My Two Best Friends
A tale of two monetary lovers
Jay Powell and Janet Yellen clink their crystal Baccarat tumblers and cheers together.
They have a lot to celebrate. Under their thoughtful stewardship the United States just had the fastest ever recovery from a recession.
Jay and Janet, the Chair of the Fed and Treasury Secretary (aka the two most powerful monetary positions in the world), both have an estimated net worth north of $20 million, so these are two people really get the average American.
Boy did they throw the kitchen sink at the Covid recession. They acted fast to support the economy by opening up the money spigots in every way possible.
The Fed purchased US Treasuries, fired up the money printer, and even bought corporate bonds. And the Treasury sent out those sweet stimmy checks. It was a one-two punch that zipped the economy right back to pre-pandemic levels.
So now, 16 months later, they’re sitting back in their expensive leather chairs and celebrating. They found the answer to any and all financial problems that the economy could possibly face.
But, what does this mean for us? What does this mean for those of us that aren’t in the walled garden with eight-figure fortunes and privileged access? I’m looking at you Nancy Pelosi (Nancy and Paul Pelosi Making Millions in Stock Trades)!
Well from my perspective, the answer is pretty simple. Jay and Janet established that fast and strong intervention brought the economy out of the depths of recession much faster than the policies after the Great Recession of 2009.
So, whenever there’s trouble brewing, expect our government to go back to the fiscal and monetary well. That means more money creation, more direct fiscal stimulus (checks), and more creative financing (aka massive budget deficits).
At this point, it doesn’t matter if I think that’s the “right” move to make because it’s damn sure the most likely move they’re going to make. And it’s an easy decision for them. The success of their careers depends on what’s happening right here and right now. They’re not judged on avoiding danger in the future (like the potential consequences of debasing our money to infinity) but on solving the problems that are in our face right now. It’s the same trap politicians get themselves into and the reason they optimize to look good in the short-term vs make decisions for long-term prosperity.
The combination of the success in getting us out of the Covid recession leads me to a simple point… The way our current system works will always lead to more money printing. For now, the fiscal and monetary support that came during Covid worked really well to get us out of what could have been a global depression.
And it’s because their policies worked so well to end the recession that they’ll become even more ready to use them at the next sniff of economic slowdown.
Which creates a world that simultaneously gives more power to governments and boosts income inequality.
We’ve all seen what’s happened since the Covid crash and the money printing began. Housing prices have skyrocketed, stocks have gone straight up, Bitcoin, Ethereum, crypto too.
The more the Fed prints and the more our money gets debased (more dollars in circulation and available to borrow) = more asset price inflation.
And so in a world where the Fed backstops the price of all of our assets, what’s the downside?
The real downside is the large group of Americans who own no assets (or even worse have lots of debt and no assets). These are the people that are getting left behind as wages don’t rise nearly fast enough to make up for the increase in asset prices.
And it’s ironic because I wouldn’t be surprised if the government’s attempt to help this group of people only leads to more money printing. All the government knows how to do is tax and spend. So they’ll probably throw money at the problem with more stimulus, paid for with more debt, which just adds another level to this house of cards we’re in.
There’s nothing more to do than to just keep playing the game. And for me, that means keep actively investing in stocks, real estate, crypto, and businesses.