Notes From Underground: Cui Bono? (Who Stands to Gain?)

When it comes to making sense of the global financial system I always have to ask the question who is benefitting from monetary policy? The recent podcasts from the Financial Repression Authority has provided a good backdrop to understanding the importance of debt markets — and by default the significance of the US DOLLAR as the bulwark of the financial system. The mobility of money or what serves the process of globalization has revealed many of the fragilities of the DOLLAR as a funding vehicle because of the FEDERAL RESERVE’S policies, which allowed all the other world’s central banks to sustain a prolonged period of zero and even NEGATIVE NOMINAL RATES.

In the book, “International Political Economy [IPE]; An Intellectual History,” by Benjamin Cohen, the author quotes a 1985 paper by Ken Rogoff in which he said, “formal coordination coordination of monetary policies could perversely,lead to higher inflation. Authorities might agree to expand their money supplies together in order to evade the external deficits that would otherwise discipline any one country trying to inflate on its own. Policy may well be successfully coordinated, but in the service of an inferior result.”

Well, Professor Rogoff got this one right.

The QE program fomented by Ben Bernanke in response to the 2008 financial crisis ran interference for the ECB, BOE, BOJ  and others so as to prevent their currencies from rapidly appreciating against a DOLLAR. That is, massive amounts of liquidity were injected into the financial system to “forestall” deflation. The US and Europe experienced a deflation but the FED allowed for all to keep the monetary spigots wide open. The only country that experienced actual deflation was/is Japan. Now that global inflation is the result of massive liquidity infusions the question remains how to extract the liquidity without causing too much stress on a global system awash in QE-fueled debt.

The FED seems to be intent on raising rates ever HIGHER in an effort to break inflation, but maybe it’s time to halt the rate rises and increase the pace of the balance sheet runoff? This is the prevailing question as we head into 2023, but for us we will rely on the wisdom of Louis Gave : We adapt, not forecast.

Last week, Bank of Austria President and ECB Board member Robert Holzmann said in a Financial Times story he favored a 75 basis point increase at the next meeting in December. But Holzmann also warned that it is imperative that the ECB begin shrinking its BOND PORTFOLIO “before it had finished raising rates, adding that it is important to avoid short-term borrowing costs rising above long-term ones.” Holzmann wants to avoid an inverted yield curve because “it would be a challenge for Europe’s banking sector, which relies on being able to borrow cheaply in the short term to make longer-term loans at higher rates.” As Holzmann said, “We have to make sure it doesn’t get to that point.”

I wonder if the FED has had similar concerns? And, by the way, the German 2/10 curve finally inverted. Any problems?

In the spirit of the season I am asking NOTES FROM UNDERGROUND readers to consider a season contribution to one of my favorite charities, which has raised money for feeding the hungry, clothing the naked, and aiding the education of pre-kindegarten inner city children in Chicago. The charity is Santa Mike at Marillac St. Vincent Family Services and has been under the direction of my very dear friend, Mike Sturch, for more than 50 years. The ravages of inflation has led to great needs, especially for food and clothing. No amount is too small and is appreciated. Every dime goes to the intended targets. Contact Mike at and tell him YRA sent you. These are difficult times and every bit helps those in need. (For more information, see the letter below.)

Tags: , , , , , , , , , , ,

4 Responses to “Notes From Underground: Cui Bono? (Who Stands to Gain?)”

  1. Yra Says:

    Too all my readers and generous people—I erred on Mike’s email—-it is—I apologize for the inconvenience –there is only one K

  2. mike sturch Says:

    Dear Yra, Thank You so much for helping Santa Mike and Friends raise funds to help all our clients, infants, children, homeless, and seniors !! We are so blessed to have you as a life long friend. You and your family have extended themselves for so many years giving not only your money but also you time. The Harris family is always first, asking what is needed and what can they do to help. We are so grateful for your friendship, and to have you in our lives. Stay healthy my friend.. Santa Mike & Friends

Leave a Reply