The sight of a physical oddity can evoke a mix of grotesque fascination and discomfort. Even the most composed person might find it hard to look away from a three-legged hunchback adorned with face tattoos. Such disfigurements can elicit an unsettling response, stirring both nausea and intrigue.
Over time, repeated exposure can dull the initial shock of absurdity, rendering it as bland as vanilla ice cream. The preposterous can morph into the everyday; for instance, a panhandling Batman elicits little more than a passing glance in Hollywood, as such characters abound.
However, just because we become desensitized to oddities does not mean they lose their ridiculousness. Instead, it highlights how conditioned we have become to absurdity, reshaping the abnormal into a façade of normalcy.
Extreme market interventions by central planners have persisted for so long that the resulting distortions are now perceived as standard. Currently, the Cyclically Adjusted Price Earnings Ratio (CAPE Ratio) of the S&P 500 stands at more than double its historical average. Yet, aside from a handful of discontented voices, few people seem alarmed. Like a performer in a freak show, this situation feels entirely conventional.
Everyday items like diapers, soda, beer, chocolate, and chicken are increasing in price, while the federal government aims for a $1 trillion deficit. Nevertheless, U.S. consumers haven’t felt this optimistic about the economy since February 2001. In this context, spending more while receiving less has become the norm.
Cancer and Crackpots
The bizarre reality of contemporary fiscal and monetary policy parallels the unbridled multiplication of cancer cells. As these malignant cells reproduce endlessly, they transform into harmful masses or tumors, often going unnoticed for years, creating an illusion of normalcy within the body.
Some cancer cells may spread through the lymphatic system, initiating growth elsewhere in the body, leading to a relentless cycle of self-destruction. In this sense, cancer epitomizes absurdity. Yet, once it takes root, the body struggles to halt its advance.
Today’s money functions similarly as an absurdity. A mere fraction of the population actually grasps this reality. Furthermore, very few can recall a time when money retained any intrinsic value. In stark contrast, today’s money is fundamentally derived from debt—it lacks the genuine substance that defines real currency.
Unbacked, inconvertible legal tender proliferates uncontrollably. Its unchecked issuance leads to damaging repercussions, yet most people appear oblivious to the consequences.
This ongoing debasement of currency has persisted long enough to be deemed perfectly ordinary. Aside from a few grumpy skeptics, most give it little thought. Instead, eccentric economic theories advocating for a 2 percent inflation rate are repeated without hesitation.
The notion that 2 percent inflation is essential to avoid falling into a so-called “liquidity trap” seems far-fetched. The rationale remains unclear but likely involves managing debt burdens through ongoing currency devaluation.
The implications of this situation are a subject worth contemplating. If you missed it, earlier this week offered a fleeting glimpse into an outright freak show…if only for a moment.
When the Freaks Run Wild
The Bank of Japan (BOJ) stands as the leading architect of modern fiscal and monetary absurdity. For decades, the BOJ has implemented mass money debasement policies aimed at preventing the deflationary aftermath following the collapse of a cheap credit-driven asset bubble nearly 30 years ago.
Pioneering various absurd strategies—such as quantitative easing and negative interest rates—the BOJ has also mastered the direct acquisition of Japanese stocks via exchange-traded funds. While these efforts have not succeeded in invigorating Japan’s economy, they have produced several noteworthy outcomes.
Japan’s government debt has surpassed 250 percent of its GDP. Furthermore, the BOJ owns over 40 percent of the country’s government bond market. Remarkably, the BOJ has acquired this vast array of government bonds with money they essentially conjure from nothing. Such figures, undoubtedly, represent absurdities.
It is evident that the central planners at the BOJ operate a meticulously orchestrated monetary system. Very little resembles a free market within the BOJ’s framework of ‘yield curve control.’ However, this does not imply that chaos does not lie beneath its surface.
Earlier this week, the BOJ ever so slightly opened a window into its monetary policy freak show. The central bank increased the allowable yield cap on 10-year Japanese Government Bonds (JGBs) from 0.1 percent to 0.2 percent.
As a result of this adjustment, JGBs experienced a sell-off, with yields spiking by 6 basis points to 0.12 percent—surpassing the previous 0.1 percent limit on the very first trading day after the adjustment.
Considering the BOJ’s extensive monetary interventions over the years, one could argue that yields of 0.1 percent and 0.2 percent on 10-year JGBs are astonishingly absurd. But one must ask, what do we truly know?
If yields aggressively test the new 0.2 percent cap, will the BOJ be able to maintain control? Or will chaos reign as the absurdity escalates?
Only time will tell.
Sincerely,
MN Gordon
for Economic Prism
