Credit Bubble Bulletin/Doug Noland/7-1-2022
“A ‘new world,’ indeed. And the status of the ‘Fed put’ – after three decades of becoming ever more explicit – is now officially indeterminate. Federal Reserve officials are these days focused on their inflation fight rather than how they might respond to market crisis. Of course, the Fed would surely muster a policy response. But these days markets must assume it will be a delayed response. Moreover, it’s reasonable to assume that the Fed would not initially come with the type of massive QE liquidity injections that faltering markets would require for stabilization.
New ballgame. The world is now in a serious de-risking/deleveraging episode, without the prospect of timely central bank liquidity injections. This, for one, profoundly alters the risk vs. return calculus for leveraged speculation, and I believe we are witnessing global players moving to reduce risk. And with the timing and scope of central bank liquidity support very much an open issue, this significantly raises the odds of self-reinforcing de-risking/deleveraging spurring contagion and illiquidity.”
USAGOLD note: Noland sees a Fed that will not come to leveraged speculators’ rescue as a default course of action – at least not initially. That delay could make all the difference between stopping a panic in its tracks and giving it the time to achieve tsunami status. As Noland lays out above, some players might already be preparing for that possibility, and perhaps inadvertently contributing to its arrival in the process.
