Warning: This is How Advanced Civilizations Go Downhill Fast

Since gradualism, can-kicking, and carefully choosing words seems to be all the rage among both Fed Chair Jay Powell and many inflation-will-recede-sooners, allow me to be blunt: America was this close to rampant, runaway hyperinflation in the late-1970s until former Fed Chair Paul Volcker summoned the intestinal fortitude to be the bad guy and raise rates aggressively to intentionally bring on a deep economic recession in order to crush inflation fully. If he did not do that, and we will never know for certain of course, I strongly suspect America would look like a much different place than it did in the 1980s, 1990s, and by inference in this century. 

Simply put, as current Fed Chair Jay Powell continues to pussyfoot around the idea that he will need to aggressively tighten and reduce The Fed's balance sheet, each day that passes America is teetering on a sucker punch type of runaway inflation which will feature the GameStop funny, and cute short squeeze/memes that we saw last year suddenly morph into a not-so-cute, not-so-funny squeeze in crude oil, wheat, corn, and a plethora of other real assets, which naturally has far-reaching real world ramifications. 

The nasty irony of the GME squeeze thirteen months ago is that it may very well prove to be a sneak preview of a horror film, rather than the feel-good "screw the suits!" genre it was billed as at the time.

Indeed, a world where liquidity issues run rampant and The Fed's extreme interventionalist approach while clearly overstaying their welcome in both QE and ZIRP means virtually all assets are at risk now of extreme dislocations going forward.

The reason why I reiterate these views now is given Powell's soft stance again this morning in front of Congress where he essentially remained on the dovish tilt and assumed a 25 basis point baby rate hike will somehow function as a panacea to cure inflation. It will not, and the further he maintains this mindset the further behind the curve he falls.

What Powell needs to acknowledge is that he MUST embrace being the villain in this cycle, just like Volcker did, in order to be considered a hero in the future. The only way out is by hiking and tightening aggressively. Otherwise, do not be surprised to see oil at $150, then $200.

Much like with GME itself, the nasty irony is if Powell insists on staying as the lovable dove hero, he will be remembered ultimately as the villain.   

All of this may seem trivial given today's market action, as we squeeze higher and the S&P 500 may have a date with 4400, or even 4500, above. But I think you will find, in due time, that this is no laughing matter. Advanced, legendary civilizations have folded like cheap suits under the pressure of runaway inflation.

To think America would be the grande exception now is nothing more than a case study in hubris.

I have not control over The Fed and what Powell chooses to do. But I did want to use my small corner of the world here at Market Chess to at least put the proverbial pen to paper with a timely warning before the concept of gradual, small rate hikes and postponing balance sheet reduction is exposed for its impotence.