Money Supply

The central banks are simply trapped. They have bought in bonds under the theory that this will stimulate the economy by injecting cash. But there are several problems with this entire concept. This is an elitist view to say the least for the money injected does not stimulate the economy for it never reaches the consumer. This attempt to stimulate by increasing the money supply assumes that it does not matter who has the money... The attempt to “manage” the economy from a macro level without considering the capital flow within the system is leading to disaster.

Long term risk has increased quite a bit, no matter which data points one happens to consider. Whether one looks at valuations, market internals, leverage or positioning, there are now more warning signs than ever. With the support provided by strong money supply growth declining as well, it becomes ever more likely that these potential dangers will actually materialize. It is an accident waiting to happen.

Even despite the saturation criminality that readers have already seen, many will still argue that we “need” these Big Banks, and that we even “need” fractional-reserve (no reserve) fraud.

The decline in broad true money supply growth below the lower end of its 2 year long range is a major crack in the echo bubble edifice. Very likely it is the most important one yet.

It may be a holiday shortened week in the US with Thanksgiving and Black Friday sales on deck (some of which may be starting as soon as Wednesday) but there is a lot of macro data to digest in the next few days.

All great monetary fiascos are forged upon a foundation of misperceptions and flawed premises. There’s always an underlying disturbance in money and credit masked by supposed new understandings, technologies, capabilities and superior financial apparatus. The notion back in 2006 and 2007 that the world was at the brink of a major crisis was considered absolute wackoism. Incredibly – and well worth contemplating these days - virtually no one saw the deep structural impairment associated with the protracted Bubble in “Wall Street Finance.” An even more momentous monetary fiasco has been perpetrated since the 2008 crisis, constructed upon a foundation of even more outlandish misperceptions and flawed premises.

Dear Mr. President, your country faces a stagnating economy... The truth is it is too late for our politicians to act, because the speculative peak that precedes the crisis is already upon us.

"So much of what we now accept as routine in financial markets would have been thought impossible prior to the 2008 crisis ?- the next logical stage in the global currency war will be direct fx intervention!"

- Albert Edwards

China’s producers couldn’t get the prices they wanted anymore, as early as 4 years ago, and that’s where deflationary forces came in. No matter how much extra credit/debt was injected into the money supply, the spending side started to stutter. It never recovered.

Moments ago, the in a 241-185 vote, the House passed passed H.R. 3189, aka  Fed Oversight Reform and Modernization Act. The bill would make changes to how the Fed conducts monetary policy and regulatory activities and would direct the Fed to take a rules-based approach to interest rate decisions; require audits of more Fed functions such as monetary policy; and place restrictions on its emergency lending powers. In other words, everything that the banks that are direct and indirect stakeholders in the Fed would fight to the death to prevent.

There are seemingly always “good reasons” why troubles in a sector of the credit markets are supposed to be ignored – or so people are telling us, every single time. Some still recall how the developing problems in the sub-prime sector of the mortgage credit market were greeted by officials and countless market observers in the beginning in 2007. Meanwhile, the foundation of the economy continues to look rotten (the newest round of Fed surveys has begun with another bomb and other manufacturing-related data continue to disappoint as well). This isn’t going to end well, if history is any guide.

Today’s system is essentially a system that can drift ever further away from reality through temporal discoordination, resource misallocation and eventually capital consumption. The final coordinating mechanism is nothing less than economic recession. Without them society would regress, impoverishing first the poor, then the middle class and in the end all socioeconomic layers of society.

Last week, we asked if silver would have a 14 handle again. This week, the market answered yes we can! How did we know? By looking at supply and demand.

The cries for going totally crazy are growing louder... the lunatics are running the asylum. One shouldn’t underestimate what they are capable of. The only consolation is that the day will come when the monetary cranks will be discredited again (for the umpteenth time). Thereafter it will presumably take a few decades before these ideas will rear their head again (like an especially sturdy weed, the idea that inflationism can promote prosperity seems nigh ineradicable in the long term – it always rises from the ashes again). The bad news is that many of us will probably still be around when the bill for these idiocies will be presented.