Authored by Joseph Solis-Mullen via The Mises Institute,

While whispers of the current emerging market debt crisis, the result of the rapidly strengthening dollar, could be heard throughout the summer, virtually no one predicted the blow the dollar’s rise would deal to some other developed economies. But with the dollar reaching levels not seen in a generation, a battering is precisely what several are being unexpectedly dealt.

In September, the Bank of Japan intervened to stem a persistent bleed, buying yen for the first time in twenty-five years (and again today). The yen, which had been steadily losing value since the middle of March, when the Bank of Japan announced it would not be following the Federal Reserve in a hawkish pivot to combat inflation, will likely remain under pressure given the Bank of Japan’s commitment to ultralow interest rates. However, the singular move marked a shot across the bow at the macro funds that speculate in currency markets: think twice before shorting the yen.

The following week it was the Bank of England’s turn. Bond markets, rattled by new UK prime minister Liz Truss’s unexpected announcement of yet more unfunded tax cuts and increased spending, sold off violently in the pound’s largest ever single day decline. The move sent yields spiking, bond prices moving inversely to yields. Already mired in economic crisis, with inflation still running near 10 percent and the price of heating a home five times what it was a year ago, the Bank of England has now revealed its intervention was done to save several public pension funds whose leveraged positions faced liquidation because of the sell-off.

Bond and currency markets having at least temporarily been calmed by these interventions, the examples of Japan and England illustrate the advantage a currency sovereign has over most borrowers in the emerging markets, who are forced to borrow in dollars to access international credit markets: in a crisis, the Bank of England and Bank of Japan can simply turn on the printing press to keep the lights on and people fed.

Italy, itself facing an even worse economic crisis than the UK, has no choice looking ahead to the coming winter but to go along gratefully with whatever protection Brussels and the European Central Bank (ECB) are willing to give it as the spreads on its bonds threaten to widen.

Of course, while all of the above actions can help avoid an immediate credit event, their use has become all too regular, and the now staggering debts of the rich world will increasingly take their toll in the new higher interest rate environment, with the percentage of GDP devoted to paying annual interest rising precipitously.

A problem for the long run, apparently.

While at this point minor compared to the immediate, starvation-level situation wrought by the rising dollar in places like Nigeria, Egypt, Argentina, or Kenya, the full impact of the Federal Reserve’s top to bottom bungling of inflation on its major advanced trading partners has yet to fully materialize. Changes in the real economy lag changes in interest rates, but already warnings from Seoul and Delhi suggest the reversal of capital flows resulting from capital moving into treasuries is hindering necessary investment. Though, that may pale in comparison to the damage of a global recession, which the World Bank, International Monetary Fund, and World Trade Organization all now warn is increasingly likely, and due in no small part to the precipitous pace of the Fed’s rate increases.

For their part, Jerome Powell and Co. remain unmoved by the markets’ cries of “uncle.” The US economy is sending mixed signals. In particular, citing the continuing tightness of the labor market, the result of a demographic imbalance between generational cohorts, the Fed continues to make the political space it needs to continue its inflation fight. Facing complaints from lawmakers and investors alike, high ranking Federal Reserve officials have repeatedly emphasized the need for the institution to stay its course in order to maintain its “credibility.”

Apparently, this is a feat only accomplishable by pushing the economy it overheated off a cliff.

At a moment when virtually every central banker the world over was asleep at the wheel, credit to the few central banks that got it right. In Brazil and Mexico, for example, countries with troubled histories of inflationary spikes and currency sell-offs, rate hikes were earlier and sharper; as a result, their currencies held up amidst the otherwise global rout in the emerging markets; this, in turn, helped Brazilian and Mexican businesses as the global economy soured. In both cases economic growth has been maintained despite the deteriorating macroeconomic environment.

As the old adage goes, an ounce of prevention is worth a pound of the cure.

Had the Federal Reserve been bound by some version of the Taylor rule, rates would have automatically adjusted as soon as inflation began to tick up in 2021.

As it is, wishful thinking, misleading narratives, and an unaccountable few have given the global economy a series of unnecessary and deadly shocks.

When President Biden’s student loan forgiveness scheme was unveiled in August, the White House assured the public that it was “relief for borrowers who need it most“ and promised that “no high-income individual or high-income household – in the top 5% of incomes – will benefit from this action.”

However, in what the Washington Free Beacon describes as a “bait-and-switch” of American taxpayers, the election-year handouts are now being offered to people with incomes far above the initially-advertised limits. 

Here’s how a fact sheet posted in August by the White House described the program’s parameters: “Borrowers are eligible for this relief if their individual income is less than $125,000 ($250,000 for married couples).”

Now that that program has gone live, it’s clear the American public was misled. 

As the Department of Education’s online application form explains, debt relief is available to those who made less than $125,000 in 2021 or 2020. With a generous two-year look-back, the word “or” opens the door to people who were below the threshold in 2020 but then blew it away in 2021.  

“That’s good news for recent law school graduates, many of whom are now employed at white-shoe law firms making over $200,000 a year, or for doctors who just completed their residencies,” writes the Free Beacon. 

Critically, the rules also ignore how applicants are doing this year — which is already more than nine months gone. 

Put it all together and an individual could be eligible for the program if he, for example, made $124,000 in 2020, $750,000 in 2021 and is knocking down a million in 2022.  

The dollar limits refer to an applicant’s Adjusted Gross Income, which excludes various types of income. As The Beacon notes: 

Paycheck Protection Program funds aren’t considered income, nor is inherited wealth, meaning one could have received a cash influx and still qualify for Biden’s helicopter cash drop. Remember this when Biden drones on about how “not a dime will go to those in the top 5 percent of the income bracket.”

It gets worse: The program leans hard on the honesty of applicants, which is never a good idea where government handouts are concerned. The application only requires basic information and an assertion that the applicant is eligible — no proof of income is required.

According to CNBC, the Department of Education “will verify a certain number of borrowers have told the truth about their eligibility as a fraud prevention measure.” 

As legal challenges to Biden’s unconstitutional debt relief order stack up, debtors are rushing to the application website: More than 8 million applied just during the weekend “beta test” period that proceeded Monday’s official launch.  

“Any borrower who has already received forgiveness will likely get to keep it, even if the courts block the president’s plan,” higher education funding expert Mark Kantrowitz tells CNBC.  

On Thursday, Supreme Court Justice Amy Coney Bryant bought Biden and his millions of forgiveness-seeking beneficiaries more time, as she denied a request filed Wednesday by the Brown County Taxpayers Association, a Wisconsin group that sought to keep the plan on hold while its legal challenge goes forward.  

According to the Congressional Budget Office, Biden’s giveaway will cost the federal government about $400 billion — for a government that already owes $31 trillion…and counting. 

Student loan forgiveness doesn’t actually forgive the loan. It just transfers the debt to people who never asked for the loan, never agreed to the terms, and never benefited from the loan or saw any of that money.

— Steve (@oldguy_steve) April 14, 2021

Authored by Charles Hugh Smith via OfTwoMinds blog,

When the $400 trillion global credit-asset bubbles all pop, maybe there will only be $100 trillion in wealth sloshing around.

Getting rich in a bubble economy isn’t that hard as long as you were rich enough to buy assets at the start of the bubble.

For example, some friends bought a modest old house (built 1916, under 1,000 square feet) in the East Bay / San Francisco Bay Area for $135,000 in late 1996.

They invested money and sweat equity in improvements (new heating and wiring, etc.) and sold it for $545,000 in 2004.

Now the house is worth over $1 million.

Official inflation since 1997 is $1 then is now $1.80, so if the value of the house had kept up with inflation the current value would be $250,000.

Studies have found housing tends to gain about 2% net of inflation annually, so with this added in, the house “should be” worth about $325,000.

So the house is worth triple what historical (pre-bubble) valuations would suggest.

The stock and bond markets have yielded similar stellar results over the past 25 years, roughly double the handsome historical expected returns.

Other investments have yielded spectacular returns. Many tech stocks have risen ten-fold or more, and those who bought Bitcoin for $650 in August of 2016 when I projected a price target of $17,000 (absurd at the time) could have reaped a nearly 100-fold gain had they held on and sold at the peak around $65,000 in November 2021.

Not everyone who owned or bought assets in the early years of the credit-asset bubble have become wealthy, but most have done well for themselves.

Going forward, the tricky part will be keeping this wealth.

There are several reasons for this.

One is that all bubbles pop, despite the vigorous protests of those who have profited so mightily from the bubble.

Another is the magnitude of the challenge: to preserve their gains, everyone will have to rotate out of asset classes that are deflating into assets that are rising or at least holding their value.

As John Hussman has pointed out, somebody owns the devaluing asset all the way down, i.e. bagholders. These owners absorb the losses.

There’s about $400 trillion in assets / wealth sloshing around the global economy. If (say) half of that wealth must exit declining assets and find safe haven in some other asset classes, that’s a tall order.

$200 trillion out of declining asset classes (real estate, bonds and stocks, for example) into what asset classes that will be worth $200 trillion in the new era?

Proponents of safe-haven asset classes abound. Crypto enthusiasts are confident cryptocurrencies and crypto-investments will register massive gains, while precious metals investors are equally confident that PMs will fulfill their historic role as safe havens that gain value as things unravel.

Others claim real estate and stocks will hold their value for various reasons (global capital flows, etc.).

I have little confidence in any of these projections because the era we’re entering–the instability born of scarcity and depletion–has no modern analog.

We have to go back to the 1600s to find any sort of similar climate-driven scarcities, and even further back to to find eras of climate-disruption / resource depletion instability (Ming Dynasty, Cambodian Khmer, late Roman era, Mayan city-states, Bronze Age civilizations, etc.)

Just as previous civilizations cut down their forests to sustain the expansion of their economies, we’ve exhausted the cheap-to-get oil and coal.

The transition to some other equivalent sources of energy is not guaranteed to be smooth or equivalent in scale, portability, reliability, etc.

If there are no recent historical analogous eras, how confident can we be in projections of how $400 trillion can seamlessly slosh out of loser-assets into a set of winner-assets?

Another reason is the entrenched nature of speculative fever. “Investors” is now the polite term for gamblers who have grown accustomed to reaping quick gains and moving capital around with a few keystrokes.

This mentality is a rocket booster for instability, an instability that undermines real investing by generating wild swings of valuation. One either joins the crowd at the gaming tables or risks being wiped out by sudden downdrafts.

Another reason is the increasing desperation of authorities to keep a fragile, destabilizing system glued together.

Put yourself in the shoes of authorities seeking revenues to cover the costs of their immense borrowing and spending.

Any asset class that registers spectacular gains draws a target on itself. Hmm, shouldn’t “the rich” (i.e. the owners of whatever asset registered spectacular gains) pay “windfall taxes” on these (undeserved / unearned) gains?

Of course they should. Let’s start with a 50% tax that progresses to 90%, and increase the penalties for evasion.

Then there’s a wealth tax to nail all those greedy souls who refuse to sell to reap their gains. Let’s start a wealth tax at $10 million, so the bottom 95% will support it, and then move it down to $1 million.

How about requiring pension funds, 401K and IRA retirement accounts to own government bonds “to protect these assets from speculative losses.”

Next, let’s limit withdrawals and transfers to overseas accounts to a trickle. The “wealthy” will be wealthy on paper but won’t be able to access much of their wealth.

Assets held in Periphery economies may simply be expropriated without due process. You have it, we need it, done.

In the course of this year, I have endeavored to explain my thesis that the real action to pay attention to isn’t in comparing one broad asset class to another, but nuanced differences within each asset class.

For example, real estate in enclaves that are highly attractive to the super-wealthy and merely-wealthy may gain in value even as 95% of real estate / housing declines or even collapses back to the valuations of a generation ago.

Some stocks may do extremely well even as 95% of equities crater.

In other words, I doubt that there are any easy generic answers to the question, “how do I preserve my wealth going forward?”

Diversifying assets is one strategy.

Another is to concentrate on assets we control directly such as our primary residence, family enterprise, etc.

Another is to focus on intangible forms of wealth such as skills and trusted personal networks.

Yet another is to recognize the divide between Core and Periphery will widen and assets in the Periphery will be at far greater risk than assets held in the Core.

From a historical perspective, we might lower our expectations so we’ll be delighted to hold onto 50% of our current wealth, or perhaps 25%.

In other words, when the $400 trillion global credit-asset bubbles all pop, maybe there will only be $100 trillion in wealth sloshing around, and much of that will be severely constrained by authorities of one kind or another.

The instability generated by climate disruption-resource depletion will not be easy to navigate. Partial success may be all that’s within grasp for most of us.

What do we need to sustain our well-being? Perhaps that’s the type of wealth we should prioritize preserving.

*  * *

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A star reporter for ABC News has been missing since an April 27 FBI raid at his Arlington, Virginia apartment.

Emmy award winner James Gordon Meek – a deep-dive journalist who was also a former senior counterterrorism adviser and investigator for the House Homeland Security Committee, abruptly quit his job of 9 years and “fell off the face of the earth,” after the raid, one of his colleagues told Rolling Stone.

At the time of the raid, Meek, 52, was co-authoring a now-published book about the botched US withdrawal from Afghanistan. According to ‘sources familiar with the matter,’ federal agents allegedly found classified information on Meek’s laptop during their raid – though one investigative journalist who had worked with him said it would be highly unusual for a reporter to do so.

“Mr. Meek is unaware of what allegations anonymous sources are making about his possession of classified documents,” said his lawyer, Eugene Gorokhov, in a statement. “If such documents exist, as claimed, this would be within the scope of his long career as an investigative journalist covering government wrongdoing. The allegations in your inquiry are troubling for a different reason: they appear to come from a source inside the government. It is highly inappropriate, and illegal, for individuals in the government to leak information about an ongoing investigation. We hope that the DOJ [Department of Justice] promptly investigates the source of this leak.”

Tucker Carlson: “ABC News Producer who was working on a book about Biden’s disastrous Afghanistan withdrawal was raided by the FBI and has gone missing.” pic.twitter.com/6W8tptpu0x

— Real Mac Report (@RealMacReport) October 20, 2022

As Rolling Stone notes, it’s unclear what story Meek could have been working on that would have put him in the FBI’s crosshairs.

Meek worked on extremely sensitive topics — from high-profile terrorists to Americans held abroad to the exploits of Erik Prince, the founder of the infamous military contractor Blackwater. In recent years, some of Meek’s highest-profile reporting delved into a 2017 ambush by ISIS in Niger that left four American Green Berets dead. Meek and ABC then adapted the story into the feature-length documentary 3212 Un-Redacted, which debuted last year on Veteran’s Day on ABC’s sister company Hulu.

A robust Emmy campaign began prior to Meek’s disappearance, with events like a screening and Q&A at the Motion Picture Association in D.C. that the journalist attended with one of his daughters. The story was particularly incendiary because it undermined the Pentagon’s official narrative of what happened on the ground in the African nation, and presented “evidence of a cover-up at the highest levels of the Army,” according to the film’s logline. Adding intrigue, sources say another ABC News investigative journalist, Brian Epstein, also abruptly and inexplicably left the network a few months before Meek. Epstein also worked as a director, producer, and cinematographer on 3212 Un-Redacted (Hulu stopped Emmy campaigning after Meek apparently went AWOL, and the documentary ultimately failed to receive a nomination). Epstein told Rolling Stone, “I’m not commenting on this story,” before abruptly hanging up. -Rolling Stone

Meanwhile, Meek’s co-author on the Afghanistan book, retired Green Beret Lt. Col. Scott Mann, says he has no idea what happened.

“He contacted me in the spring, and was really distraught, and told me that he had some serious personal issues going on and that he needed to withdraw from the project,” Mann told Rolling Stone. “As a guy who’s a combat veteran who has seen that kind of strain — I don’t know what it was — I honored it. And he went on his way, and I continued on the project.”