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Swamponomics: Fed Flunks Econ 101

How not to re-brand a product, how white leftists ruin everything, and the Fed flunks basic economics.

Consumers can say goodbye to the iconic Mr. Potato Head, as the beloved toy received a modern update – sort of. After some initial confusion over Hasbro dropping Mr. from the brand to ensure “all feel welcome in the Potato Head world,” the company clarified on Twitter that Mr. and Mrs. Potato Head are not going anywhere. Instead, the toy is being re-branded as the “Potato Head,” with a new logo.

Go Woke Go Broke?

That said, progressives are cheering the news, calling it a “new standard.” But is this a cynical attempt to generate buzz for an outdated product? Going woke is one of the best marketing ploys today since it inevitably sparks social media controversy. One side will laugh at the desperation to appeal to a militant social justice demographic, while the other will feel all warm and fuzzy inside by so much inclusion. Whether this translates to sales or not remains to be seen. Will this be a spud-tacular success? Or are taters just gonna tate?

The Art of the Boom and Bust

A new industry has been born in the era of near-zero interest rates: Reselling art loans to investors.

Over the last year, a growing number of wealthy art collectors are taking advantage of low rates by borrowing against their Monets, Mauves, and Munchs, triggering concerns of a leveraged boom and bust in the bubblelicious art market.

CNBC reported that The Fine Art Group, an art advisory and finance firm, confirmed that loan requests spiked 30% last year as affluent collectors borrowed against their collections to either invest in more art or apply these funds to new uses in other sectors. Bank of America, Goldman Sachs, and JPMorgan Chase reported strong growth in their art loan businesses over the last 12 months, too.

But why? Many art collectors have an enormous amount of capital tied to their art collections, and these individuals want to employ those funds for other endeavors. This is leading to a boom for big banks, art finance entities, and auction houses as they expand their loan businesses and attract more clients. The terms are for a year, and borrowers receive about half of their artwork’s appraised value.

Art lending is valued at approximately $20 billion, despite privately held art estimated to be a roughly $2 trillion niche. That said, industry observers predict that this relatively new credit market could soon be worth as much as $400 billion.

But this financing palate could face a notable risk in the future: Reselling art loans to investors. The online investing platform, Yieldstreet, recently introduced Diversified Art Fund 1, an $11 million junior loan product that pools together art loans. So far, the company has sold close to $40 million in loans, with a targeted net return of 9.5%.

For years, financial analysts had sounded the alarm regarding the art market functioning in a “mania phase” and a bubble on the cusp of bursting. Some say that the bubble had burst in 2016 when valuations cratered 11% worldwide. Does this mean the speculative asset has been renewed? This economy is all about the bubblemania – and it will soon paint its masterpiece.

Fed Flunks Econ 101

Does money-printing lead to inflation? Not anymore, says Federal Reserve Chair Jerome Powell, who recently delivered his semi-annual testimony to Congress. It was considered a success because it allowed the stock market to catch its breath after Powell confirmed the central bank’s commitment to its current monetary policy stance: historically low interest rates, ultra-aggressive accommodation, and money-printing are here to stay. But the testimony was gripping for another reason: Powell does not believe creating money out of thin air leads to inflation.

When asked by Rep. Warren Davidson (R-OH) about the negative consequences to the dollar by raising the M2 money supply by 25% in one year, Powell replied that monetary policy aggregates are no longer “important determinants of inflation” and it “has not been the case for a long time.”

“The correlation between different aggregates [like] M2 and inflation is just very, very low, and you see that now where inflation is at 1.4% for this year. Inflation dynamics evolve over time, but they don’t tend to change overnight,” he added.

Powell conceded that the Eccles Building does anticipate some levels of inflation from the base effects and pent-up demand in the consumer economy. “So while you could see prices move up, that’s a different thing from persistent, high inflation, which we do not expect. If we do get it, we have the tools to deal with it,” Powell noted.

It turns out that the death of currencies in the Weimar Republic, Zimbabwe, Venezuela, North Korea, and other nations were from causes unknown, and not because these central banks ramped up the printing press. And this is coming from the head of the most powerful institution in the world. May God have mercy on the fiat empire if this is conventional thinking among the smartest men and women in the room.

~

Read more from Andrew Moran.

Read More From Andrew Moran

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