Still, Zoltan is confident that "lower risk assets won’t kill growth" (oh yes it will), and his solution to contain
Inflation and "to improve labor supply, the
FED might try to
put volatility in its service to engineer a correction in house prices and risk assets – equities, credit, and Bitcoin too…"
In
short: crash everything.
While many would have previously dismissed this proposal as the deranged rambling of a "conspiracy theory" website such as this one (with the one asterisk, of course, that all conspiracy theories discussed here eventually come true) the fact that a former
FED staffer - one who has both the NY
FED and Powell's ear - is suggesting a market crash as a much needed inflationary catharsis should spark great fear among the market bulls who still expect Powell to step in and do what he did in March 2020 when the
FED started buying up risk assets for the first time.
Incidentally, while Powell may ignore the collapse in stocks, it is the upcoming implosion in the increasingly illiquid credit and bond markets (discussed here two days ago) that will shock the
FED out of its stupor when the central bank (and Pozsar) see the US economy grinding to a halt as interest rates explode higher in a crisis that will make March 2020 seem like child's play by comparison.
So while it is debatable that the
FED will crash the market just to contain
Inflation (we sincerely doubt it), the fact is that merci to the former NY
FED repo guru, this is now a part of the conversation and it is likely that as Zoltan's view gains traction, Biden will confront the
FED chair with just this choice: shock the markets, crash stocks, and hammer
Inflation before the midterms (and certainly 2024) as the alternative is a historic rout for the Biden admin and Democrats.
oh les bougies du bouquet finale
