The FED’s New Social Justice Mandate

Credit has long been a tool for politicians

Former NY FED President Dudley predicts "Inevitable" recession

H.R. 2543 - See Attached Document In Notes

https://www.congress.gov/bill/117th-congress/house-bill/2543/text

The Fed’s New Social Justice Mandate

June 28, 2022

“We already have the zombie companies that even today can’t pay their interest expense from current cash flow. We may then reflect on the rates, which for so long they propped up these zombie companies. They were not reality. They were an expression of a policy preference. Right? And that’s the danger of policy preferences guiding the market forces. These companies shouldn’t exist. If they can’t even pay interest on their debt, what are they doing? They won’t be around long.” — David McAlvany

Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany. 

Gravity’s an interesting thing. Physicists are still trying to understand where it actually fits in the whole scheme of things. But if you have two bodies, let’s say two stars that are circling each other, that’s a pretty easy problem to work out. It’s called the two-body problem. You start with just the initial condition and you say, “Okay, what’s the mass of these stars? How can they circle each other? What will that look like in a thousand or a million years?” It’s actually a pretty easy problem to solve. You add a third star, or let’s just say, even here with the earth and the moon, let’s say you add a second moon.

David: Harder to predict.

Kevin: Hard to predict. It creates chaos. There is no closed system, closed mathematical problem that can solve the problem because it creates a chaos, Dave, where if you had to make a decision based on that third body down the road, you would have terrible information and really would not be able to make a decision.

David: For at least the last decade, the third body seems to be central banks within the global economy.

Kevin: No doubt.

David: We could sort things out in terms of market pricing and the directional flow of capital, but then you introduce central banks and things get a little bit more complex.

Kevin: Well, I wonder, we think best intentions, “Oh, the central bank’s here to just solve the problem.” But strangely, Dave, a lot of times, you add politics to that, and it’s just amazing to me that the politicians get rich once they get into office and start to add different constraints to this third body problem. I’m looking at the economy right now, Dave. We’re not quite in a recession yet, but I’m looking at two groups of people. Unfortunately, there’s a huge divide between the rich and the poor right now. The rich seem to be still chugging along, thinking the economy’s doing just fine—unless they’re employers and they’re trying to figure out exactly how they’re going to give raises this next year to match the inflation rate. So the rich are going one direction, but the poor, they’re feeling this inflation right now. So, are we slipping further into a recession, as well as the constraints that we have right now with inflation and the pain that’s being felt by people who just barely make it anyway?

David: Yeah. The economy, at least if you look at last week’s release of the purchasing managers’ indices, the PMIs, show a slowdown in growth in the US. So we’re not in a recession now, but you’ve got these same PMI measurements around the world. The eurozone is in fact edging towards recession. The UK is unchanged, in sort of a low growth mode. Germany is definitely slowing as well. And perhaps not surprising, given the degree of currency decline this year, Japan had the strongest PMI numbers out of the G7, and that’s pretty characteristic of a major currency move lower, is there are some benefits to your exporting compan...