We are heading for a crisis that will be exponentially worse than 2008. The global Central Banks have literally bet the financial system that their theories will work. They haven’t.
Luckily we didn't hear anything more about Vomiting Camel formations but there was certainly an ample amount of "it's priced in" blaring in the background.
Having recently explained (in great detail) why QE4 (and 5, 6 & 7) were inevitable (despite the protestations of all central planners, except for perhaps Kocharlakota - who never met an economy he didn't want to throw free money at), we found it fascinating that no lessor purveyor of the status quo's view of the world - Citigroup's chief economist Willem Buiter - that a global recession is imminent and nothing but a major blast of fiscal spending financed by outright "helicopter" money from the central banks will avert the deepening crisis. Faced with China's 'Quantitative Tightening', the economist who proclaimed "gold is a 6000-year old bubble" and cash should be banned, concludes ominously, "everybody will be adversely affected."
The virtuous circle that has sustained the dollar and buoyed USD assets for decades has definitively been broken. Now, with China's Treasury liquidation serving to exacerbate the pressure from the demise of the petrodollar, it's critical to take stock of accumulated petrodollar reserves in order to understand how large the unwind could ultimately be in a worst case scenario. As it turns out, narrowly focusing on official FX reserves could understate the size of petrodollar accumulation by some $2.5 trillion.
Simply put, a perfect storm of failing trends...
So why did debt levels rise so dramatically after the final central bank restraint was removed? It is essentially due to the massive subsidy central bankers provided. If you tax a thing you get less of it (think all the tax on labour) but if you subsidise it you will get more of it. As time went by, debt obviously grew ever larger and eventually large enough to become an integral part of the business cycle. In other words, central banks could not stop the subsidy for fear of creating, well, a 2008 financial meltdown.
The more we think about it, the less the classical division between microeconomics (which studies the behavior of individuals and production entities) and macroeconomics (which deals with the performance of the economy as a whole and not its individual markets and components) makes any sense - certainly not in the 21st century. And in our view it is this disconnect between the two that is at the heart of the failure of Keynesian economics – which at best is incomplete and at worst is all just baloney.
You can't say Nassim Taleb didn't warn you: the outspoken academic-philosopher, best known for his prediction that six sigma "fat tail", or black swan, events happen much more frequently than they should statistically (perhaps a main reason why there is no longer a market but a centrally-planned cesspool of academic intervention) just had a black swan land smack in the middle of the Universa hedge fund founded by ardent Ron Paul supporter Mark Spitznagel, and affiliated with Nassim Taleb. The result: a $1 billion payday, translating into a 20% YTD return, in a week when the VIX exploded from the teens to over 50, and which most other hedge funds would love to forget.
"The PBoC’s actions are equivalent to an unwind of QE, or in other words Quantitative Tightening. The potential for more China outflows is huge [and] the bottom line is that QT has much more to go. It is hard to become very optimistic on global risk appetite until a solution is found to China’s evolving QT."
People have their hopes and dreams tied on a quarter of a percent. That’s how ridiculous things have become. People are so horrified that if money isn’t absolutely free that all hell will break loose—that people are going to go broke, the market’s going to crash, and that there won’t be any jobs. That’s a pretty sad state of affairs, and it is by no stretch of the imagination the foundation for a free and prosperous nation. It is the height of central planning and it is a form of economic tyranny.
"You take the blue pill, the story ends. You wake up in your bed and believe whatever you want to believe. You take the red pill, you stay in wonderland, and I show you how deep the rabbit hole goes." - Morpheus, The Matrix
News That Matters
One of the greatest con jobs in history was convincing ordinary people that Central Bankers care about the “economy” or Main Street.
The private economy and its millions of savers exist for the convenience of the apparatchiks who run the central bank. In their palpable fear and unrelieved arrogance, would they now throw millions of already ruined retirees and savers completely under the bus? Yes they would.
Earlier this week, as the financial world was mesmerized by a min-stock market crash, the Financial Times published a dastardly little piece of fascist propaganda titled, The Case for Retiring Another “Barbarous Relic.” When you start to see increased propaganda about banning cash, you know the status quo is very scared and things are getting very serious. You’ve been warned.