Monty Pelerin’s World
September 25, 2022

The game of chicken, learned by most teenagers, provides a reasonable description of current financial market conditions.  The Federal Reserve is playing chicken with financial markets.

Usually the game of chicken determines a winner by whomever “blinks” first.  In this case, there can be no winner, at least long-term.  In order for the Fed to win, it must crash markets.  In order for markets to win, they must call the Fed’s bluff.

The twist in this game of chicken is that the American people are barely aware of the game, but lose either way. If the Fed “wins,” inflation presumably comes back under control, but market values destroy the retirement assets and jobs of many.  If markets win, inflation continues to destroy the standard of living of all.

Where Do We Stand Now?

Another rate hike of 0.75% this week was enacted by the Federal Reserve.  The dollar, because of higher interest rates, is strong against other currencies, but financial assets are weakening. This site has been tracking four key asset classes. Their performance is summarized below:

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