Guest Post: We're Heading For Economic Dictatorship

Tyler Durden's picture

Authored by Janet Daley via the Ludwig von Mises Institute of Canada (originally posted on The Telegraph),

Forget about that dead parrot of a question – should we join the eurozone? The eurozone has officially joined us in a newly emerging international organisation: we are all now members of the Permanent No-growth Club. And the United States has just re-elected a president who seems determined to sign up too. No government in what used to be called “the free world” seems prepared to take the steps that can stop this inexorable decline. They are all busily telling their electorates that austerity is for other people (France), or that the piddling attempts they have made at it will solve the problem (Britain), or that taxing “the rich” will make it unnecessary for government to cut back its own spending (America).

So here we all are. Like us, the member nations of the European single currency have embarked on their very own double (or is it triple?) dip recession. This is the future: the long, meandering “zig-zag” recovery to which the politicians and heads of central banks allude is just a euphemism for the end of economic life as we have known it.

Now there are some people for whom this will not sound like bad news. Many on the Left will finally have got the economy of their dreams – or, rather, the one they have always believed in. At last, we will be living with that fixed, unchanging pie which must be divided up “fairly” if social justice is to be achieved. Instead of a dynamic, growing pot of wealth and ever-increasing resources, which can enable larger and larger proportions of the population to become prosperous without taking anything away from any other group, there will indeed be an absolute limit on the amount of capital circulating within the society.

The only decisions to be made will involve how that given, unalterable sum is to be shared out – and those judgments will, of course, have to be made by the state since there will be no dynamic economic force outside of government to enter the equation. Wealth distribution will be the principal – virtually the only – significant function of political life. Is this Left-wing heaven?

Well, not quite. The total absence of economic growth would mean that the limitations on that distribution would be so severe as to require draconian legal enforcement: rationing, limits on the amount of currency that can be taken abroad, import restrictions and the kinds of penalties for economic crimes (undercutting, or “black market” selling practices) which have been unknown in the West since the end of the Second World War.

In this dystopian future there would have to be permanent austerity programmes. This would not only mean cutting government spending, which is what “austerity” means now, but the real kind: genuine falls in the standard of living of most working people, caused not just by frozen wages and the collapse in the value of savings (due to repeated bouts of money-printing), but also by the shortages of goods that will result from lack of investment and business expansion, not to mention the absence of cheaper goods from abroad due to import controls.

And it is not just day-to-day life that would be affected by the absence of growth in the economy. In the longer term, we can say good-bye to the technological innovations which have been spurred by competitive entrepreneurial activity, the medical advances funded by investment which an expanding economy can afford, and most poignantly perhaps, the social mobility that is made possible by increasing the reach of prosperity so that it includes ever-growing numbers of people. In short, almost everything we have come to understand as progress. Farewell to all that. But this is not the end of it. When the economy of a country is dead, and its political life is consumed by artificial mechanisms of forced distribution, its wealth does not remain static: it actually contracts and diminishes in value. If capital cannot grow – if there is no possibility of it growing – it becomes worthless in international exchange. This is what happened to the currencies of the Eastern bloc: they became phoney constructs with no value outside their own closed, recycled system.

When Germany was reunified, the Western half, in an act of almost superhuman political goodwill, arbitrarily declared the currency of the Eastern half to be equal in value to that of its own hugely successful one. The exercise nearly bankrupted the country, so great was the disparity between the vital, expanding Deutschemark and the risibly meaningless Ostmark which, like the Soviet ruble, had no economic legitimacy in the outside world.

At least then, there was a thriving West that could rescue the peoples of the East from the endless poverty of economies that were forbidden to grow by ideological edict. It remains to be seen what the consequences will be of the whole of the West, America included, falling into the economic black hole of permanent no-growth. Presumably, it will eventually have to move towards precisely the social and political structures that the East employed. As the fixed pot of national wealth loses ever more value, and resources shrink, the measures to enforce “fair” distribution must become more totalitarian: there will have to be confiscatory taxation on assets and property, collectivisation of the production of goods, and directed labour.

Democratic socialism with its “soft redistribution” and exponential growth of government spending will have paved the way for the hard redistribution of diminished resources under economic dictatorship. You think this sounds fanciful? It is just the logical conclusion of what will seem like enlightened social policy in a zero-growth society where hardship will need to be minimised by rigorously enforced equality. Then what? The rioting we see now in Italy and Greece – countries that had to have their democratic governments surgically removed in order to impose the uniform levels of poverty that are made necessary by dead economies – will spread throughout the West, and have to be contained by hard-fisted governments with or without democratic mandates. Political parties of all complexions talk of “balanced solutions”, which they think will sound more politically palatable than drastic cuts in public spending: tax rises on “the better-off” (the only people in a position to create real wealth) are put on the moral scale alongside “welfare cuts” on the unproductive.

This is not even a recipe for standing still: tax rises prevent growth and job creation, as well as reducing tax revenue. It is a formula for permanent decline in the private sector and endless austerity in the public one. But reduced government spending accompanied by tax cuts (particularly on employment – what the Americans call “payroll taxes”) could stimulate the growth of new wealth and begin a recovery. Most politicians on the Right understand this. They have about five minutes left to make the argument for it.

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Zer0head's picture


we are fucking there and have been for years

flacon's picture

> endless poverty of economies that were forbidden to grow by ideological edict.


That's a great way to phrase it. 

Michaelwiseguy's picture

We all take for granted the heavy hand of our government employees. This is what we do about it, by teaching those public employees to know their role;

We should have required "Presumption of Freedom, Presumption of Innocence of American Citizens Sensitivity Training", administered through human resource departments of all government agencies.

These classes will include the citing of law that backs up and reinforces the training topics covered in the lessons.

I'll have more on this subject as I develop my new realm of education for government employees.

I'm starting this New Entrepreneurial business today and invite you to participate and join me in this endeavor.

docj's picture

by teaching those public employees to know their role

They know their role. Perfectly well, in fact. Anyone who believes they are going to "teach" public employees anything has never had the misfortune to sit across the bargaining table from their union representatives.

Michaelwiseguy's picture

We can pass a law requiring public employee role teaching. Everyone who works for a fortune 500 company has to sit through the social engineering sensitivity training lessons. Lots of companies specialize in this field. They can add another course study to their specialties for public employees, especially for those who work in law enforcement. There's money to be made in this business.

Preventing Harassment and Discrimination, Connecting With Respect
Developed as a practical and easy-to-implement workshop for organizations ready for a different kind of “diversity” training, Connecting with Respect represents the newest and most original approach to cultural excellence in decades.

Respectful Workplace





economics9698's picture

The best public sector employment policy would be that no government, federal, state, or local employees, with a few exceptions, cops, firefighters, be hired under the age of 50.

Problem solved.


LetThemEatRand's picture

Not that I completely disagree with you (mostly, but probably not completely), but would you please explain how your income as a government contractor should be exempt from your rules?  Or do you see a difference between working directly for the government versus being paid by the government through the "private sector?"  If so, what is the fucking difference when it comes to your point?

DISCLAIMER:  unlike you (a government contractor who constantly bitches about government handouts), I own my own private business and do not receive government handouts.

Michaelwiseguy's picture

There is a difference.  Charter school employees come to mind.

Only people who are employed by governments through subcontractors that have direct contact physically with the public that employ them, will be required to have public interaction sensitivity training. If they have a problem with it, those private companies are perfectly free to conduct their business exclusively in the private sector as they see fit.

LetThemEatRand's picture

Interesting concept -- companies that feed from the government trough can choose to be free under our current system, but instead, they choose to bitch and moan and complain that the hand that feeds them has too many rules.   So they take from one hand and slap the other while claiming to be libertarians.  Now I get it.

Michaelwiseguy's picture

I think your thinking about public school union employees. They need a serious attitude adjustment.

The auto dealer and employees that service government owned equipment will not be required to have training. That sort of thing. I'm pretty frugal about what my property and income tax dollars are being spent on. The type of training courses can be tailored to each occupation. It's not rocket science, and it's money well spent, knowing I have respectful employees working for me. I would love to have zero government and not have to think about this sort of thing, but that's never going to happen.

LetThemEatRand's picture

Your zero government system would have zero roads (or perhaps a few roads where the few could travel).  Federal express -- a private company -- made a fortune transporting packages via government funded airports.   Fucking Marxists.

Michaelwiseguy's picture

Exactly. So the government employees we have, to do what we need them to do, should be managed well, according to certain standards.

Look what happens when a Sheriff preforms his duties well;

Nation's New Top Cop!

Plenty of love and admiration available.

TruthInSunshine's picture

Enjoy the Banking-Financial-WallStreet-DefenseContractor/MilitarySupplier-GovernmentEmployeeUnion mind and body rape & pillage sponsored by CronyKomradeKapitalism, bitchez!

The Nouveau Plutocracy/Robber Barons are back in the saddle, strong hand pimpin'.

Calmyourself's picture

Have you allowed your employees to unionize yet?  Fed-ex as well as their employees paid for the roads and airports.  Of course no one built it, just barack the magnificent.   One more time for the LTER's out there " Government Funded" = money from taxpayers and productive businesses

Seer's picture

Just fucking get rid of GOVT and let's settle all this pussy talk, OK?  Just fucking man-up.

The "I just want SMALL govt" whining is ALL fucking shit.  This scenario doesn't exist, and won't exist (other than as it turns down on its way to extinction)*.  I'll just shake my head when I see all you types wondering why the fuck all the fantasies that you thought would appear when BIG govt out of the way, don't.

* Unless, that is, you hire and fund your own army.  And in such an environment there's going to likely be very few who can afford to buy your products/services such that you can provide that funding of a personal army.  Yeah, I'd love to have my own army as well, but I'm facing things more realistically, it will be "I" who will be responsible for protecting the land and assets that I call "mine."  Hang on to it if you can...

When one stops seeing things through the prism of "us and them" and starts seeing it through the prism of energy and material flows it becomes clearer, the clarity being that it's not a given "side" as much as it's the System.  And good luck overthrowing the System: I ain't going to waste energy on it, as I know it's on the way out (and with it a deep spiral that won't be delivering all the "protection of property rights" that Small govt folks desire).  Cheap talk by cheap people.  The price will be paid, whether it's to govt or something else, but it'll be paid (energy costs).

BTW - Fed Ex wasn't around when the Interstate was funded and built.  If you want to talk paying for maintenance of said, then yes, I'd agree.

Seer's picture

"I think your thinking about public school union employees. They need a serious attitude adjustment."

They don't like muppets too?

For the love of... this is all meaningless mental masturbation.  It's ALL going to crash because we cannot create growth out of thin air (w/o ample, exploitable PHYSICAL resources).  Yeah, it's CERTAIN that "public school union employees" (we know that every single one of them thinks the rest of us are nothing but muppets) will go extinct.  And before folks take this to mean we can celebrate I'll caution that when this time comes it'll really only be because the very System (of perpetual growth on a finite planet) is collapsing- as such anyone who can claim that a specific business model (or their own model) will function despite the chaos of any "transformation" is, well, delusional: just stop and closely inspect your supply chain; then turn around and see what supply chains your customers depend upon in which to earn the revenues to purchase YOUR goods/services.

Ideals are all warm and friendly, until they're tested by the real world.

"I would love to have zero government and not have to think about this sort of thing, but that's never going to happen."

No, you DON'T know that it could not happen!  I suspect that you don't WANT it to happen.  Reason?  It's a crapshoot, one could just as easily argue the other point (and do so quite effectively given that the majority of human history has been devoid of what we refer to as a "government").  I would say that the odds are GREATER that govts become extinct, but let's give you the benefit of the doubt and split it at 50/50.  If you lose on the coin flip how will you be positioned?  Of course, it's really a matter of TIME, will this happen sooner or later?

My brother believes that things are going to go to shit, except, not any time soon, not during his time of "retirement" (he's got lots of holes to golf to play!).

No, I don't believe that you'd love to have zero government, not unless you have a business plan cooked up (complete with marketing strategy) that covers what this would/could entail/mean.

Too many people spout off shit to sound good, but when the rubber hits the road they're going to totally freak.

"I'm pretty frugal about what my property and income tax dollars are being spent on."

You have little control!  You might have a frugal outlook, but the ONLY way to be frugal is to reduce your exposure.  OK, an example, I have Ag land, in my case, and I'm sure that it's common, Ag land is taxed at a lower rate than most other land: I'm don't really feel as though I'm getting away with anything as I'm in the process of fulfilling this status by actually using the land to produce food (and food is one of our Fundamentals, so... I'll use this to push things in the direction that I believe things need to go- that tax break comes at a price of a lot of my own sweat [up-front, non-paying work]).  And, you can't really affect what your income tax dollars are spent on as much as you can reduce what is collected: your choice, if you want more revenues then you're going to have to shell out for the privileged, not my rules, it's the pact of ALL govts, it's the deal that you make to get your "protection" (legal and military).

Again, I'm ZERO GOVT.  Nature has no examples other than man of such structures: various social arrangements DO exist, but I don't know of any that give the appearance of any representative or direct (democratic) govt- if anyone knows of any I'd find it fascinating to learn of it.  As soon as you go into ANYTHING above ZERO you're going to have a govt that can haul you off and kill you: because you HAVE to sanction it to do this to punish OTHERS who are violating the pacts.

And, I'm not here to tell people what they should or shouldn't have.  I base my reasoning on logic and the observance of nature and human history.  What I "want" is immaterial.  What I "need" is what everyone else needs.  I don't believe humans "need" governments.

Oh regional Indian's picture

While everyone has their eyes on 1984, what's coming is the following:

1) Animal Farm

2) A Clockwork Orange

Machines are making us emotion-less, as if an emoticon could ever replace a smile.

But the world is now Like-hungry.

Like-whores even, stripping, shedding every last vestiage of common decency/decorum/shame for a like.

Pertinent? Sure it's pertinent. Because in a Jewish/Communist system (anyone who doubts that connect should go live on a Kibbutz, the heart of Judaism and Communism beat as one), you are not allowed self-hood. Dissenters will be ruth-lessly dealt with.

Common Cause. Common Cause. Common Good. Common this and common that. 

Common is ordinary. Yes, the common man is meant (ment) to settle for the ordinary while the pigs snuffle at the trough.

The EU was the next logical step after the Soviet experiment succeeded (while masterfully made to look like a failure).

When the WALL came down, it was not liberty that crept east, it was communism/collectivism that came west.

Another master-ful twist. 

Left is right, war is peace, Common is great and the un-common is a danger to us all.

Fall (what a word) in line. 

On your Knees, Bees. Or the Drone will buzz you. 

A her-Ma-Aphrodite future, with rainbow revolutions and trans-human lovers with artificial inflations of every manner. 

The dystopia is already here. It's not fast approaching. It's here. If you take a pill, every day, to stay alive, you're trans-human. A Pharma-human.

A Farm-a-human.

And modern day seers are dissed with diss-dain. 

While most of humanty circles the drain.

Je' Sus is Latin for Gaia/Earth Pig. Go on, I dare you to google it. Je Sus, Je Sus say the Masses. 

Massive Masses, with Galactic asses...

As gen y would say...




Tommy Gunner's picture

I am thinking that you just might be a genius.


What are your thoughts on The Israeli General's Son  

Oh regional Indian's picture

Tommy, thanks for sharing that incredible video. A balanced (I know he says not, but I have not seen a more balanced presentation yet), from a deep insider... encourage everyone to give it a look, regardless of how you feel about the issue.


For soem more perspective:

On Brainwashing...
On holocaust truth:
Another one:
Recommend friends from Germany not to play the David Irving or Ernst Zundel videos, they might get you put in jail for being a holocaust denier. Strange times indeed.
PS: Don't know about genius Tommy (thanks though), but as someone who grew up lapping up all those big books by Leon Uris and later Saul Bellow, feeling for the False Jewish narrative for decades, I'm brave enough to have dug for truth, letting my implanted, programmed belief system crumble and not hesitating to state it as I now know/see it. 


Jreb's picture

O - you might enjoy these if you haven't read them yet.

It's been over a decade since I cracked it open but it's message still rings clearly between my ears...

tip e. canoe's picture

thanks for this.

According to Rieben, "It's a great effort, it is a distinct departure from its Anglo-European roots, and it strives and struggles toward liberty. But the United States inherited domination that informs every aspect of its society and constitution. Not merely slavery and empire-building, but all the forms and fancies of domination government immemorial. The U.S. Constitution makes no real break with domination. It's just a variation of the old autocratic power structure. Moreover, as history has shown in many other countries, the Constitution of the United States doesn't work in other cultures. And with its mixed premises, it doesn't work very well even in the United States. Thomas Jefferson pointed out that the Constitution was not intended by its designers to be carved in stone for hundreds of years. And, harkening back to his Declaration of Independence, we should be ready to implement a new plan of government whenever it becomes evident that our present plan or design begins to work to our disadvantage.

TuPhat's picture

I googled Je sus.  Only one entry.  It's a christian music group in Ghana.  Think you know something ori?  Not much really.

Oh regional Indian's picture

J is  a very young letter in the Alpha Bet Soup we call english. Less than 500 years old. It was the Ge sound prior. Je

  • GE (je,ge) GAEA;GAIA GAEA  (Jee),Noun.  [Gr.Gaia derived from "Ge", earth] in Greek mythology the earth personified as a goddess ,mother of Uranus the Titans,etc, MOTHER EARTH: identified by the Romans with Tellus: also Gala,Ge. GEO (jeo,jee)  [Gr. "geo" derived from gaia,ge, the earth] a combining form meaning earth,as in geo/centric, geo/phyte.  (WEBSTER'S NEW WORLD DICTIONARY) {PROPER NAME} GEORGE Gr. georgos means "EARTH WORKER"  (DICTIONARY OF FIRST NAMES)
  • sus, sus N 3 1 NOM S C T, sus N 3 1 VOC S C T sus, suis swine; hog, pig, sow;  (Latin-English-Latin Java Dictionary with Whitaker's Wordlist) sus : swine, pig, hog.  (Lynn Nelson's Latin=English Dictionary (Hong Kong) sus, -is g.c. nomen animalis  (A Latin Dictionary of Saxo Grammaticus (medireview Latin) SWINE  [ME fr.OE swin; akin to OHG swin swine LATIN -SUS--more at SOW] 1: any of various stout-bodied short legged omnivorous mammals (family Suidae) with a thick bristly skin and long mobile snout; esp: a domesticated member of the species (Sus Scrofa) that includes the European wild boar-usu.used collectively 2: a contemptible person  (Webster's Seventh New Collegate Dictionary)

Seer's picture

I kind of always admired the Quakers, but I don't think I could be one...

It's a protection of the herd thing.  It basically works.  And most "customs" are means of trying to limit wasting energy that would be used in altering the existing: sure, some alterations are good, but often we just THINK they'll be good- the allure turns out to not really deliver, perhaps costing the entire herd.

At some point there comes the need for evolution to call out.  I suspect humans are approaching such a moment.  Sadly, as you note, when the time is apparent we'll be asking the machines how it should be done: do the machines want MORE humans (who would consume more resources that the machines would require)?

Those that require hogging out at the trough will find that their style doesn't work too well in lean times.  People that know how to deal with LESS will be able to better DEAL with LESS.  Yeah, some hogs escape (wild hogs), but nearly all hogs get butchered, and you can bet life is really good up until...  BTW - Based on what I hear from folks I'm not at all interested in shooting wild hogs for food.

Things that go bump's picture

Oh, please.  I suggest the old roman method of decimation.  

Offthebeach's picture

Detroitication. The combination of deindustrialization, financializaton and dictatorial politicalization.

prains's picture

pointing only to govt policy as the problem and forgetting to mention they are controlled by the Olicorptocracy is not only short sighted but completely false. Also alluding to some fantastical infinite global resource base that govt policy doesn't let the world access is again totally false. This article is nothing but propoganda.


Instead of a dynamic, growing pot of wealth and ever-increasing resources, which can enable larger and larger proportions of the population to become prosperous without taking anything away from any other group, there will indeed be an absolute limit on the amount of capital circulating within the society. _ BULLSHIT von NUTSACK


These resources are completely controlled by the 0.1%, they will do with them what they please, politicians are their strawmen.


ACP's picture

Hey, know your place!

BlackholeDivestment's picture have that right Zer0head. Hey, wait a second, if you do not have a head you are all brain.

ultimate warrior's picture

The misery that is now upon us is but the passing of greed, the bitterness of men who fear the way of human progress: the hate of men will pass and dictators die and the power they took from the people, will return to the people and so long as men die, liberty will never perish...

Soldiers - don't give yourselves to brutes, men who despise you and enslave you - who regiment your lives, tell you what to do, what to think and what to feel, who drill you, diet you, treat you as cattle, as cannon fodder.

Don't give yourselves to these unnatural men, machine men, with machine minds and machine hearts. You are not machines. You are not cattle. You are men. You have the love of humanity in your hearts. You don't hate - only the unloved hate. Only the unloved and the unnatural. Soldiers - don't fight for slavery, fight for liberty.

Charlie Chaplin - The Great Dictator

Tursas's picture

The instruction forward are simple:

Our voting process produces now only lemmings, sheeps and morons that obey only the gold carrying ghosts behind the curtains and not us who voted them in power.  If we cannot change our voting process and make it like the one in Switzerland, then our only real option is to pick from the proven and effective processes from the past - like the one invented in 1789, by Doctor Joseph-Ignace Guillotin!

Spastica Rex's picture

Finite world.

Zero sum game.


dark pools of soros's picture

Got Mars?  Asteroids?  Antartica?  hell even Africa if you kick the natives out into running casinos in the bushes

Seer's picture

Um... got energy?  Go ahead, have fun removing energy from food production to blasting rockets into space (well, OK it happens to a degree now, but it's going to become increasingly harder to do so as this all marches forward(?))

Temporalist's picture

Humans could inhabit the earth for a million or billion more years if they weren't a walking disaster.

Seer's picture

I suspect our genes will make it to the next ice age. After this point it's looking pretty dismal...

vast-dom's picture

case in point:



fonzannoon's picture

vast-dom what's a qe? why are you so upset? What's going on? Where are my doritos?


 - almost everyone

vast-dom's picture

my shorts are making me upset. my calcs have been subverted not by market forces, but by gov meddling. i am pissed off. and i don't eat junk food.


and MW disgusts me, yet i keep perusing that status quo shithole site, just to remind myself that this thing can't go on....i can stay solvent in the face of the fed, indef. so i vent in this here vomitorium. 

fonzannoon's picture

I don't know what to tell you man. You seem way to smart to not know you were fighting meddling from the highest levels. Here is something else to chew on. You may end up getting it right after all. I know you and Doc Engali were debating S&P 600 vs S&P 400. But you gotta be kidding me if you think it will be a nice orderly decline towards that level. Either they keep printing till we hyperinflate or they pull the qe rug out and we get to those levels in an instant. But if it happens in an instant all bets are off. "Technical" glitches will be going off like fireworks and you would be lucky to get your money out. It would be the end of the market as we know it, and it already is the end of the market as we knew it.

vast-dom's picture

i am now doing exactly the opposite of what my econ degree taught me. so i have total confidence that my positions and the narrative they derive from will work out and work out well. this isn't the first time i've been banged up, but in the end i hold steady and come out the better for it. it's just that especially from QE2 until now shit has gotten so twisted up...i will make even moar moar money on the glitches, or i will lose moar! it's a game planet.

infinity8's picture

"game planet" - ain't that the truth. i think my batteries are dead.

Everybodys All American's picture

I feel your pain. I've lost a lot of money myself in this never ending QE cycle Bernanke has put us all on. Never in my wildest imaginations did I see this monetization project making the markets go higher. Yet it has. However, the positive effect of QE has run it's course and it's clear from this point forward it's all unsterilized QE.

This budget battle is going to wrangle the markets for a bit.

The best advice I can give is to maintain a negative bias on these f'ed up markets. But trade around them knowing the markets never go simply straight up or down.

fonzannoon's picture

How about the markets go up in nominal terms, but lose out to precious metals? That is not an option?

Everybodys All American's picture

What have precious metals done lately? Not much. Again the result of a central planned economy with a heavy foot on holding the price down don't you think?

What inflation number do you believe the one the government tells you or the one the grocer tells you.

To answer your question more directly I don't see the markets going up here. Part of my reasoning is I think Bernanke will have to admit failure or risk another credit rating downgrade of US debt. That could happen sooner than people think.

fonzannoon's picture

They have outperformed equities again. But granted they have taken a breather. The beautiful thing about PM's is they ultimately fall outside the control of our centrally planned economy. But it could be a long road ahead. I would go with the grocer by the way.

In a centrally planned economy you don't think the ratings agencies are not in the pockets of tptb? Maybe they do issue another downgrade. So what?

Bernanke may admit failure. I certainly don't see it. The market may sell off. But a trillion plus a year that is coming in unsterilized lsap could make this very dead market move higher. As long as they keep a lid on rates people will scram anywhere for yield. Rates may move up tomorrow, or 15 years from now. Who knows.

Everybodys All American's picture

Unsteralized begins in earnest in January. The credit rating warnings are out there already and bare in mind many mutual funds depend on the AAA credit rating of the US. One rating agency (S&P) makes little difference to their agreements,but two or more changing the AAA does certainly. That will be a mess. Forced selling will hit the markets like a tidal wave. When this happens I don't know, but it will come to pass based on the path we are on imo.

Think about this for a second as well. If adding liquidity is all that it took to make an economy and market run better don't you think Japan would be kicking everyones ass.

The effect on the stock markets lately for any QE has been a big yawn. If we are going via Japan, which is certainly the plan thus far, then I would say take a look at how that market has performed over the last two decades. The answer is not very well.

If Bernanke continues to print. Hyper-inflation will result. At that point it's going to be a nightmare and rates will move up dramatically and immediately and the markets will sell off.

So the way I see it markets sell off in either scenario with the timing being the only difference. That's why I will continue  to maintain a negative bias on these markets. Now negative bias does not mean that you can't have times where being a bull makes sense and money.


fonzannoon's picture

fair enough with japan. the ratings agencies to me are such a sham i think they can be kept on a leash indefinitely. i think they are a total non event. the mutual funds can just change the rules to keep buying UST. 

But i hear u on japan. my thinking with the US is the equity markets can become the playground for whatever remains of the middle class and the upper class. If the equity markets fail the wealth effect is totally ruined and everything goes to shit. but like you say if they push qe too hard we die by hyperinflation. i don't know japan's demographics well enough to know if their citizenry is in better financial shape than the US despite having their equity markets gone to shit. they certainly have a much higher savings rate, no?

Tommy Gunner's picture

But WHEN dammit!  WHEN is this all gonna happen?