Underneath the Propaganda, the Economy Is In BAD SHAPE …
"This last 1900 point Dow Jones push upwards - and the Ebola events leading into it - it was so orchestrated and heightened at critical points but the ascent and push straight up in price, and sideways nonreaction after was completely unlike anything I've seen before. After going up for a record-breaking amount of time the last five or so years, in a nonlinear exponential mania type of ascent, there should normally be tremendous volatility that follows... After this year and especially this last 1900 point Dow run up in October, and post non-reaction, that I am 100 percent confident that that one buyer is our own Federal Reserve or other central banks with a goal to "stimulate" our economy by directly buying stock index futures."
What's Really Happening?
When we last looked at the amount of $100 bills printed by the Treasury's Bureau of Engraving and Printing, we were a little concerned because it appeared that the Fed's infatuation with growing bank reserves had finally spilled over into the physical money printing arena, after a record 4.4 billion $100 bills were printed just a year after the Treasury had, at the Fed's request, printed another 3 billion of the new banknotes. In retrospect this wasn't a case of the Fed wishing to unleash Weimar upon the US - at least not yet - but merely part of the ongoing process of replacing old $100 bills with the new "plastic" ones. This amounted to over $750 billion in new $100 bills alone being unleashed on the market, well over half of the entire amount of US paper currency in circulation.
Extend the trendlines in these charts, and then ask yourself: where do they end? What will they trigger as they push ever deeper into uncharted waters?
For a long time, Fed printing via balance sheet expansion has been the key to understanding markets and the predominant driver that has trumped all other matters. Investors have been able to ignore significant global events, tensions, and economic conditions in faraway places, because a lower real and perceived risk premium from implicit Fed promises was the single most important aspect driving asset prices higher. This game is quickly coming to an end. As the Fed’s asset purchase program ends next month, global events and global economic fundamentals will have to be taken into account and priced accordingly.
The pool of greater fools willing and able to buy assets at higher prices with leveraged free money has been drained by six years of credit/risk expansion. Those who believe the stock market can continue rising despite the end of the Fed's "free money for financiers" programs are implicitly claiming that the pool of greater fools is still filled to the brim. Simply put, speculating with leveraged free money and extending credit to marginal borrowers is not sustainable or productive, and the stock market seems poised to reflect these three dynamics...
Back in 1930, Keynes looked out into the future and saw that with the proper management of the economy, monetary policy and the like, the world could attain a type of utopian stasis: Keynes expected growth to come to an end within two to three generations, and the economy to plateau. He referred to this imaginary state of equilibrium as "bliss," noting “thus for the first time since his creation man will be faced with his real, his permanent problem - how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well." However, Keynes did say this would happen if mankind avoided any calamitous wars and if there was no appreciable increase in population. Two more flawed base assumptions there could not have been.
The Fed’s strategy of targeting higher stock prices to boost economic growth has done the exact opposite. This strategy has pulled money away from effective macroeconomic investments and into ineffective macroeconomic albeit effective short term microeconomic investments. The end result is that we have all time high stock prices but no economic growth. We will be stuck in this economic lull until the Fed is ready to admit defeat and allow for a new more effective strategy to be implemented.
A recent Fed paper reports that the Fed's wild money printing orgy has failed to produce much CPI inflation because “consumers are hoarding money”. It is said that this explains why so-called "money velocity" is low. Sadly, they are misinformed: In short, “hoarding” cannot possibly harm the economy. The same, alas and alack, cannot be said of money printing.
The Status Quo is desperate to mask the declining fortunes of those who earn income from work, and the Misery Index 2.0 strips away the phony facade of bogus unemployment and inflation numbers.
Under the imposition of StealthFlation, the Velocity of Money lies dormant while increasing Inflationary risks build below the surface.
Before you jump on the Bull market bandwagon of "don't fight the Fed," perhaps you should take a look at the quality of the debt the Fed has enabled and the diminishing returns on all that debt.
Benzinga noted on June 27, 2014 “The demand created by Abenomics, along with the demand rush prior to a hike in consumption tax, is viewed as fleeting by corporations”
Ghandi was once asked, "What do you think about Western Civilization?" to which he famously replied "I think it's a good idea." He may as well have been talking about free market capitalism. Capital in the 21st Century has hit the world like a new teen idol sensation. Everybody is drinking the Kool-Aid and it's being held up as the most important book ever written on the subject of how runaway capitalism leads to wealth inequality. Paul Krugman of course, loves it. As does every head of state and political hack in the (formerly) free world. So let's do something different here and accept a core premise of Capital, and say that wealth inequality is increasing, and that it's a bad thing. Where the point is completely missed is in what causes it (ostensibly "free market capitalism") and what to do about it (increase government control, induce more inflation and raise taxes). The point of this essay is to assert that it is not unchecked capital or runaway free markets that cause increasing wealth inequality, but rather that the underlying monetary system itself is hard-coded by an inner temple of ruling elites in a way which creates that inequality.