve excessive spending that drives up the national debt, this does not undermine the source of inflation: the Fed.

But if Congress could balance its budget, which hasn’t happened since 2001, it would remove a bullet the Fed could shoot at the economy. In other words, a sustainable fiscal policy, wherein Congress passes balanced budgets by limiting government spending — the ultimate burden of government and the source of budget deficits — would help control inflation. While this could mitigate the assets available for the Fed to add to high-powered money, it would not solve the inflation problem because of many other available assets.

Another issue that arises from considering fiscal policy the prime mover of inflation is how it works in practice. Fiscal policy is not directly expansionary or contractionary, as it is just taking funds from some people to give to others, with many of the takers being politicians and bureaucrats in government. These actions move money around in the economy without increasing productive activity that creates goods and services.

QTR’s Fringe Finance is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

There are roles for the federal, state, and local governments, but those should be limited to those outlined in constitutions. If Congress would abide by the Constitution, whereby it funded only limited government instead of the bloated federal government today, then fiscal policy would not be so burdensome. Fiscal policy would also not fall into the Keynesian trap of trying to “stabilize economic activity,” as the only thing that governments typically stimulate is more government because of the created failures due to the limited knowledge and rent seeking by politicians and bureaucrats.

The underlying problem is usually government failures that cannot be resolved by more government.

When Congress returns to its limited, constitutional roles, the federal budget will be drastically cut, resulting in lower taxes and opportunities to pay down and retire the national debt. This would also help reduce the massive distortions throughout the economy from government spending, taxes, and regulations. It would also decrease the Fed’s influence on the economy, but not entirely because of the other assets available for its disposal.

The Fed also distorts economic activity through its ability to influence each stage of the production process with the assets on its balance sheet and its effect on interest rates.

When the Fed purchases Treasury debt and increases high-powered money, the new money does not go to everyone simultaneously. Instead, the money trickles down from the financial sector to other sectors based on credit availability and other factors, in what is called the Cantillon effect. The manipulation of different markets throughout the production process of goods by the new money and the influence the purchase of assets by the Fed has on interest rates create boom and bust cycles. There is ample evidence about these economic steps, especially from the Austrian business cycle theory.

Fiscal policy influences many steps in the production process through subsidies, tax breaks, and regulations, which hinder the voluntary production of individual goods and services through a well-functioning price system. But Congress cannot increase the money supply, which only the Fed can do, nor influence the general price level nor the resulting inflation.

All things considered, Cochrane’s comprehensive exploration of fiscal theory and extensive analysis of its implications for the price level riveted me. His methodical dissection of economic concepts and pragmatic approach to examining fiscal policy offered a fresh perspective on economic dynamics.

In conclusion, the Fiscal Theory of the Price Level offers a valuable contribution to the ongoing debate surrounding the determinants of inflation and the role of fiscal policy in the economy. While I’m sympathetic to Cochrane’s arguments, it is essential to recognize the importance of a central bank’s monetary policy in causing inflation through its balance sheet.

Additionally, we should acknowledge the distortions caused by government policy, whether fiscal or monetary, and recognize the secondary role of fiscal policy compared to monetary policy in addressing inflationary pressures. To ensure sound economic outcomes, it is imperative to establish strong fiscal and monetary rules that provide an institutional framework limiting the burdens of government actions on our lives and livelihoods.

Despite my dissent on the emphasis placed on fiscal policy’s role in inflation, the book’s productive discourse on the delicate dynamics of key economic elements make this an important contribution to inflation studies.

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QTR’s Disclaimer: I am an idiot and often get things wrong and lose money. I may own or transact in any names mentioned in this piece at any time without warning. I didn’t double check any numbers or figures in this piece and am generally lazy with my research. Contributor posts and aggregated posts have not been fact checked and are the opinions of their authors. Contributor posts and curated content are posted either with the author’s permission or under a Creative Commons license. This is not a recommendation or solicitation to buy or sell any stocks or securities, just my opinions. I often lose money on positions I trade/invest in. Sometimes I just lose money by misplacing it. I’m generally irresponsible. I may add any name mentioned in this article and sell any name mentioned in this piece at any time, without further warning. These positions can change immediately as soon as I publish this, with or without notice. You are on your own. Do not make decisions based on my blog. Do your research elsewhere. I exist on the fringe. The publisher does not guarantee the accuracy or completeness of the information provided in this page. These are not the opinions of any of my employers, partners, or associates. I did my best to be honest about my disclosures but can’t guarantee I am right; I write these posts after a couple beers sometimes. Also, I just straight up get shit wrong a lot. I mention it numerous times because it’s that important that you know.

Escobar: The Nuland/Budanov/Tajik/Crocus Connection | ZeroHedge

Escobar: The Nuland/Budanov/Tajik/Crocus Connection
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BY TYLER DURDEN

WEDNESDAY, MAR 27, 2024 - 02:00 AM

Authored by Pepe Escobar,

Let’s start with the possible chain of events that may have led to the Crocus terror attack.
https://assets.zerohedge.com/s3fs-pu...?itok=018-JCBU

This is as explosive as it gets. Intel sources in Moscow discreetly confirm this is one of the FSB’s prime lines of investigation.

December 4, 2023. Former chairman of the Joint Chiefs of Staff, Gen Mark Milley, only 3 months after his retirement, tells CIA mouthpiece The Washington Post: “There should be no Russian who goes to sleep without wondering if they’re going to get their throat slit in the middle of the night (…) You gotta get back there and create a campaign behind the lines.”

January 4, 2024: In an interview with ABC News, “spy chief” Kyrylo Budanov lays down the road map: strikes “deeper and deeper” into Russia.

January 31: Victoria Nuland travels to Kiev and meets Budanov. Then, in a dodgy press conference at night in the middle of an empty street, she promises “nasty surprises” to Putin: code for asymmetric war.

February 22: Nuland shows up at a Center for Strategic and International Studies (CSIS) event and doubles down on the “nasty surprises” and asymmetric war. That may be interpreted as the definitive signal for Budanov to start deploying dirty ops.

February 25: The New York Times publishes a story about CIA cells in Ukraine: nothing that Russian intel does not already know.

Then, a lull until March 5 – when crucial shadow play may have been in effect. Privileged scenario: Nuland was a key dirty ops plotter alongside the CIA and the Ukrainian GUR (Budanov). Rival Deep State factions got hold of it and maneuvered to “terminate” her one way or another – because Russian intel would have inevitably connected the dots.

Yet Nuland, in fact, is not “retired” yet; she’s still presented as Undersecretary of State for Political Affairs and showed up recently in Rome for a G7-related meeting, although her new job, in theory, seems to be at Columbia University (a Hillary Clinton maneuver).
Meanwhile, the assets for a major “nasty surprise” are already in place, in the dark, and totally off radar. The op cannot be called off.

March 5: Little Blinken formally announces Nuland’s “retirement”.

March 7: At least one Tajik among the four-member terror commando visits the Crocus venue and has his photo taken.

March 7-8 at night: U.S. and British embassies simultaneously announce a possible terror attack on Moscow, telling their nationals to avoid “concerts” and gatherings within the next two days.

March 9: Massively popular Russian patriotic singer Shaman performs at Crocus. That may have been the carefully chosen occasion targeted for the “nasty surprise” – as it falls only a few days before the presidential elections, from March 15 to 17. But security at Crocus was massive, so the op is postponed.

March 22: The Crocus City Hall terror attack.

ISIS-K: the ultimate can of worms
The Budanov connection is betrayed by the modus operandi – similar to previous Ukraine intel terror attacks against Daria Dugina and Vladimir Tatarsky: close reconnaissance for days, even weeks; the hit; and then a dash for the border.
And that brings us to the Tajik connection.

There seem to be holes aplenty in the narrative concocted by the ragged bunch turned mass killers: following an Islamist preacher on Telegram; offered what was later established as a puny 500 thousand rubles (roughly $4,500) for the four of them to shoot random people in a concert hall; sent half of the funds via Telegram; directed to a weapons cache where they find AK-12s and hand grenades.

The videos show that they used the machine guns like pros; shots were accurate, short bursts or single fire; no panic whatsoever; effective use of hand grenades; fleeing the scene in a flash, just melting away, almost in time to catch the “window” that would take them across the border to Ukraine.

All that takes training. And that also applies to facing nasty counter-interrogation. Still, the FSB seems to have broken them all – quite literally.

A potential handler has surfaced, named Abdullo Buriyev. Turkish intel had earlier identified him as a handler for ISIS-K, or Wilayat Khorasan in Afghanistan. One of the members of the Crocus commando told the FSB their “acquaintance” Abdullo helped them to buy the car for the op.

And that leads us to the massive can of worms to end them all: ISIS-K.

The alleged emir of ISIS-K, since 2020, is an Afghan Tajik, Sanaullah Ghafari. He was not killed in Afghanistan in June 2023, as the Americans were spinning: he may be currently holed up in Baluchistan in Pakistan.

Yet the real person of interest here is not Tajik Ghafari but Chechen Abdul Hakim al-Shishani, the former leader of the jihadi outfit Ajnad al-Kavkaz (“Soldiers of the Caucasus”), who was fighting against the government in Damascus in Idlib and then escaped to Ukraine because of a crackdown by Hayat Tahrir al-Sham (HTS) – in another one of those classic inter-jihadi squabbles.

Shishani was spotted on the border near Belgorod during the recent attack concocted by Ukrainian intel inside Russia. Call it another vector of the “nasty surprises”.

Shishani had been in Ukraine for over two years and has acquired citizenship. He is in fact the sterling connection between the nasty motley crue Idlib gangs in Syria and GUR in Kiev – as his Chechens worked closely with Jabhat al-Nusra, which was virtually indistinguishable from ISIS.

Shishani, fiercely anti-Assad, anti-Putin and anti-Kadyrov, is the classic “moderate rebel” advertised for years as a “freedom fighter” by the CIA and the Pentagon.
Some of the four hapless Tajiks seem to have followed ideological/religious indoctrination on the internet dispensed by Wilayat Khorasan, or ISIS-K, in a chat room called Rahnamo ba Khuroson.

The indoctrination game happened to be supervised by a Tajik, Salmon Khurosoni. He’s the guy who made the first move to recruit the commando. Khurosoni is arguably a messenger between ISIS-K and the CIA.

The problem is the ISIS-K modus operandi for any attack never features a fistful of dollars: the promise is Paradise via martyrdom. Yet in this case it seems it’s Khurosoni himself who has approved the 500 thousand ruble reward.

After handler Buriyev relayed the instructions, the commando sent the bayat – the ISIS pledge of allegiance – to Khurosoni. Ukraine may not have been their final destination. Another foreign intel connection – not identified by FSB sources – would have sent them to Turkey, and then Afghanistan.

That’s exactly where Khurosoni is to be found. Khurosoni may have been the ideological mastermind of Crocus. But, crucially, he’s not the client.

The Ukrainian love affair with terror gangs
Ukrainian intel, SBU and GUR, have been using the “Islamic” terror galaxy as they please since the first Chechnya war in the mid-1990s. Milley and Nuland of course knew it, as there were serious rifts in the past, for instance, between GUR and the CIA.

Following the symbiosis of any Ukrainian government post-1991 with assorted terror/jihadi outfits, Kiev post-Maidan turbo-charged these connections especially with Idlib gangs, as well as north Caucasus outfits, from the Chechen Shishani to ISIS in Syria and then ISIS-K. GUR routinely aims to recruit ISIS and ISIS-K denizens via online chat rooms. Exactly the modus operandi that led to Crocus.

One “Azan” association, founded in 2017 by Anvar Derkach, a member of the Hizb ut-Tahrir, actually facilitates terrorist life in Ukraine, Tatars from Crimea included – from lodging to juridical assistance.

The FSB investigation is establishing a trail: Crocus was planned by pros – and certainly not by a bunch of low-IQ Tajik dregs. Not by ISIS-K, but by GUR. A classic false flag, with the clueless Tajiks under the impression that they were working for ISIS-K.

The FSB investigation is also unveiling the standard modus operandi of online terror, everywhere. A recruiter focuses on a specific profile; adapts himself to the candidate, especially his – low – IQ; provides him with the minimum necessary for a job; then the candidate/executor become disposable.

Everyone in Russia remembers that during the first attack on the Crimea bridge, the driver of the kamikaze truck was blissfully unaware of what he was carrying,

As for ISIS, everyone seriously following West Asia knows that’s a gigantic diversionist scam, complete with the Americans transferring ISIS operatives from the Al-Tanf base to the eastern Euphrates, and then to Afghanistan after the Hegemon’s humiliating “withdrawal”. Project ISIS-K actually started in 2021, after it became pointless to use ISIS goons imported from Syria to block the relentless progress of the Taliban.

Ace Russian war correspondent Marat Khairullin has added another juicy morsel to this funky salad: he convincingly unveils the MI6 angle in the Crocus City Hall terror attack (in English here, in two parts, posted by “S”).

The FSB is right in the middle of the painstaking process of cracking most, if not all ISIS-K-CIA/MI6 connections. Once it’s all established, there will be hell to pay.
But that won’t be the end of the story. Countless terror networks are not controlled by Western intel – although they will work with Western intel via middlemen, usually Salafist “preachers” who deal with Saudi/Gulf intel agencies.

The case of the CIA flying “black” helicopters to extract jihadists from Syria and drop them in Afghanistan is more like an exception – in terms of direct contact – than the norm. So the FSB and the Kremlin will be very careful when it comes to directly accusing the CIA and MI6 of managing these networks.

But even with plausible deniability, the Crocus investigation seems to be leading exactly to where Moscow wants it: uncovering the crucial middleman. And everything seems to be pointing to Budanov and his goons.

Ramzan Kadyrov dropped an extra clue. He said the Crocus “curators” chose on purpose to instrumentalize elements of an ethnic minority – Tajiks – who barely speak Russian to open up new wounds in a multinational nation where dozens of ethnicities live side by side for centuries.

In the end, it didn’t work. The Russian population has handed to the Kremlin total carte blanche to exercise brutal, maximum punishment – whatever and wherever it takes.

Unknown Terrorists Use Cargo Ship As Missile To Wipe Out Baltimore Bridge (whatdoesitmean.com)

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March 26, 2024
Unknown Terrorists Use Cargo Ship As Missile To Wipe Out Baltimore Bridge

By: Sorcha Faal, and as reported to her Western Subscribers

A thought-provoking new Security Council (SC) report circulating in the Kremlin today first noting President Putin observing about the barbaric Moscow terrorist attack that claimed 139 lives: “This atrocity may be only a link in a whole series of attempts by those who have been fighting our country since 2014, using the neo-Nazi Kiev regime as their hand...And the Nazis, as is well known, never hesitated to use the most dirty and inhumane means to achieve their goal...A question that needs answering is why the terrorists headed for Ukraine after carrying out the attack...Who was waiting for them there?...It is clear that those who support the Kiev regime do not want to be accomplices and sponsors of terrorism...But a lot of questions remain”, says this observation was followed by the Ministry of Defense (MoD) announcing: “Over the past 24 hours, the Russian armed forces launched a massive strike with high-precision long-range sea- and land-based weapons and unmanned aerial vehicles against decision-making centers, facilities of the Ukrainian security service, military-industrial complex enterprises, as well as locations of Ukrainian national formations and foreign mercenaries, all targets were hit”.

Seared into the memory of all Russian peoples, this report notes, was United States Chairman of the Joint Chief's of Staff General Mark Milley demonically declaring: “There should be no Russian who goes to sleep without wondering if they’re going to get their throat slit in the middle of the night...You gotta get back there, and create a campaign behind the lines”—a “throat slit in the middle of the night” behind the lines campaign, however, that was just visited upon the United States at 1:35 a.m. this morning when the Francis Scott Key Bridge connecting to the Port of Baltimore was obliterated.

With the Francis Scott Key Bridge having a main span of 1,200 feet (366 meters) and was the third longest span of any continuous truss in the world, this report continues, it was the main connector to the Port of Baltimore that beat the St. Lawrence Seaway in the movement of American military goods in 1964—in the early morning hours today, this vital American strategic military bridge met the Singapore-flagged container ship MV Dali, whose registered owner is Grace Ocean Pte Ltd managed by Synergy Marine Group—the MV Dali was less than 30 minutes into its planned 27-day journey to Sri Lanka, but it suddenly became a guided missile, as news reports revealed: “The MV Dali approaches from the north-east but approximately four minutes and 20 seconds before impact all lights aboard the ship go out, a clear indication of a total onboard loss of power...One minute and ten seconds after this visual indication that all is not well onboard some lights are restored, and they continue to turn on and off to varying degrees until the collision...During these last minutes, the MV Dali turns sharply — particularly for a ship of its size — to starboard, putting it on course for the bridge support...From three minutes until impact until the strike a very large plume of thick, dark smoke appears to pour from the ship’s chimney, indicative of either the engine working very hard or a fire onboard...In the case of the crew being aware of the imminent disaster and attempting to prevent the collision, the volume of smoke would likely mean failed engines being restarted or — if already running after the total electrical failure — the engines being put under a high load to slow the ship down”.


As the MV Dali remains stuck under the debris of the strategic American military bridge it obliterated, this report concludes, its being turned into a guided missile follows multitudes of warning articles like “Container Ships Easy To Hack, Track, Send Off Course And Even Sink, Security Experts Say”—as to what terrorist group caused this catastrophe remains unknown, but the United States obviously knew an attack was imminent, as evidenced by the news reported a month ago on 21 February: “President Joe Biden issued an executive order Wednesday assigning responsibility for cybersecurity at ports and other maritime facilities to the U.S. Coast Guard, with the goal of making sure minimum security requirements are put in place as quickly as possible....The order also will allow the Coast Guard to conduct cyber safety inspections of facilities and ships, and even limit the movement of vessels suspected of posing a cyber threat to U.S. ports”.
[Note: Some words and/or phrases appearing in quotes in this report are English language approximations of Russian words/phrases having no exact counterpart.]

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March 26, 2024 EU and US all rights reserved. Permission to use this report in its entirety is granted under the condition it is linked to its original source at WhatDoesItMean.Com. Freebase content licensed under CC-BY and GFDL.

[Note: Many governments and their intelligence services actively campaign against the information found in these reports so as not to alarm their citizens about the many catastrophic Earth changes and events to come, a stance that the Sisters of Sorcha Faal strongly disagree with in believing that it is every human being’s right to know the truth. Due to our mission’s conflicts with that of those governments, the responses of their ‘agents’ has been a longstanding misinformation/misdirection campaign designed to discredit us, and others like us, that is exampled in numerous places, including HERE.]

[Note: The WhatDoesItMean.com website was created for and donated to the Sisters of Sorcha Faal in 2003 by a small group of American computer experts led by the late global technology guru Wayne Green (1922-2013) to counter the propaganda being used by the West to promote their illegal 2003 invasion of Iraq.]
[Note: The word Kremlin (fortress inside a city) as used in this report refers to Russian citadels, including in Moscow, having cathedrals wherein female Schema monks (Orthodox nuns) reside, many of whom are devoted to the mission of the Sisters of Sorcha Faal.]

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March 27, 2024
“Black Swan Event” Wipeout Of Baltimore Port Bridge Called “Absolutely Brilliant Strategic Attack”

By: Sorcha Faal, and as reported to her Western Subscribers

A compelling new Security Council (SC) report circulating in the Kremlin today first noting President Putin advising Russian lawmakers debating reinstating the death penalty for terrorists in response to the barbaric Moscow concert hall attack that killed 140 and wounded 360: “It is extremely important for us now, when we’re dealing with what happened last Friday, to rely on these values of creativity, humanism and mercy...They unite us in supporting all victims, in our determination to stay strong and together”, says this call for Christian mercy for even the most evil human beings was joined by Supreme Socialist Leader Joe Biden advocating raising the average federal tax for America’s wealthiest from 8.2% to 25%, then he demonically declared: “Imagine what we could do with that...We could fundamentally slash the federal deficit...We could do so many things – consequential – including finally making sure that we take care of Ukraine from that butcher Putin”.

In quick response to the leftist Bloomberg News Service lyingly claiming about the Moscow terrorist attack “There’s no evidence of involvement by Ukraine, according to four people with close ties to the Kremlin”, this report notes, Foreign Ministry spokeswoman Maria Zakharova factually assessed about this lying claim: “A masterpiece of news...Just the mother of all fakes”, then she truthfully observed: “The very fact that within the first 24 hours after the attack, even before the fire was put out, the Americans started screaming that it wasn't Ukraine, I think, is a piece of incriminating evidence...I can't classify it otherwise; it is evidence in and of itself...The second fact to note concerns the clamor by the US that this assuredly was the work of ISIS...Of course, the speed with which they were able to come to such forthright conclusions is astonishing...It took them only a few hours to get to a microphone, turn on the lights, summon the press and draw a conclusion about who is to blame for this horribly bloody terrorist attack...I think they’ve boxed themselves into a corner, because as soon as they started screaming that it was ISIS, all those people who work in international relations, who are political scientists and experts, recalled and reminded everyone else what ISIS really is...You are behind all those ISIS-type structures, you - the United States, Great Britain - yourselves brought them into being”.

The Kremlin official heading the Moscow terrorist attack investigation, this report continues, is Director Alexander Bortnikov of the Federal Security Service (FSB), who revealed about Ukraine’s involvement: “The primary data we received from the detainees confirms this...Therefore, we will further finalize the information that should show us whether the presence and participation of the Ukrainian side is real or not...In any case, for now there is reason to say that this is exactly the case”—when asked whether the United States, Britain and Ukraine could be behind the terrorist attack, Director Bortnikov replied: “We think that this is so...In any case, we are now talking about the information that we have...This is general information, but the investigators also have concrete results”—and when asked if Ukraine’s military intelligence chief, Kirill Budanov, should be considered a valid target for Russian troops, Director Bortnikov told journalists: “The same principle should be applied to anyone committing crimes against Russia”.

With the free world shocked by images of Ukrainian soldiers proudly displaying ISIS patches on their uniforms, which the socialist Western world won’t allow their peoples to see, this report details, Ukrainian President Vladimir Zelensky responded to global outrage yesterday by signing a decree dismissing Oleksiy Danilov as secretary of Ukraine's National Security and Defense Council—and the National Security and Defense Council of Ukraine oversees Director Vasyl Malik of the Security Service of Ukraine, who just gleefully recounted the terrorist attacks on Russia he ordered, and warned: “Russia should expect more attacks...But the nature of the strikes will change because Ukraine never repeats itself”.

Joining world-renowned Brazilian geopolitical analysts Pepe Escobar, in his just released open letter “The Nuland/Budanov/Tajik/Crocus Connection”, observing: “The Russian population has handed to the Kremlin total carte blanche to exercise brutal, maximum punishment – whatever and wherever it takes”, this report notes, Russian military forces used hypersonic missiles to destroy two Patriot batteries in Kiev then obliterated an SBU headquarters building, after which they used an Iskander missile strike to destroy a NATO command post in the Chasov Yar area wiping out its American and Polish commanders.

While Russian military forces deliver “brutal and maximum punishment” on the Ukrainian battlefield, this report continues, the United States suffered a catastrophic blow when a cargo ship used as a missile wiped out the main Baltimore Port bridge—and was a catastrophic attack followed by the French article “Baltimore Bridge Collapse Sparks Baseless Attack Theories”, wherein it cites Infowars founder Alex Jones most gravely observing: “Looks deliberate to me...A cyber-attack is probable...WW 3 has already started”.

Exactly like the United States declared ISIS was responsible for the Moscow terrorist attack immediately after it occurred and before an investigation was even started, this report concludes, yesterday it declared the Baltimore Port bridge catastrophe wasn’t a terrorist attack before investigators even arrived at the scene—an affront to normal investigation procedures quickly noted by retired United States Defense Intelligence Agency chief Lieutenant-General Michael Flynn, who posted the warning: “This is a BLACK SWAN event…Black swans normally come out of the world of finance (not military)…The standard operating procedures for all U.S. ports, harbors, and bays that transit commerce and military activities are supposed to maintain an incredible level of discipline, rigor and awareness for these very type events to not occur (ever!), yet here we are”—and was a warning joined by world-renowned and multiple award winning American investigative journalist Lara Logan most fearfully revealing:
Multiple intel sources: Baltimore bridge collapse was an “absolutely brilliant strategic attack” on US critical infrastructure - most likely cyber - & our intel agencies know it.

In information warfare terms, they just divided the US along the Mason Dixon line exactly like the Civil War.
Second busiest strategic roadway in the nation for hazardous material now down for 4-5 years - which is how long they say it will take to recover.
Bridge was built specifically to move hazardous material - fuel, diesel, propane gas, nitrogen, highly flammable materials, chemicals and oversized cargo that cannot fit in the tunnels - that supply chain now crippled.

Make no mistake: this was an extraordinary attack in terms of planning, timing & execution.
The two critical components on that bridge are the two load-bearing pylons on each end, closest to the shore. They are bigger, thicker and deeper than anything else. These are the anchor points and they knew that hitting either one one of them would be a fatal wound to the integrity of the bridge.
Half a mile of bridge went in the river - likely you will have to build a new one. Also caused so much damage to the structural integrity of the bottom concrete part that you cannot see & won’t know until they take the wreckage apart. Structural destruction likely absolute.

Attack perfectly targeted.
“They have figured out how to bring us down. As long as you stay away from the teeth of the US military, you can pick the US apart. We are arrogant and ignorant - lethal combination. Obama said they would fundamentally change America and they did. We are in a free-fall ride on a roller coaster right now - no brakes - just picking up speed”.

The footage shows the cargo ship never got in the approach lane in the channel. You have to be in the channel before you get into that turn. Location was precise/deliberate: chose a bend in the river where you have to slow down and commit yourself - once you are committed in that area there is not enough room to maneuver.

Should have had a harbor pilot to pilot the boat. You are not supposed to traverse any obstacles without the harbor pilot.
They chose a full moon so they would have maximum tidal shift - rise and fall. Brisk flow in that river on a normal day & have had a lot of rain recently so water was already moving along at a good pace.
Hit it with enough kinetic energy to knock the load-bearing pylon out from under the highway - which fatally weakens the span and then 50 percent of the bridge fell into the water.

All these factors when you look at it - this is how you teach people how to do this type of attack and there are so few people left in the system who know this. We have a Junior varsity team on the field.

Tremendous navigational obstruction. Huge logistical nightmare to clean this up. Number of dead is tragic but not the whole measure of the attack.
That kind-of bridge constantly under repair - always at night because there is so much traffic and they cannot obstruct that during the day. So concern is for repair guys who were on foot (out of their vehicles) working who may now be in the water - 48 degrees at most at this time of year.

When you choke off Baltimore you have cut the main north-south hazardous corridor (I95) in half. Now has to go around the city - or go somewhere else.
To move some of that cargo through the tunnel you may be able to get a permit but those are slow to get and require an escort system that is expensive and has to be done at night.

For every $100 dollars that goes into the city, $12 comes from shipping. Believe this will cripple the city of Baltimore at a time when they do not have the resources to recover.
[Note: Some words and/or phrases appearing in quotes in this report are English language approximations of Russian words/phrases having no exact counterpart.]

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March 27, 2024 EU and US all rights reserved. Permission to use this report in its entirety is granted under the condition it is linked to its original source at WhatDoesItMean.Com. Freebase content licensed under CC-BY and GFDL.

[Note: Many governments and their intelligence services actively campaign against the information found in these reports so as not to alarm their citizens about the many catastrophic Earth changes and events to come, a stance that the Sisters of Sorcha Faal strongly disagree with in believing that it is every human being’s right to know the truth. Due to our mission’s conflicts with that of those governments, the responses of their ‘agents’ has been a longstanding misinformation/misdirection campaign designed to discredit us, and others like us, that is exampled in numerous places, including HERE.]

[Note: The WhatDoesItMean.com website was created for and donated to the Sisters of Sorcha Faal in 2003 by a small group of American computer experts led by the late global technology guru Wayne Green (1922-2013) to counter the propaganda being used by the West to promote their illegal 2003 invasion of Iraq.]
[Note: The word Kremlin (fortress inside a city) as used in this report refers to Russian citadels, including in Moscow, having cathedrals wherein female Schema monks (Orthodox nuns) reside, many of whom are devoted to the mission of the Sisters of Sorcha Faal.]
Nothing Makes Sense Anymore—Prepare For The Worst
Americans Awaken To “Now Is The Time Of Monsters” Reality

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An exit interview with Canada’s unofficial open banking czar - The Logic

“Goldilocks” Is Gonna Get It - The Daily Reckoning

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BY JAMES RICKARDS

POSTED

MARCH 27, 2024

“Goldilocks” Is Gonna Get It
The Fed kept the fed funds rate unchanged at last week’s meeting, as I predicted.

That makes 17 Fed meetings in a row going back to March 16, 2022, when I got the Fed forecast right. Events remain uncertain from here, but it’s so far, so good for my forecasting (that’s not because I have a crystal ball but because I know how to read them).
Jay Powell’s press conference following the FOMC meeting was notable for how little was said about interest rate policy and how few questions there were from the media on that topic.

The press conference wandered into various other topics including quantitative tightening (QT), a possible taper of QT, central bank digital currencies (CBDCs) and Fed transparency. Those are interesting topics, but none had anything directly to do with interest rate policy.
Regarding the policy rate, Powell repeated much of what he’s been saying since last January — that the economy’s doing well but that inflation, despite much progress, remains too high.

So we’re back to the conundrum that has faced the Fed since they stopped raising rates last July:
The Fed’s reluctant to cut rates because it might fuel inflation. At the same time, the Fed is reluctant to keep rates too high because it might cause recession.
Powell said this explicitly: “The risks are really two-sided here. …If we ease too early, we could see inflation come back… If we ease too late, we could impact the economy negatively.”

The policy implications of this dilemma are fairly clear. The Fed will not cut rates at their next meeting on May 1. If the Fed had decided to raise rates in May, some signal would have been given.

Powell made it clear that the FOMC needs more data before making a rate cut decision.
At the same time, the Fed’s “dot plot” indicated three rate cuts before the end of 2024 and Powell concurred with that view.

After May, only five FOMC meetings are remaining in 2024 (June, July, September, November, and December).

This schedule suggests the following policy path: No rate cut in June because the Fed is still looking for inflation reduction confirmation.

A rate cut of 0.25% in July.

No rate cut (a “pause”) in September because it’s too close to Election Day and the Fed wants to appear independent.
Then 0.25% rate cuts in November and December. That would meet the Fed’s three-rate-cut forecast, give inflation time to cool off, avoid an election land mine and still cut rates fast enough to avoid a recession.

That’s Powell’s winning parlay.
With the Fed having finessed the media and markets offering a vote of confidence, what could possibly go wrong? Everything.
Behind Powell’s carefully laid plans and the markets’ Goldilocks-type assumptions lies a huge fallacy. The assumption is that interest rates and inflation have a reciprocal relationship.

Timing aside, markets and the Fed both assume that current high-interest rates will tame inflation, and that will pave the way for rate cuts, stronger growth and higher stock prices.

But there’s no evidence for this. History teaches that there is no inverse correlation between interest rates and inflation.
The Great Depression (1929–1933) was a period of low-interest rates and unprecedented deflation. The Great Inflation (1977–1981) was a period of high interest rates and record-high inflation.

In the 1930s, rates chased inflation down. In the 1970s, rates chased inflation up. In both episodes, the Fed did not lead the way, it followed. The Fed was not in charge. Markets and individual psychology were in charge.

We could be looking at the worst of all possible worlds. We could have slowing growth and higher unemployment and higher inflation at the same time.
Stagflation, anyone?


Below, I show you why gold is not just a great inflation hedge, but the “everything hedge.” Read on.

Gold: The Everything Hedge
By Jim Rickards
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Gold is trading at $2,211 per ounce this afternoon. Since its interim low of $1,832 per ounce on Oct. 5, 2023, gold has posted a 21% gain. That’s in less than six months. Almost half of that gain occurred in the one-month period from Feb. 11 to March 11.

That overall gain is especially impressive considering gold had been stuck in a fairly narrow range of $1,650–2,050 for the past two years. That’s a range of about 10% above and below the midpoint of $1,850. Starting from the high end of that range, gold traversed the entire range to the upside and beyond in just one month.
Now, any reference to “gold prices” is an interesting one. If you treat gold as a commodity, then the price per ounce measured in dollars is one way to think about price.

On the other hand, if you think of gold as money (as I do) then the dollar price is not really a price — it’s a cross-rate similar to euro/dollar (about $1.08 today) or dollar/yen (about 152 today). When analysts say the “price” of gold is $2,211 per ounce, I think of that data as showing the gold/dollar cross-rate = $2,211.
That’s useful because there are two sides to a cross-rate. While most analysts say that gold has rallied from $2,000 to $2,211 per ounce, it is just as valid and perhaps more useful to say that the dollar has crashed from 1/2,000 per ounce to 1/2,211 per ounce.

In this analysis, gold is constant (by weight) and the dollar gets stronger or weaker relative to gold. All of the recent market action points to a weaker dollar.
This mode of analysis also solves another market riddle. Given huge U.S. budget deficits, unprecedented levels of U.S. national debt, slow growth, rising unemployment and persistent inflation, how is it possible that the dollar has been so “strong” lately?

The answer is that it’s only been strong relative to the euro, yen, sterling and some other reserve currencies and as measured by certain dollar indexes (DXY, Bloomberg, etc.) composed of baskets of currencies (but not gold).

But that’s often because those other currencies are issued by countries with debt and growth problems even worse than the U.S.’ Those currencies dropping against the dollar have the look and feel of a good old-fashioned currency war.

It’s only when you use gold as your metric that the real weakness in the dollar becomes apparent, as it should. In effect, certain currencies are weakening against each other but all currencies are weakening against gold.

Returning to the “higher gold price” frame, there are several reasons for this trend. The first factor is simple supply and demand. Mining output and recycled gold have been about flat for the past eight years running between 1,100 metric tonnes and 1,250 metric tonnes per year.

At the same time, central bank demand for gold has surged from less than 100 metric tonnes in 2010 to 1,100 metric tons in 2022, a 1,000% increase in 12 years. Central bank gold demand remained strong in 2023 with 800 metric tonnes acquired through Sept. 30, 2023. That puts central bank gold demand on track for a new record in 2023. There’s no sign of that demand slowing in 2024.

Constant output with surging demand by central banks does not by itself explain the recent surge in gold prices, but it is a contributor. Importantly, continued strong demand by central banks puts a floor under gold prices. This sets up what we describe as an asymmetric trade where downside is limited but upside is open-ended.
The second factor driving gold prices higher is the need for hedging. This is not the same as inflation hedging. It covers a larger list of risks including geopolitical risk, risks of escalation in the Ukraine and Gaza wars, Houthi efforts to close the Red Sea and Suez Canal, increasing risks of war with China and the intrinsic risk of a senile president of the United States.

As the list of risks grows longer and potentially more dangerous, the need for a hedging asset such as gold that does not rely on any nation-state for its value increases. I call gold the everything hedge.

Finally, gold prices are being driven higher by U.S. threats to steal $300 billion in U.S. Treasury securities from the Russian Federation. Those assets were legally purchased by the Central Bank of Russia as part of their reserve position.

The actual securities are held in custody in digital form at European banks, U.S. banks and the Brussels-based Euroclear clearinghouse. Only about $20 billion of those Treasury securities are held by U.S. banks; the majority are held by Euroclear. Those assets were frozen by the United States at the outbreak of the war in Ukraine.

Freezing assets means the Russians cannot collect interest or sell or transfer the assets or pledge them as collateral. Asset freezes are used frequently by the U.S. including in the cases of Iran, Syria, Cuba, North Korea, Venezuela and other nations. Often the assets are frozen for years but ultimately released to the owner as happened in the case of Iran after 2012.

Now the U.S. wants to go further and actually seize the assets, which may be viewed as outright theft under international law. The U.S. proposes to use the $300 billion to finance the war in Ukraine. European entities have expressed considerable uncertainty about this plan but the U.S. has maintained the pressure and wants to complete the theft before the June and July summits of G7 leaders and NATO members.

If the U.S. steals these assets, Russia will likely confiscate an equivalent amount of industrial and commercial assets located in Russia and owned by German, French, and Italian interests among others.

The bottom line is that if U.S. Treasury securities are not a safe investment, then securities of Germany, Italy, France, the U.K., and Japan are no better. The only reserve asset free of this kind of digital theft is gold. Nations are beginning to diversify into gold in order to insulate themselves from digital confiscation by the collective West.

Finally, there’s an interesting bit of math here, which I’ve explained in the past that shows each $100 per ounce increment in the price of gold is a smaller percentage gain because the denominator is larger.

That makes each $100 milestone ($2,400, $2,500, $2,600) easier to reach than the one before. People don’t notice this; they just focus on the dollar amount of the gains. But this explains how price rallies gather crazy momentum.,
All of these trends — flat output, rising central bank demand, hedging, protection against digital confiscation and simple momentum — will continue. Based on those trends, one would expect the gold price rally to continue as well.

The trend is gold’s friend.

Francis Scott Key Bridge Collapse – Black Swan Event – The Burning Platform

The Burning Platform

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Francis Scott Key Bridge Collapse – Black Swan Event

Guest Post by Martin Armstrong
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The Francis Scott Key Bridge in Baltimore collapsed on March 26, 2024, at 01:28 EDT after being struck by a cargo ship owned by Brawner Builders Inc. The ship named the Dali was operated by Synergy Marine Group. This black swan event was extremely strange, catastrophic for the US supply chain, and certainly a black swan event. For this post, I will refrain from speculation and stick to the facts at hand to explain how crucial this bridge was to the US.

Official reports say that what happened was simply an unfortunate accident. “We’re going to send all the federal resources they need as we respond to this emergency. I mean all the federal resources — we’re going to rebuild that port together,” Biden said after promising to use federal aid to rebuild the bridge, a feat that will take years to achieve. “Everything so far indicates that this was a terrible accident,” he added. “At this time, we have no other indication, no other reason to believe there’s any intentional act here.”

The Cybersecurity and Infrastructure Security Agency stated that there was a “power issue” that caused the crew to lose control of the ship. There was a loss of propulsion from the motor, several tests failed, and the pilots notified the Maryland Department of Transportation and the Maryland Transit Authority. There was an attempt to deploy anchors but it was far too late, especially for a ship of that size and weight.

James Mercante, the president of the New York Board of Pilot Commissioners, said that the Dali became “a dead ship just being carried by the current or its momentum.” US Transportation Secretary Pete Buttigieg did not say what caused the power outage and does not have a timeframe for when the bridge will be rebuilt. “The impact of this incident is going to be felt throughout the region and really throughout our supply chains,” Buttigieg said. Baltimore is currently under a state of emergency, and Mayor Brandon Scott believes it will last for “the foreseeable future.”
Others believe this was a deliberate attack of US infrastructure based on various factors that do not seem to add up. Could it have been an inside job or a foreign agent? The truth will come to light, as it always does.

Let me begin by explaining how crucial the Francis Scott Key Bridge was to America’s supply chain. Around 52.3 million tons of international cargo estimated to be worth $80.8 billion passed through the port in 2023. Around 4,900 trucks, carrying around $28 billion in goods, must be rerouted due to the bridge collapse. It is the second busiest strategic roadway in the US for hazardous materials. These hazardous materials include diesel fuels. Did you know that diesel fuel is not permitted to be transported via tunnel? Fuel prices will rise, fertilizer prices will rise. The bridge was built to handle hazardous materials like propane, nitrogen, highly-flammable materials, large cargo materials, and more. And The timing could not have been worse for American agriculture.

Baltimore is the largest entry point for all large agricultural and construction equipment, and this will have a ripple effect across US agriculture in general. It has been noted that this collapse occurred during the peak of planting season for Midwest region as the ground has begun to thaw. Our entire food supply is at risk.
The bridge helped to link major cities from Baltimore like Philadelphia, Washington, and New York. Over 15,000 people are employed directly through the port, and 139,000 have indirect jobs in connections. All of this amounts to $3.3 billion in personal income, as noted by Axios.

Analysts are saying this will cripple Baltimore, but it will send ripple effects throughout the entire US economy.
The angle the cargo ship took is extremely confusing. Engineers are perplexed by the situation. How did it manage to take out one of the two major anchor points? The video makes it look as if the ship deliberately steered into an anchor point. The cargo ship never made it into the approach land in the channel. Where was the harbor pilot? There was no horn blast or warning tug. There was no tug boat, but they say that it was not needed once the ship entered the channel. There happened to be a full moon that enabled maximum tidal shift. My eyes may deceive me, but the video footage makes it look like the captain steered directly into the support beam at the last minute.

Half a mile of the bridge simply collapsed. It looks more like a strategic demolition based on how the bridge crumbled. Now, here in Tampa Bay, a cardo ship hit the Sunshine Skyway Bridge over 40 years ago. A portion of the bridge came down but it did not simply fall into the waters in the same manner. This is reminiscent of the 9/11 collapse, but of course, people did not have smart phones back then. This event happened in the middle of the night when few people were around to witness it. Some say this passage is hard to navigate but cargo ships managed just fine for nearly half a century up until this week.

Baltimore Police Commissioner Richard Worley said, “There is absolutely no indication that there’s any terrorism, or that this was done on purpose.” The US government insists this was simply a tragic unpreventable accident. Official reports say there were no signs of explosives and no foreign terrorist agency is claiming responsibility for the event.

The same ship collapsed a bridge in Belgium back in 2016, and I do not think this was an act of foreign terrorism.
This event divided the US along the Mason-Dixon line, bringing us back to the pre-Civil War era. Did US intel have a role in this “accident” that happened at the worst possible time? Klaus Schwab of the World Economic Forum stated that an attack on infrastructure – a cyber pandemic — would cause the COVID-19 crisis to look like a “small disturbance” in comparison. Carefully watch the video below and note how they explain these events to us long before they take place.
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(21) Sick Of It All - by Quoth the Raven - QTR’s Fringe Finance (substack.com)

Every week, usually once or twice, I sit down to put onto paper my thoughts about the market. And every week, my disgust not only for the rigged system that encompasses our equity markets, but also for the sound of my own whining, grows exponentially.
When I sit down to perfunctorily prattle on about how nothing makes sense and how I constantly see things the polar opposite of 99% of everybody else in the world of finance every week, I usually wonder two things.
First, I wonder whether or not today will finally be the day that I capitulate, get bullish on the stock market, and start bowing religiously to a statue of Stephanie Kelton.
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“I should know, I’ve followed a few!”
After all, the incessant price moves higher in Bitcoin are part of what triggered me to eventually reassess my thought process on the cryptocurrency. And even though I got bullish for reasons other than price, why couldn’t the same happen with equities?
Second, I try to conceptualize exactly how fast the universe can, and will, make a total ass out of me by crashing markets 50% in 15 minutes in the days, hours, minutes, or probably even seconds after I’d have such a shift in sentiment.
Which is why, like the Black Knight in Monty Python and the Holy Grail, I will continue to forge forward, exasperated, regardless of the inconvenient fact that I have no arms or legs left. But don’t let anybody ever tell you that my spirit was easy to break.
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“The Black Knight always triumphs!”
I had my most recent bout of vomiting in my own mouth just thinking about how wrong I’ve been on macro analysis late on Wednesday, when, as if part of some ant-burning-under-a-magnifying-glass-type-cosmic-conspiracy to torture my psyche, the Fed's Chris Waller came out and assured the public that he was in no rush to cut interest rates. Here’s a look at some of the headlines that came out of Waller’s speech in New York:

1. "There is no rush to cut the policy rate,” Waller said in a speech in New York.
2. The recent data "tells me that it is prudent to hold this rate at its current restrictive stance perhaps for longer than previously thought to help keep inflation on a sustainable trajectory toward 2%."
3. Waller still expects to cut rates this year but isn’t ready to take that step without further evidence that inflation continues to drop.
4. Waller said analyzing three- and six-month measures of the Consumer Price Index, excluding volatile food and energy prices, tells him that progress on inflation has slowed and may have stalled.
5. "The risk of waiting a little longer to cut rates is significantly lower than acting too soon," said Waller. "Cutting the policy rate too soon and risking a sustained rebound in inflation is something I want to avoid."
6. Waller said that he is considering reducing the overall number of rate cuts this year or pushing them further into the future in response to the recent data if things don’t improve. But he also said he isn’t rushing to take that step yet.

While I’m not sure how the market will receive this blindingly, exhaustively obvious negative news, my guess is by the time you read this at 4:45am EST on Thursday morning, futures will be raging higher and every index will be up in the pre-market session. After all, nothing says “bull case” like the Fed not being able to meet objectives in bringing down inflation and then a Fed governor telling the market not to expect the very same rate cut bonanza it has rallied more than 10% expecting this year alone, despite already being pornographically overvalued.
Not unlike how when Donald Trump said, "I could stand in the middle of Fifth Avenue and shoot somebody and I wouldn’t lose any voters," I’m not sure there’s anything the Fed could do right now to stop the market’s pre-ordained ascent. As I said in last week's totally non-award-winning analysis, I have no fucking idea where the liquidity is coming from, no clue what the market is thinking, and pretty much don’t understand anything at all.
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“Eat shit, Waller” — S&P 500 (probably) | Chart via Zero Hedge
I know what you’re thinking: "Why then, Chris, do you run a financial newsletter?"
That’s a great question. I wish I had a great answer for you other than it’s better than therapy for me and I get paid instead of having to pay someone else. But hey, 99% of “newsletter writers” don’t have any clue what they’re talking about — at least I admit it. Look, it’s either me or lessons from Whitney Tilson’s fishing trip and ruminations about his colonoscopy. Choose wisely.
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I’m breaking Whitney’s balls. He’s a good dude and was one of the first people to be nice to me on Wall St. a decade ago.
Anyway, continuing the sick satire playing out on Wednesday, S&P came out after the bell on Wednesday and affirmed the United States' credit rating and said things look stable, casually noting that debt to GDP and interest to revenue are out of fucking control (my words, not S&P’s) before summing things up with a “stable” outlook despite the fact. Among other brain farts, including praising monetary policy execution, S&P concluded:

1. A diversified and resilient economy with solid growth, extensive monetary policy flexibility, and benefits associated with the unique status as the issuer of the world's leading reserve currency underpin the U.S. sovereign rating.
2. A high debt burden, with net general government debt approaching 100% of GDP and interest to revenue over 10%, and difficulties garnering bipartisan cooperation to strengthen U.S. fiscal dynamics are credit weaknesses.
3. We affirmed our 'AA+/A-1+' sovereign credit ratings on the U.S.
4. The outlook remains stable, indicating our expectation of continued economic resiliency; proactive, effective monetary policy execution; and our view that government officials will continue to resolve near-term fiscal deadlines, such as addressing the debt ceiling, in a timely manner.

S&P said: “We could lower the rating over the next two to three years if unexpected negative political developments weigh on the strength of American institutions and the effectiveness of long-term policymaking, or jeopardize the dollar's status as the world's leading reserve currency.”
They continued: “The ratings could also come under pressure if already-high deficits were to rise, owing to political inability to contain rising spending or to manage revenue implications of future changes in the tax code.”
Is it me, or are both of these situations literally occurring already right now?
As if people in the world of economics pride themselves on analytical non sequiturs, S&P’s rating and reasoning for their rating stand at stark odds with reality.
But then again, who really knows what reality is anymore? Me? You? This certifiably insane old bird?
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““I regret saying it was transitory.”
As many people know, Fitch downgraded the United States last year (my exceptional analysis here). They had it right. Whether we have the reserve currency or not, there are extraordinary, unprecedented risks facing the United States economy and the US dollar. Both S&P and Chris Waller came out and said today that the reserve currency status of the dollar gives the United States enormous flexibility.
But just because we have enormous flexibility doesn’t mean that we can bend and not eventually break. Does policy flexibility mean that we can literally do whatever we want and nothing matters at all? Have we replaced the natural laws of economics and rewritten the basics of mathematics and macroeconomics? We think we have, but we haven’t.
If you think of the basic immutable laws of macroeconomics and mathematics as a bathroom shower, every layer of bullshit, monetary policy, money printing, foreign war mongering slush fund, overspending, misuse, hubris, rewriting of the rules, and Stephanie Kelton book is like adding one of those Bath Fitter (TM) renovations to your shower. You’re not replacing the disgusting, mold-ridden, toxic equipment, you’re just covering it up with another layer of shiny-looking fiberglass.
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Left: The “old school” laws of economics. Right: The trillion dollar coin idea.
The question then becomes: how many of these layers can we pile on top of one another before the room becomes so fucking small that we can’t fit in the shower anymore?
And, then what? We just walk around stinking to high heaven?
I mean, for fuck's sake, we’ve got lifelong spend-ocrat Steve Liesman of all people breaking down on CNBC yesterday, openly worrying about how the United States is going to service its debt obligations and calling bullshit on the Inflation Reduction Act. Putting aside the insane irony that Steve Liesman has sat at Fed press conferences for the last decade and massaged the feet of whoever the Fed chair was at the time instead of asking them serious questions about accountability, when Liesman starts to worry, isn’t it time to take notice?
For the last decade, I have watched dozens of Fed press conferences (feels like trillions) where Liesman has done nothing but make excuses for central bankers and throw them softball questions, in between the time he takes to congratulate them on the great job they’re doing. Very few people on his network, with the exception of possibly Guy Adami and Rick Santelli (combined total airtime each day: 32 seconds), have raised any questions about the Fed's trajectory. Most days on CNBC look like this:
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Guests who are critical of the Federal Reserve, like Peter Schiff, have been blackballed from the network entirely. And now, all of a sudden, it’s time to panic? What’s next? Will Paul Krugman or Jeremy Siegel be taking to CNBC to all of a sudden “remember” the lessons of Milton Friedman and Thomas Sowell?
Waller's remarks Wednesday wrap up what will be the remainder of any Fed commentary on this short week. The entire market has placed an “all-in” wager on rate cuts this year, and Waller has reiterated his position as “we need to wait and see what happens.” And while he said circumstances would need to be extenuating for it to occur, he even brought up the idea of hikes. Considering the market is a forward-looking indicator and it has already pulled in probably six months to a year of expectations of rates being lower (and Trump tax cuts again, and AI growth, and more money printing, and colonizing Mars, and Tesla robotaxis that double as laundry folding humanoid droids), rates staying the same for longer - or a hike - would be devastating.
And so, we sit and wait for the next bullshit CPI print to try and determine whether or not the government has figured out a new way to disguise the fact that prices have consistently been up at least 10% almost every year at any point in the past, especially these last three years.
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Both Waller and S&P Global are leaning, one way or another, on the US dollar's reserve currency status as the foundation and basis for their “everything isn’t totally screwed and backwards” outlook.
These conclusions by Waller and S&P are the latest in a long line of trillions of analyses and judgments that have relied on the US dollar remaining reserve currency for the time period of “forever times infinity” to be correct.
I think of each one of these analyses, which arrived daily by the hundreds across Wall Street, as sheets of paper being placed on the back of a donkey that is trying to scale Mount Everest. A couple of sheets of paper, the donkey doesn’t notice. When you have enough for a ream of paper, the donkey starts to notice a little weight. Approaching a century into the US dollar's dominance, the donkey is carrying on its back a stack of papers that would puncture the ozone layer at this point.
It may not be Wednesday’s two additional sheets that cripple the donkey on its continued journey up the hill, but at some point, the weight is going to become unbearable. And watching it all play out, for me, already has.

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QTR’s Disclaimer: I am an idiot and often get things wrong and lose money. I may own or transact in any names mentioned in this piece at any time without warning. I didn’t double check any numbers or figures in this piece and am generally lazy with my research. Contributor posts and aggregated posts have not been fact checked and are the opinions of their authors. Contributor posts and curated content are posted either with the author’s permission or under a Creative Commons license. This is not a recommendation or solicitation to buy or sell any stocks or securities, just my opinions. I often lose money on positions I trade/invest in. Sometimes I just lose money by misplacing it. I’m generally irresponsible. I may add any name mentioned in this article and sell any name mentioned in this piece at any time, without further warning. These positions can change immediately as soon as I publish this, with or without notice. You are on your own. Do not make decisions based on my blog. Do your research elsewhere. I exist on the fringe. The publisher does not guarantee the accuracy or completeness of the information provided in this page. These are not the opinions of any of my employers, partners, or associates. I did my best to be honest about my disclosures but can’t guarantee I am right; I write these posts after a couple beers sometimes. Also, I just straight up get shit wrong a lot. I mention it numerous times because it’s that important that you know.

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