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Luongo: None Dare Call It A Recession Lest The Democrats Lose The Mid-Terms

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by Tyler Durden
Tuesday, Jul 26, 2022 - 02:25 PM

Authored by Tom Luongo via Gold, Goats, 'n Guns blog,

When all you have left is managing narratives, managing narratives becomes a full time job...

This is where The Davos Crowd is today– just before the next Fed rate hike and just over three months out from the US mid-term elections.

It doesn’t matter the subject anymore, everything is managed, massaged, wheedled or cajoled into a convenient definition which serves some aspect of the Davos agenda. Last week it was blaming Russia for the West’s financial problems – food and energy shortages forcing the ECB to raise rates.

This week we’re going to be redefining a ‘recession’ and shifting the blame for it to the Federal Reserve.

Treasury Secretary cum Vice President Janet Yellen prepped the stage last week, using her gravitas (*snort*) to proclaim that she “doesn’t see a recession” on the horizon. Now the O’Biden administration is redefining recession away from the technical definition of two straight quarters of negative GDP growth.

While some maintain that two consecutive quarters of falling real GDP constitute a recession, that is neither the official definition nor the way economists evaluate the state of the business cycle.

I could spend a thousand words picking apart the faults in this one sentence but I’m not going to because that would give this credence far beyond what it deserves.

Since Lehman Bros. fell in 2008 and Ben Bernanke *cough* saved the world in 2009 we’ve avoided a technical recession for now 13 years. Obama was re-elected on this narrative.

Easy money and ZIRP — Zero-bound Interest Rate Policy — kept the US from printing those dreaded two consecutive quarters of negative GDP growth. Now, when that condition can no longer be avoided what are we expected to swallow?

The redefinition of a recession into whatever technobabble worthy of an episode of Star Trek comes out of the mouths of official smart people known as ‘economists.’

This is obviously just another political tool to appeal to middle-class midwits who still want to believe Trump is the devil, Fauci is the High Priest of Science and Democrats aren’t communists so they can feel smart and justify voting for more beatings until morale improves.

This “Blame the Fed” tactic began with Lizzie Slapaho out there braying on about FOMC Chairman Jerome Powell during last month’s Senate testimony:

“What’s worse than high inflation and low unemployment?” asked Senator Elizabeth Warren as the Fed chief gave congressional testimony last month.

“It’s high inflation and a recession with millions of people out of work…. I hope you’ll reconsider that,” she added, “before you drive this economy off a cliff.

As Zerohedge points on in the article linked above it’s now those same expert ‘economists’ who have become experts in domestic politics, assisting Davos and the Democrats in constructing this narrative.

What’s already begun is a series of headlines to manufacture consent that the Democrats’ chief rival, Powell and the Fed, are to blame for this ‘not-a-recession’ and not the O’Biden policies and the trillions of spending they unleashed.

That spending plus the unprecedented attack on supply chains for basic goods like food and energy by the West to ‘starve Russia of its war machine’ has created a situation where inflation is endemic, not affected much, if at all, by Fed interest rate policy.

What’s hilarious about this is, when you stop and think about it, it’s been the Fed that has blunted some of the worst effects of all of this by beginning stealth tightening last year and carrying through with real tightening this year.

That sterilized nearly $2 trillion within its Reverse Repo facility. Imagine what inflation would be if those yesterday dollars were chasing today’s fewer goods?

Recession itself is a euphemism. It was created during the stagflationary period of the 1970’s to soften the psychological blow of the failure of Keynesian economic theories then. Back then the idea of high unemployment and high inflation was not possible. The Phillips Curve ruled in the minds of the experts.

And yet there we were with double-digit inflation and miserable unemployment. Instead of coming clean and calling it what it was, an inflationary depression, we invented new terms recession and stagflation, because we’re all commies Keynesians now.

Depression got redefined as a 10% drop in GDP, which, thanks to countercyclical government spending and accommodative central bank policy, would never happen again, at least statistically.

And thus, Management of Perspective Economics (MOPE) was born.

I wrote about MOPE in the early days of the 2020 election steal.

{MOPE} is a combination mal-educated traders and investment advisers, corporate interests, government corruption actively massaging the data and a media which saturates the airwaves with patent nonsense from ‘experts’ who interpret what everything means for us.

This is the architecture of MOPE.

Unfortunately, each 4 year cycle of lies and money printing invariably ends in a serio-comic repudiation of the whole MOPE strategy as markets spasm and no one can ever tell us why it happened?

Around the time of elections MOPE becomes the main weapon of MOPP — Mgt. of Perspective Politics. And the clear MOPP strategy for this year’s mid-terms is ‘If you are miserable, Blame the Fed.’

But, honestly, that’s a losing strategy. Most people have no idea what the Fed is or why raising interest rates now is bad, nor will they care. They have no control over the Fed, but they do have control over their vote.

Well, nominally.

So, they will lash out at the party in power because that’s what they can do. And even if you do convince them that Powell is to blame they will simply ask the question, “Then why did you reappoint him?”

This is the single most asked question I get whenever I start presenting my argument that the Fed and the O’Biden administration are at loggerheads. The answer is simple, Biden had no choice because he didn’t have the votes in the Senate.

And why do you think that is? Y’all know my answer to that.

To me, this part is actually true. The Fed is fighting the O’Biden administration (and Davos), working to secure the worst mid-term blowout loss for the Democrats since Newt Gringrich became a household name in 1994.

It’s not a hard sell here. Because people aren’t nearly as dumb as our media treats them. They understand cause and effect. Biden entered office with gas around $1.85 a gallon. Now it’s back down to $4.00 after going to $5.00.

And somehow Biden should be praised for stopping it from going to $6.00? If the Fed is tightening and that’s causing a recession then doesn’t the Fed get some of the credit for bringing down gas prices?

I know logic is an advanced skill these days but this isn’t that tough to understand.

The political messaging of blaming the Fed for the recession simply isn’t going to work. It’s the fever dream of people who have been sniffing their own farts inside of the Beltway echo chamber for too long.

It’s not a strategy, it’s anoxia.

It’s too complicated, too fraught with inconsistencies and frankly not relevant to people’s lived experiences.

Americans are angry. They know they have been and continue to be lied to. What they want more than anything else is for someone, ANYONE, to tell them the truth. If Davos is still backing the Democrats rather than shifting behind the GOP establishment then they are in worse shape than even I think they are.

This week we’re set to get a flood of bad economic data. Inflation is still rising. Keynesian orthodoxy demands the Fed raise until inflation moderates.

Either we’re Keynesian or we aren’t Lizzie, which one is it?

Is the Fed supposed to be politicized or independent?

This is the Catch-22 of MOPP. At some point you begin contradicting yourself to the point where even the ‘rubes in the bicoastal suburbs’ can smell the bullshit.

We here in ‘flyover country’ got used to the smell a long time ago.

But it doesn’t matter. The anger is palpable. It won’t be slaked by blame shifting.

So where are we today?

The Fed is due to raise rates at least another 75 basic points, to 2.25%. After the ECB ‘shocked’ markets with 50 basis points last week, I won’t be surprised if the Fed goes 100.

But I’m not banking on that. Powell has all the cards to play here. He has another meeting before the mid-terms. His stated goal is 4% by year end. He’s got plenty of options now to get to that target.

And every time inflation comes in hotter than expected he’s got the ammunition to go bigger.

And whose ox gets gored when that happens? Europe’s zombie banks who have exactly zero friends in the world now outside of Europe.

Because this time, unlike in 2018, Powell has the tools in place — SOFR, mainly — to make these rate hikes stick by decoupling US bank stress from that of Europe.

Hiking by 100 (aping the Bank of Canada who sent a stern warning to TrueDOH!) would further underscore my argument that the Fed is raising rates to break the ECB, Europe’s banks and the offshore (Eurodollar) markets. If inflation gets tamed in the process, that’s nice, but it’s not the primary goal.

Davos wants an end to the commercial banks, putting all the power in the hands of the central banks, through CBDCs. The Fed and those it represents do not want that.

And given the choice between a recession in the US while scaling back US dollar diplomacy and collapsing into the Eurotrash Communism promulgated by the WEF and Davos, I’m taking the over on the Fed going on the offensive.

Davos is trying to manufacture recession talk prematurely by attacking the price of oil. Yellen wants a price cap in place by year end to limit the money flowing into the Russian treasury.

Davos’ obvious next play is a war on oil to crush its opposition and create cover for the collapse of the European banking system just over the horizon.

There’s been a real disconnect between the futures price action and the action in the spot market. We had a collapse in Brent crude futures on Friday after the EU announced a mild repeal of oil and food sanctions on Russia which prompted volatility into the weekly close and with this week’s open on thin trading volumes.

That’s the best example of MOPE I can give you here, painting the tape into the weekly close based on a headline that promised nothing and said less.

So, the markets are trying to scream “demand destruction” into the hurricane of rising oil demand in a tight market now happy to trade in currencies other than the dollar to buy that oil.

This strategy will have just as much success as Democrats trying to blame the Fed for the inflationary depression they unleashed with their trillions in COVID spending and aggressive hounding of the oil producers while people struggle to put food on the table or afford the gas to get to work.

Last time I checked, shouting into a hurricane was kinda stupid. I should know, I live in Florida.

The Fed’s aggressive play against Europe is already producing the expected results. After the ECB capitulated last week, US assets, both stocks and bonds, rallied into the weekly close. The 10-year note was down 25 bps and the Dow Jones put in a technically significant close above recent highs.

The Dow doesn’t have to rally here, just hold the most recent bottom to be a winner as things begin to unravel in Europe.

I’m not disputing the idea that there’s not economic dislocation on the horizon. There is. It’s epicenter will be Europe, not the US. That will insulate us and the Fed from the worst of the fallout. Davos‘ only play now is to create as much chaos as possible to take down anyone who stands in their path before the Democrats get blown away in that hurricane I talked about.

The Democrats are happy to burn the country to the ground, since they are now officially traitors to the country after 18 months of pure, unadulterated economic and cultural vandalism. They keep telling us it’s all for the greater good… theirs, not yours. And while you are mostly still free to complain about it privately…

Whatever you do, just don’t call it a recession.

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