Gresham’s Law meets its Minsky Moment

There’s a reason that the Fed pursues these actions and it’s not a conspiracy theory. When unlimited cash hits a limited supply of assets, whether paper or hard, this inflationary deluge boosts taxable asset values by 100-1000%, fattening the coffers of the tax collectors. 

While it’s no secret that the Fed, along all global Central Banks, are supporting their respective financial systems by capping interest rates with “QE” (also known as “money printing”), the yield on the 10-yr Treasury has risen 36 basis points in two months from 2.04% in September to 2.40% currently. There have not been any Fed rate hikes during that time period. The yield on the 2-yr Treasury has jumped from 1.26% in early September to 1.66% currently. A 40 basis point jump, 32% increase, in rates in two months.

This is not due to a “reversal” in QE. Why? Because through this past Thursday, the Fed’s balance sheet has increased in size by over $7 billion since the Fed “threatened” to unwind QE starting in October. The bond market is sniffing hints of an acceleration in the general price level of goods and services, aka “inflation.”

I wanted to post this comment from my blog post the other day because this person uses an expressive writing style to convey incisively the uneasy truth about the financial and economic system in the U.S.:

Bankers are moral lepers, the financial equivalent of hookers and blow. You can never get enough of the moral debauchery in that world.

When a shit box tiny house, half the size of my man cave, goes for $50,000 less than my entire home in Reno, the end is nigh. $2,000 a square foot for a studio? What effing moron would pay that. Don’t answer. We know someone did. I pity the fool.

Bitcoin 7000, DOW 23,500, studios for $550,000 are all a result of the Greenspan /Bernanke/Yellen  QEpocalypse.

The flood of faux FIAT creates the same Cantillion effect as the flood of gold and silver from the new world that inflated the values of assets in the old world and decimated those outside the ring of prosperity created by that effect.

And that was when gold and silver were real money. But do you think gold and silver can catch a break today? Nope, not a chance.

There’s a reason that the Fed pursues these actions and it’s not a conspiracy theory. When unlimited cash hits a limited supply of assets, whether paper or hard, this inflationary deluge boosts taxable asset values by 100-1000%, fattening the coffers of the tax collectors. No accident there.

You would think this might solve some fiscal woes at the local and state level by boosting tax receipts by a few hundred percent. Nope, not happening there either.

The states and cities created their own PONZI schemes with underfunded overly generous pension plans. Even a moron could get a better return in those funds but now they are out there with their begging bowls.

The County of Maui just raised it’s property taxes 42% to pay for pension plan deficits. A senator from Ohio wants to use funds from treasury bonds to bail out their public pension deficits.

As we see asset prices sky rocket, the demands from the public sector grow even faster than tax revenues and asset inflation will handle. Gresham’s Law meets its Minsky Moment and none too soon.

And don’t even get me started about Social Security. Just let me get mine before the whole shit show collapses.

9 thoughts on “Gresham’s Law meets its Minsky Moment

  1. When he mentioned $2000 per square foot condo, it probably was the one in LA that was about 284 square feet that sold for $550K recently as I recall. We have a really nice looking storage shed that is 288 square feet and cost $5600. I can not even fathom the idea of living in that shed being about the same size as the one just mentioned above. How anyone can pay that amount for so little space is indicative of just plain stupid…even if one does have that money to blow?

    To put in perspective, I built a 5400 square foot log house for about $30 a square foot 15 years ago (materials cost). That includes 4.5 acres (purchased in 1998) in the “boonies”, a well with cistern and septic tank and field. Keep in mind I did about 90% of the work.

    Apparently, in these days, very few have a good sense of value…duh!

  2. (Full disclosure in fairness to Mr Kranzler: I’ve previously commented here under the moniker “JB” although I think not at this present email address. And I’m not sure but I think Mr Kranzler might have (fairly and for good reasons) previously censored some of my prior comments written while I was drunk…AS THIS ONE IS, TOO!):…

    …my impression of Bitcoin and Bitcash:

  3. PS to my above comment: The thing about owning a hoard of physical silver and gold, is that it stays the same even when I’m drunk or otherwise stupid…

    …unlike Bitcoin/cash OR for that matter any digital “wealth” which can be – and often is – reduced or exterminated by a foolish push on a mouse-pad.

    As Churchill famously said to a harpie who criticised him for being drunk: “Madam, tomorrow I shall be sober but you shall still be ugly”…

    …like the difference between physical money (gold/silver) versus digital fantasies like Bit-bullshit and the DOW/SP/NASDAQ ETFs whose REAL material realities are like THIS!:

  4. PPS – now for some seasonal (well almost Christmas season) COMIC RELIEF to my above horrible posts!…:

    …Well, HERE – when Scrooge is contemplating his REAL money of silver and gold! – well, SCROOGE was MORE HONEST about money, than the Federal Reserve or bloody Steve Mnuchin! BECAUSE, Scrooge paid Bob Cratchit 15 SILVER shillings per week!…

    …which in its time was equivalent in purchasing power to several thousand dollars per week today! Not to mention that in Scrooge’s time, there was no QE to corrupt the value of silver shillings.

  5. (PPPS, my FINAL one for today, I promise, Mr Kranzler!):

    BTW (and further re my above comments), what most people today (including most American Christians) DON’T KNOW, about the reason WHY Jesus raged at the moneychangers at the Temple…

    …well He was angry BECAUSE, the official “Temple Tax” HAD to be paid in FOREIGN currency (silver shekels of Tyre), which the majority of Jews did not have, so they were forced to BUY those coins at EXTORTIONATE rates from the moneychangers at the Temple!…

    …in other words, what pissed off Jesus was how a handful of politically-connected assholes were ripping off faithful believers, by forcing them to exchange their own REAL, SILVER money, at several-hundred percent!…

    …and as Jesus said of His main enemy, the fallen angel Satan, “He is a liar and a murderer from the beginning, and as for Truth, he has never taken his stand on it!”…

    …so THAT’S why Jesus did THIS!:

    AND, this!:–lHALcm0


    Lunch lecture by Adam Andrzejewski Harvard Law School, Cambridge, MA October 24, 2017
    America needs a “Transparency Revolution!” Recently, we made the case at HARVARD LAW SCHOOL… please watch the presentation here.

    “Sunlight is said to be the best of disinfectants; electric light the most efficient policeman,” wrote Louis Brandeis in 1914.

    Today, the Freedom of Information Act and internet make it possible to post online all spending at the federal, state, and local levels. This kind of radical transparency can transform U.S. public policy.

    Since 2011, American Transparency, a nonprofit, has built and operated, the largest private repository of U.S. public-sector spending. The ultimate goal: post “every dime, online, in real time.”

    To date, OpenTheBooks has captured 4 billion government-spending records, including nearly all disclosed federal government spending since 2001; 47 of 50 state checkbooks; and 15 million public employee salary and pension records across America.

    America needs a “Transparency Revolution!” Recently, we made the case at HARVARD LAW SCHOOL… please watch the presentation here.

  7. JB you have a wicked sense of humor. Posting while hammered can make for some funny stuff. If you’re ever in Reno I’ll stake you to a shot of Cantillion Whiskey in a dirty glass. It’s best served that way
    As for Bit Coin and Bit this and that, Einstein was wrong. Compounding interest is not the most powerful force in the universe. Compounding stupidity is many times more powerful particularly when compounded with the ridiculousness of BTC Ponzi mania
    One question sits on my mind
    If we’d never seen the likes of Charles Ponzi would we have been able to define the nature of the scheme called Ponzi. Or would we have continued to walk in darkness, unaware of what banks, politicians, central banks, public pension funds and governments have been engaging in for centuries. Even Jesus knew a scam when he saw it.

    1. At least they were changing real money. Today it’s all counterfeit. So let me revise the phrase somewhat to “Death to the counterfeiters”.

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