When Luna Met Terra
On Friday, we focused on incompetence at the Fed. Ms Loretta Mester, for example, has been carefully cloistered in the Fed convent since 1985. There, protected from real life, she has spent her whole career.
And now, she’s called upon to protect the dollar, the world’s reserve currency, and the whole global economy that depends on it. All wet and wobbly, innocent, and ignorant, like a freshly dropped calf, she rises to the challenge:
‘OK…we’ll…like…try a 0.5% rate increase’, she says [this is not a direct quote], ‘and…like…see what happens?’
Today, we expand our coverage of the deficiency and ineptitude of the whole caste of nitwits and grifters who rule us. We take up the issue partly for amusement…and partly because it connects some important dots.
Why do our functionaries seem like such morons; why are their policies so obviously dumb? Why do both political parties go along with the worst policies?
Why — when we should be getting richer than ever — are we actually getting poorer?
And how have our elite institutions — the Fed, the Supreme Court, the military — been enfeebled and weaponised by politics? (We recall, for example, when Supreme Court justices were selected for their constitutional knowledge and almost unanimously approved by the Senate. Now, they’re chosen based on race, gender, and/or ideology…and only approved after a fierce political battle.)
Most importantly, we will clearly see why — when push comes to shove — the Fed will roll over.
Crapola to crapola
Societies always develop their own elites…their aristocracies…their nomenklatura.
And these elites then tend to become overpowerful, overconfident, over-corrupt, overcompensated, and overprotected. They gradually get cut off from ‘the people’ they govern, with pensions and perks far beyond those of ordinary citizens…and they become more and more heavy-handed in their efforts to hold onto power.
But for all their power and supposed expertise, there are much the rulers can’t rule. They cannot improve the sweetness of a kiss, for example: nor prevent a bubble from finding its pin.
Dust to dust…ashes to ashes…and crapola back to crapola, whence it came. Despite the most monumental, reckless, and determined effort on the part of the Fed…the markets are losing air.
The Russell 2000 Index and the Nasdaq have given up all their 2021 gains.
The S&P 500 is off to the worst start of any year since 1932.
From its highs in 2021, QuantumScape is down 85%. Workhorse is down 87%. Peloton, MINUS 91%. Pinterest off 67%. Twilio is down 70%.
Rivian is down 86% from its high. Nikola, -93%. The electric vehicle may be the future. But the future has stalled. Lucid is down 72%…and even Tesla has lost 36% of its peak value.
And cryptocurrency may be the money of the future, too. But in the here and now, people want dollars.
‘When the money goes, everything goes’ is a dictum here at the Letter. And one of the first things that went when the Fed began diddling the economy was common sense. And not just among public employees. Common sense was suffocated by claptrap and gobbledygook everywhere.
Back down to Earth
For example, in the crypto world, a fellow named Do Kwon, otherwise known as the ‘King of the Lunatics’, created a remarkable new form of money. It was actually two made-up ‘currencies’…one with its feet on the ground, Terra, promising to be ‘stable’ and linked to the dollar by the second one, Luna, which was somewhere lost in space. The idea was self-evidently absurd. Luna would trade on the open market, as all cryptos do. And then, to make sure your Terra was always worth a dollar, you could exchange it for a dollar’s worth of Luna. And vice versa.
But wait…what made Luna worth a dollar…or anything at all?
That was the catch. Nothing guaranteed that Luna would have any value. If Luna fell in value, Mr Do Kwon assured buyers that they would get more of them. He could create as many Lunas as needed; he pointed out…as if he could turn a zero into a positive number simply by adding more zeros.
But increasing the quantity of nothing didn’t turn it into something. And last week, both the Terra and the Luna were headed into the void.
Mr Do Kwon isn’t going down without a fight, however. He tweeted:
‘The Terra ecosystem is one of the most vibrant in the crypto industry, with hundreds of passionate teams building category defining applications within. As long as these builders, TFL among them, continue to build — we will come out of this together.
‘Terra’s focus has always oriented itself around a long-term time horizon, and another setback this May, similar to last year, will not deter the #LUNAtics. Short-term stumbles do not define what you can accomplish.’
It’s how you respond that matters.
Terra’s return to form will be a sight to behold.
But at this stage, Terra’s holders might not want more BS about the ecosystem or the passionate teams that are working there. The sight they’d like to behold is the return of their money.
More to come…
For The Daily Reckoning Australia