A letter with distribution as wide as mine has a diverse and often quite opinionated audience. I appreciate the differences of opinion because they force me to think. Strangely, last week’s letter generated almost no disagreement. Some thought I hadn’t gone far enough. Others saw the Fed making different but still severe mistakes. I may have stumbled on the one thing that unites all Americans: None of us like what the Fed is doing. I thought this response from reader “Sagelike” was well said.

[Fed Chair Jerome] Powell is no idiot and he knows what a complete mess things are so if I'm Powell I'd have to ask myself how I need to play this? I wouldn't want to be the guy who presides over an economic implosion so I'd just keep the game going to avoid being tarred with that label for all time and, I'd retire in January with reputation more or less intact and leave the mess to someone else… Debt monetization is the last and only option left on the table at this point. Interest rates can't go low enough to spur growth as they are near zero anyways nor can they rise high enough to rebalance the system without leading to debt default and depression. QE forever doesn't work so what's left? Debt monetization and real money printing are the only options left and it's only a matter of when. So, transitory inflation, then disinflation followed by deflation and another recession. The economy is still very weak and long yields are signaling slowing growth already. The reflation trade will be brief and I do not believe we're going to get anything close to an economic boom. The current expansion looks more like a dead cat bounce. Politicians panic at that point and introduce yet more massive stimulus and with debt spiraling and deflation taking hold, debt monetization becomes the only option to create inflation. And that's when we get real, sustained inflation... probably starting sometime next year. So with my first statement in mind, good policy outcomes are a virtual impossibility and more bad policy almost a certainty and if bad policy is a certainty, the results must therefore be highly negative given our current debt position. How it unfolds is anyone’s guess but the broad outlines seem clear: The endgame is nearing. I don’t know about the “next year” part. I think it is also an open question how severe any such inflation will be, given so many other variables. An economic slowdown could greatly diminish that particular threat. Recessions are by definition disinflationary/deflationary. But as I said, even “mild” inflation is a problem if it lasts long enough. It’s not like bull riding at the rodeo. There are no clowns to distract the tiger. You better have your exit planned perfectly.

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