The Linguistic Psychology of Misinformation and Why a Treasury Bond Bubble Unquestionably Exists

I hate using the term “boom-bust” to describe a period of
capital market appreciation and then collapse, for the use of this term is very
deceptive to the reality of economic conditions. Intentionally or not, using
this term helps to brainwash the masses into believing the agenda of the
Keynesian economists that an economic “boom” is occurring when in fact massive
price distortions only create the illusion of “prosperity” when none exists.
When we hear the term “boom”, most of us associate economic prosperity with its
use. When we hear the word “bust”, most of us associate this term with the end
of economic prosperity.  The Great
Deception that occurs, of course, is that there can be no “bust” when there was
no “boom” to begin with. The use of the “boom/bust” term to describe a period
of rapid price appreciation and then decline is every bit as problematic as the
current media use of the “double-dip recession”.  Just as a double-dip is impossible if the economy never
emerged from the first phase of the recession, a “bust” is impossible when
there never has been a “boom”. 

Anyone that uses the term “boom-bust” contributes to this
misunderstanding of what really happens during this appreciation/ depreciation
cycle and assists in keeping the sheep misinformed. Much more accurate terms to
describe this cycle would be “inflationary/deflationary”, “malinvestment-driven
distorted-price mania/ price collapse meltdown” or even “bubble/bust”. Although
my least favorite of those three pairs is “bubble/bust” at least the word
“bubble” implies unsustainability and is therefore accurate in describing
Central Bank monetary policy-driven periods of rapid price appreciation in
capital markets. Any of these aforementioned terms among countless others would
serve to enlighten the public to the reality of the mechanisms behind
artificially-created steep capital market rises and artificially-created
collapses much more than the inappropriate and extremely deceptive “boom-bust”
term.

However, here is the problem with the world “bubble”.
Financial shills often use the term “bubble” to conjure up images of imminent
collapse. Thus, if the “bubble” doesn’t burst within two weeks of someone’s “bubble”
proclamation, then this non-event provides loads of verbal ammunition for the
financial shills to improperly validate their erroneous viewpoint that a bubble
does not exist. It provides perfect fodder for the shills to attack someone
that courageously tries to inform others of a hazardous bubble situation as
someone that has no idea what he or she was talking about.  Of course, when the bubble eventually
does pop, these shills never bother to reminisce about their dozens of
erroneous predictions over the past several years, and proceed to continue to
fool as many sheep as they can with future declarations of unjustified
recovery.

Most importantly, financial shills NEVER discuss the
mechanisms by which bubbles in capital markets are created. If they discussed
the mechanisms behind the creation of bubbles, then people would realize that Central
Banks’ assumption of low and ARTIFICIAL interest rates goad months/years of
malinvestment into capital markets. In return, this excess of cash created by
Central Banks chases assets and creates enormous price appreciations, that in
reality, could never occur under free market conditions. When Central Banks
discuss the fear that raising interest rates will end economic prosperity, this
is not what is at stake here. As I already explained, Central Banks create
massive distortions in prices that are only sustainable by creating more
massive distortions in prices. Central Banks fear raising interest rates in
these situations because doing so will end the ARTIFICIAL period of massive
price distortion it has created. If the public understood this, then they would
understand that timing should never factor into the definition of a bubble, though
the media seems to give great heed to the timing element whenever a bubble is discussed,
as if it is impossible for a bubble to exist if it does not burst one month
after a bubble declaration is made. If the conditions I just described exist, a
bubble exists. And whether this bubble implodes two days later or a year later
does not preclude the FACT that the ramp up in prices in this asset class was:

(1) Artificially created by Keynesian economic principles;

(2) Unsustainable;

(3)
Would never exist if free markets, and not Central Banks were setting interest
rates; and

(4) Destined to implode.

And when bubbles implode, I cannot agree with the oft-given
explanation that massive amounts of wealth are being destroyed during this
time. I aver that not wealth, but only massive price distortions, are being
destroyed. For example, consider a scenario in which you bought a home for a
million dollars.  In five years,
the value of your home appreciated to $2 million because of a massive real
estate bubble created by the Fed Reserve. In the sixth year, the real estate
bubble collapsed, and the value of your house dropped precipitously and rapidly
to $1.2 million. Housing “experts” will ride the boom-bust explanation of the
RE market to inform you that trillions in real estate wealth had just been
destroyed. This is not real wealth as these price distortions were never
sustainable and were never a function of supply and demand, but a direct result
of greed and speculation driven by artificially ludicrous interest rates set by
Central Banks.

So let’s look at the current US Treasury Bond bubble and try
to understand why many experts claim that no “bubble” exists and that all is
well in the US bond market (an irresponsible statement, that in my opinion,
should be adequate to forever revoke their journalism license).  In light of the definition of “bubble”
that I have provided in this article, any fund manager or investment firm
strategist that does not understand that the Treasury bond market is a massive
“bubble” should be banned from ever providing clients with advice on the bond
market. A stable bond market is as inappropriate a term as possible to describe
the current state of affairs of the US government bond market.  As surely as the inappropriate use of
the term “strong dollar” proves that the person using this term has no idea
that a fiat currency can rise relative to other currencies against which it is
measured without ever “strengthening”, the argument against the existence of a
Treasury bond bubble today exposes a person for his or her lack of understanding
about the mechanisms of US Central Bank monetary policies.

Of course, timing the bursting of a bubble correctly is
paramount to making money from the side-effects of unsustainable Central Bank
monetary policies. However, this is an entirely different issue than whether or
not a bubble exists. Many investment strategists are unequivocally claiming
today that a bubble in the US Treasury bond market does not exist. A bubble in
the US Treasury Bond market undoubtedly exists. The only question now is how
big the sound will be when it eventually pops.

About the author: JS Kim is the founder and managing
director of SmartKnowledgeU, a fiercely independent wealth consulting and
research company.

Comments

[Ace Ventura]

I could be misinterpreting here, but I believe the point is that bonds have no value beyond the vaporous 'faith and credit of the US Gubment', whereas other investments normally represent something of value in the physical world, whether a share of company or commodity.

The f**ked up part about this is that the bond 'bubble' is being driven by the sort of uncertainty (fear?) that has literally made investors consider the 'faith in the promise of gubment' as MORE secure than anything else.

In the words of Mogambo Guru:

'We're Freakin' Doomed!' (WFD)

[doggings]

Uhmm, nothing other than taxing authority over the world's largest and most  imaginary economy.

there I corrected it for you. all it actually produces any more is more debt and imaginary paper derivative nonsense based on that

[hardmedicine]

doggings, I dejunk you because while everyone believes in the power of "taxation" it is just that..... a "magical power"... and is NOT tangible.  Therefore your statement is still logically and precisely correct.  Paper is just that....... only meaningful while the Matrix remains plugged in.