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Even Establishment Economists Are Worried About This

May 3, 2023
Even Establishment Economists Are Worried About This
Photo by Bear Bull Traders on Wikipedia Commons

From Brandon Smith

The one thing about the financial world that never ceases to amaze me is how far behind the curve mainstream economists always are.

Not long ago we had both Janet Yellen and Paul Krugman, economists supposedly at the head of the pack, both proving to be utterly ignorant (or strategically dishonest) on the effects of central bank stimulus measures and the threat of inflation. In fact, they both consistently denied such a threat existed until they were crushed by the evidence.

Here’s Krugman:

Krugman, wrong about inflation

…and here’s a brief recap of Yellen’s gradual acceptance of reality:

This tends to be the modus operandi of top establishment economists. The majority of economists out there simply follow the lead of these gatekeepers – maybe because they’re vying for a limited number of cushy positions in the field, or perhaps because they’re afraid that if they present a contradictory theory they’ll be ostracized. Economics is often absurdist in nature because Ivy League “experts” can be wrong time and time again and yet still keep their jobs and rise up through the ranks.

Never let reality get in the way of a perfectly sound theory.

In the meantime, alternative economists aren’t constrained by the ivory tower groupthink. We aren’t afraid of contradicting the accepted status quo. Maybe that’s why we keep hitting the bullseye with our observations and predictions.

On the other hand, we’ll never get job offers from mainstream media or government bureaucracies. They’re not looking for people who are accurate. They’re looking for talking heads who spout the party line.

To quote the late, great Kurt Vonnegut from his masterpiece Slaughterhouse-Five, “And so it goes.”

If their ears are closed, no amount of shouted warnings can reach them.

“No one saw this crisis coming”

I look forward to the fast-approaching day when all of these “official” economists and analysts howl “No one saw this crisis coming!” Which is another way of saying, “Don’t blame me, it’s not my fault!”

After things get even worse, they’ll rush to claim one by one that, “I saw the crisis coming and tried to warn you.” This isn’t much more than a desperate attempt to reclaim a shred of credibility.

As if that’s even possible.

I’m not concerned with earning credit where credit is due. Rather, my purpose is to wake up as many people who will listen as possible to the dangers ahead. And maybe save a few lives, or inspire resistance to tyranny in the process.

For establishment yes-men, the best we can hope is reality gives them a the left hook to the face and lose all credibility in the eyes of the public. They deserve to go down with the ship – they’re either deliberate disinformation agents, or they’re simply too ignorant to see the writing on the wall. Either way, they shouldn’t have the jobs or the attention they certainly haven’t earned.

For those with ears to hear, the alarm bells are ringing

The recent U.S. bank failures in the last two months are difficult to ignore or explain away, that’s for sure.

In a survey managed by the World Economic Forum, over 80% of chief economists now say that central banks “face a trade-off between managing inflation and maintaining financial sector stability.” They finally warn that price pressures are likely to remain higher for longer. That will require a prolonged period of higher interest rates, which will expose further frailties in the banking sector. The ability of central banks to rein in inflation is constrained by the fragility of the financial sector.

Imagine that!

The very hazard economists I’ve been ranting about for years, the very thing they said was “conspiracy theory” and Chicken Little doom-mongering, is now accepted by a majority of surveyed mainstream economists.

I guess you can’t successfully ignore reality forever, after all.

But where does this leave us?

First denial, then acceptance – and afterward, panic

After acceptance usually comes panic.

The credit crunch is just beginning. So far this year we’ve seen as many bankruptcies as during the entire 2020 Covid panic.

Folding the failed First Republic Bank into JP Morgan is a middle step in a larger, system-wide crash. JP Morgan, already the largest bank in the U.S., is now so big it requires a special regulatory waiver just to exist.

The expectation is that the Federal Reserve will step in to dump more stimulus into the system to keep it afloat, but it’s too late.

My position has always been that the central bank would deliberately initiate a liquidity crisis through steady interest rate hikes. This has now happened.

The Catch-22 scenario has been accomplished.

Just like the lead up to the 2008 Great Financial Crisis, all the Fed needed to do was raise interest rates to 5% and suddenly the systemic debt level becomes unsustainable. It’s exactly like a crypto rug pull, only playing out right before our eyes.

It’s happening again. And they knew it would happen again.

This time, though, we have another $20 trillion in national debt, a banking system utterly dependent on cheap stimulus dollars and an exponential stagflation challenge.

Here are the horns of the current dilemma:

If the Fed cuts rates, banks would survive. They’d save the financial system – but prices would skyrocket even higher, fueled by the flood of newly-printed money.

If the Fed maintains or even hikes rates, more banks will implode. This is inevitable. According to the FDIC itself, there are $620 billion in unrealized losses across the nation’s banks. Just $20 billion, a mere 3% of the total, was enough to doom First Republic. And any banking failure damages confidence in the overall financial system, and let’s remember the financial system is a confidence game. It only works as long as we pretend it works. Banks are solvent as long as we don’t ask for our money back.

The Fed will set the nation on the path to hyperinflation, or to systemic financial collapse.

There is no middle path.

Most mainstream analysts will expect the Fed will revert to near-zero interest rates and “quantitative easing” (QE, also known as money-printing) in response. Even if they do – and I’m doubtful that they will – the outcome will not be what they expect. They’re slowly realizing that QE isn’t a panacea. That QE-fueled inflation will annihilate the economy even faster than a credit crisis. But those dissenting voices are few and far between for the moment.

The World Economic Forum report for May outlines this dynamic, but doesn’t mention that there are extensive benefits attached to the coming crisis for the elites.

For example, major banks like JP Morgan will be able to snatch up “small enough to fail” banks for pennies on the dollar (just like they did during the Great Depression).

Globalist institutions like the WEF will get their Great Reset, during which they’ll terrify the public into adopting even more financial centralization, social controls, digital currencies and a cashless society – essentially, the end of economic liberty.

For the average concerned citizen out there, this narrative change matters. It’s a signal that things are about to get much worse. When the establishment itself is openly acknowledging that gravity exists and that we are falling instead of flying, it’s time to get ready to take cover. If your financial future depends mostly, if not entirely, on the supposed value of paper-based assets, I strongly recommend you learn more about intrinsically-valuable assets like physical gold and silver at the very least. Central banks can’t cancel gold and silver, they’re inflation resistant and still there when the lights go out.

I’m warning you now. Because the talking heads never admit to the truth unless the worst-case scenario is right around the corner.

Brandon Smith has been an alternative economic and geopolitical analyst since 2006 and is the founder of Alt-Market.com.

The views and opinions expressed in this article are those of the author and do not necessarily reflect those of Birch Gold Group.

2023, brandon smith, Featured, federal reserve, financial crisis, great reset