Was The Fed. Just Given The Launch Codes?

Let me be clear right from the outset: this is not an article about politics when it comes to whose guy or gal is currently seated or running. This is about the current state of affairs as it pertains to business; how they seem to be in motion; and, how it may affect one’s business, or, business in general. As for the “who’s in,” or “who’s out” – that’s for others to debate.

So, with that said, I want to outline a few developing issues that have the potential (true potential, not the hyperbolic) for outright disruption of all business as we know it. And no – not the type of “disruption” that emanates from the tech world. No, this one is far more disruptive, and, has implications for not only the business world, but the citizenry as well. After all: if you don’t think a business disruption can wreak havoc quickly – watch how fast calamity ensues once it’s realized a lowly roll of toilet paper will no longer be available.

Back in October of last year I penned an article titled: A Perilous Possibility: Weaponizing The Fed. In it I made a few arguments about both the dangers, as well as, how differing circumstances may implement such a scenario. Whether intentional, or not.

As always the so-called “smart crowd” within media circles balked at the idea. However, I heard from quite a few in the business community that shared the same concerns once they understood precisely what “the game afoot” and its ramifications just might entail. And, I am of the opinion that “game” is not only afoot, but rather, blindly running at full speed in search of a cliff. The real problem for the rest of us is this: games that end with cliffs don’t bode well for either the 1st place finisher – or last. Below is an excerpt from that article. To wit:

“One of the real reasons for my concern stems from the players involved. I’m far more concerned and have a greater sense of foreboding when it appears the “intellectual” set are the one’s playing against adversaries or circumstances they themselves only understand through textbooks or debate. i.e., A relative example could be the proverbial college professor that teaches business theory and application yet, has never been outside the walls of academia.”

Why is such a concern I had then more alarming now? Well, for starters, here are a few excerpts from a recent meeting with Japanese officials and Paul Krugman. Supposedly this was an “off the record” meeting. Yet, it seems to have been made public/released by none other than Mr. Krugman himself via his Twitter™ account.

I would advise you to read the entire discussion and draw your own conclusions. But for me, there were two distinct references that if I were, ohhh let’s say, a leader of a communist country whose economy was faltering and was looking for a possible scapegoat to finger wave? You couldn’t provide better fodder even within your own ministry of propaganda. To wit:

“There is a special issue involving China. China is in big trouble. China which seemed to be a source of strength but also not very long ago we were accusing China I think correctly of manipulating its currency to keep it down. China is now in fact intervening to support its currency in the face of huge capital outflows. We believe that the capital flight in 2015 was about one trillion dollars. China has immense reserves but not infinite reserves, which mean that depreciation of the renminbi becomes a real prospect and that will make life very difficult for the rest of us. So, all of this interdependence is there.”

Or how about this gem?

“It could be that things are even worse than I am portraying, that China is going to experience an explosive collapse, or simply that demand is going to be weaker than even my rather downbeat projections. The consequences in those two circumstances are very different. If the world economy starts growing and inflation picks up, we know what to do. Mr. Kuroda, Mrs. Yellen, Mr. Draghi have had the tools to deal with that, no problem.”

Innocuous you might think at first blush. However, if we are to finish that “train” out to its logical conclusion, the inference is? Hint: China doesn’t.

And what of that should concern us? No, it’s not that they may, or may not, have the tools. That’s irrelevant. What’s pertinent in my opinion is this:

Mr. Krugman (today’s dean of Keynesian thought and advisor for implementation) is openly suggesting in any immediate economic chaos The West can win – China not so much.  And although Japan is of course Asian – it’s economy and monetary philosophy is by all measures Western. And what’s another point that should not be lost? They’re China’s #1 economic adversary.

So why are things such as this something to watch intensely? Well, I am of the opinion doors are being opened (again: whether intentionally or not) for the possibility of those with their economic backs against the walls, ways to exploit those openings in approach, and timing, equivalent to how we once viewed outright war.  Let me make the argument proposing the following…

In a communist run nation, as well as, economy. If one so desired: you can make the hard, as well as, immediate choices to devalue, and/or de-$Dollarize your economy simultaneously sending economic panic and upheaval globally (especially to your adversaries) – all while you have both the ability (via their military) and (don’t let this point be lost) the wherewithal to use it as to control any civil unrest. All while having the perfect “in their own words” evidence concurrently for that “first response” to any provocation. Militarily or economically. For in today’s world of interconnections/dependence – monetary/trade warfare may yield the same results as kinetic.

It seems far more onerous when put into this frame of reasoning, no?

And if one wants further “framing” I would ask that one remember the timing of all this, and how it’s been increasingly unfolding lately.

First: The meeting and subsequent release of the ideas discussed via Mr. Krugman with Japan’s leadership. Second: Suddenly the timing of Russian warplanes brazenly buzzing U.S. ships and more. Along with China’s outright refusal (remember the timing) to allow the U.S. a port-of-call exercise in Hong Kong. And thirdly: Remember what happened just a few days ago? Hint: Suddenly the U.S. Treasury has a new “list.”  It seems “currency manipulation” is now an issue. (I know, but don’t laugh, because this is where things really begin to get dangerous in my view.)

Want to throw in a wildcard in this house-of-cards? The Saudi’s have now (there’s that timing thing again) openly, as well as, explicitly threatened to dump U.S. Treasury Notes. And not just a few, but all. Add too that an almost in-your-face cozy-ing up to China with oil for Yuan – and you have a possible unraveling of everything once thought of as “stable” or “insulated” from geopolitical events.

So interconnected has the economy of today become as to just a few years hence the financial crisis – ATM’s at a U.S. mid-western small bank can be halted just as fast, and with the same expediency, as a letter of credit can be rescinded to cargo vessels laden with much-needed products from medicine to toilet paper. Everything can grind to a halt in hours, never mind days or weeks.

So why the use of “launch codes” in my title and how does this all fit in you might ask? Fair point. All I can point to is the “Emergency Meeting” that took place a few weeks ago between the President and the Fed. Chair. You know, “To discuss the economy” and “exchange notes” we’re told. Again, fair enough. However…

In light of what has taken place right before, during, and since that “meeting.” Along with what has recently been released for public consumption (and especially by other governments and officials) capped off with the sudden declaration via Treasury of “warnings” Is it really that much of a stretch to think that just one wrong move whether intentional or not – can set everything we’ve come to know as “business” into complete and utter disarray? If not worse? As in much worse?

Some will call it conspiracy thinking. Personally, I just think of it as prudent business contemplation.

© 2016 Mark St.Cyr