Blowback Intensifies
“The Fed is attempting to thwart a deflating credit bubble with inflation, which to date has only lit a fuse under food and fuel prices. The best the Fed can do is to allow the inevitable deleveraging process to proceed without the meddling.”
-Kevin Duffy , Bearing Asset Management
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New York Times article discusses the rout in regional bank. The first round capital raising has butchered the bagholders, and with stock prices now barely on the radar screen, deals are going to be highly dilutive. This in turn forces asset sales to attempt to get capital in line. The problem that is not discussed in this otherwise good article is that capital has been wiped out and the o que aconteceu losses in commercial real estate and Dinosaur communities are well underway. We discussed the waste land scenario in our cast.
More blowback from the Mad Max economy is showing up in overnight deliveries, as UPS reported a decline of 3.8% in that category in the recent quarter. The blowback is everywhere, including ravaging school district budgets. Also demonstrating the devastating effects of input inflation we are now seeing reports of commercial and retail project cancellation. As this story indicates costs are up 20-25% in one year, and new investment in commercial projects is down 70%. How interesting that inflation from real people, operating in the real economy is consistently ringing well into double digit numbers now. Other manifestations of the dinosaur watch are delays and product revamping at auto manufacturers. The healthcare companies are being routed one by one, as once again they can’t effectively plan for costs in a hyperinflation.
Once again, unless this serious inflation is checked, there is no way anybody can plan capex and investment spending effectively. Operating businesses becomes more of a hedging or hoarding operation than actual productive enterprise. Tattoo this on your forehead, serious inflations shuts down the economy and investment, and will make restructuring the US economy impossible. It will add to the damage, not stabilize the banking sector. Since you can’t successfully helicopter money on top of worthless or half built commercial and residential lots in the Inland Empire and other exurb dinosaurs, bailing out banks is not a viable option. The helicopter money will flow elsewhere and any thinking person should now see where that is. Sound money and serious inflation fighting would eventually even turn a bear like me bullish. Keep doing what they are doing (neglect, lies, and promoting CUBs) and it will take a generation and a half to repair.
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