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I Blame The Central Banks
Submitted by Chris Martenson via Peak Prosperity,
The current bubbles in financial assets -- in equities and bonds of all grades and quality -- raging in every major market across the globe are no accident.
They are a deliberate creation. The intentional results of policy.
Therefore, when they burst, we shouldn't regard the resulting damage as some freak act of nature or other such outcome outside of our control. To reiterate, the carnage will be the very predictable result of some terribly shortsighted decision-making and defective logic.
The Root of Evil
Blame can and should be laid where it belongs: with the central banks.
They were the "experts" who decided to confront the excesses of decades past (which saw borrowing running at roughly 2x the rate of real economic growth) with even easier monetary policies designed to spur even more borrowing.
Rather than take stock of the simple fact that nobody can forever borrow at a faster rate than their income is growing (no matter how large that entity may be), the Fed, the ECB, the BoJ and the BoE have conveniently overlooked that simple fact and then boldly claimed that the cure is identical to the disease. If the problem is debt then the solution is even more debt.
If the Fed, et al. were doctors, they would prescribe alcohol to the alcoholic. They would administer more lead to the lead-poisoned patient. They would call for more water to put in the pool where a drowning individual is floundering.
The bottom line is that the Fed and its ilk made the disastrous decisions that gave us the first two burst bubbles of the new millennium. And the wonder of it all is that, instead of being met at the gates with torches and pitchforks and held to account for their errors, they have instead been granted even greater powers, less oversight, and practically zero blame.
And now they’ve given us a third and, I suspect, final bubble. By which I mean I think the effects of this bursting bubble will be so horrendous that a hundred years might pass before people will again be in the mood to speculate on fantasy wealth.
My hope is that, when this third bubble pops, the figurative (and, perhaps, literal?) torches and pitchforks come out. Finally forcing the central banks to answer to the public for their grievously poor decisions.
And yes, the investing public also bears a portion of the responsibility for playing along with the central banks. For years, some have consoled themselves with stories about how This Time Is Different, and many have ignored many obvious warning signs as they've enjoyed stock market and bond gains fueled by seemingly limitless liquidity.
But in the end, it's the central banks that set the tempo and the melody at the dance hall. When they flood the world with liquidity and set interest rates to 0%, they enforce a Hobbesian choice: either play along in the risk markets, or sit in cash earning less than nothing as inflation eats away at your purchasing power.
The central banks are entirely to blame for mis-pricing money and that is the fundamental error that drives every bubble and betrays capital into hopeless investments.
So let’s all remember to place blame where it is due when the bubble bursts. We shouldn't act surprised because there’s really no honor in being caught unawares by something so obvious.
The Biggest Bubble(s) Of All Time
We’ve covered the equity bubble in the past, but today we’re going to cover the bond bubbles (yes, plural) because the current excess in the bond market is the granddaddy of them all, and is far larger than anything ever recorded in history by a very wide margin.
But for the sake of completeness, regarding equities, if you ever wanted to get the willies about the stock market in a single chart, I think this one from Doug Short of Advisor Perspectives which plots the relationship between equity prices and margin debt is about as good as it gets:

(Source)
Margin debt is simply money borrowed to buy equities. Typically speaking, an average investor with $100,000 in an account can buy up to $150,000 worth of stock. Margin debt is fuel to a rising market and a lead anchor for a falling market.
Yes, perhaps this time is different, or perhaps it’s exactly the same with speculators borrowing more and more as stock prices rise, sure in the knowledge that they will be smart enough to get out of the way of a falling market (this time).
But, enough of material we've covered here recently. Back to bonds.
When the bond bubble bursts, so much that people believe to be true will be revealed to be obvious and distressingly ordinary illusions.
When there’s simply too much debt, in the period leading up to a debt bubble's bursting, everyone is counting on getting paid his or her money back, both the interest and the principal. After the bubble bursts, it’s plainly obvious that no such thing will be happening.
As is always the case with bubbles (of any sort), the only important question that needs to be answered is: Who will take the losses?
One simple answer to that question is: Whoever is holding the bonds when the bubble bursts.
Bubbles are structured like a game of hot potato. When the timer finally dings, the person holding the potato loses. It doesn’t matter one whit whether the 'hot potato' was a tulip bulb, swamp land, a house in Las Vegas, or a paper financial security.
The really striking part about the global bond markets today is that the potatoes have never been more numerous, or hotter.
I suppose this would be a good time to revisit how Einstein defined insanity: trying the same thing over and over again and expecting different results.
Unfortunately for those hoping for a different outcome, history is 100% consistent on the matter: Bubbles always burst. And when they do, what people thought was fabulous wealth is proven illusory, and it simply vanishes.
Not that this clear historical record is keeping humans from trying to cheat the odds.
Given that the Fed has engineered three increasingly larger bubbles within an unprecedentedly-short fifteen-year time span, perhaps we shouldn't persecute them. After all, they may easily be able to plead 'not guilty' by reason of insanity.
$100 trillion – is that a lot?
We frequently throw around big numbers in our analysis. We even try to explain them in terms that help us mentally grasp an appreciation of their enormity (watch the video How Much Is A Trillion?, as an example). But the size of the bond market across the developed world defies even our best efforts.
After all, if $1 trillion dollars is a stack of $1,000 bills 68 miles high, then I guess $100 trillion would be a stack 6,800 miles high:
Global Debt Exceeds $100 Trillion as Governments Binge, BIS Says
Mar 9, 2014
The amount of debt globally has soared more than 40 percent to $100 trillion since the first signs of the financial crisis as governments borrowed to pull their economies out of recession and companies took advantage of record lowinterest rates, according to theBank for International Settlements.
The $30 trillion increase from $70 trillion between mid-2007 and mid-2013 compares with a $3.86 trillion decline in the value ofequitiesto $53.8 trillion in the same period, according to data compiled by Bloomberg.
The jump in debt as measured by the Basel,Switzerland-based BISin its quarterly review is almost twice the U.S.’sgross domestic product.
Note that global debt climbed by $30 trillion between 2007 and 2013, a 42% increase while global equities actually declined a few trillion (to $54 trillion), yielding a global debt-to-equity ratio of almost 2. [Note: Global equities are now valued at $66 trillion and are pouring on almost $1 trillion/week lately. Of course, they have a habit of going down, from time to time, even more quickly than they rise. Something that is easy to forget in today's environment]
So, a 42% increase in just 6 years. Did global GDP advance by 42% during this same period? No. Not even close.
Did private companies borrow all that money planning to plow back into productive enterprises? Nope. Companies borrowed relatively little of $30 trillion, and even then, they mainly used that newly-borrowed money to buy back shares and/or stash it on their balance sheets.
Who did borrow all that money then?
Why, nations did. Sovereign entities that were desperate to keep things afloat and borrow heavily (because private concerns weren't able to take on new debt fast enough).
Why? Because the world's debt pile must keep expanding. That's the world we live in today. If the pile should start to contract, the game of Who Will Take The Losses? begins. And governments know (sometimes consciously, sometimes subconsciously) that the debt bubble has become so monstrous, and so interconnected globally, that even a moderate correction will wipe out so many players that the world financial system will be brought to its knees. Or worse.
In Part 2: Something Very Wicked This Way Comes, we provide great detail into why sovereign and corporate (both high-grade and junk) debt markets simply and mathematically must contract. Current prices are so historically divorced from fundamentals at this stage that this 'prediction' is about as elementary as counting on gravity to bring a tossed stone back to earth.
Given the excesses of the stock and bond markets I am increasingly concerned that this next bubble burst will be far worse than any that has yet come since I've been alive. Countries will fail financially and economically, political upheaval will follow, fortunes and dreams will be shattered, and lots of people will lose their jobs.
In short, lots of things will break and cease to function as the greatest wealth transfer in all of history plays out.
Click here to read Part 2 of this report (free executive summary, enrollment required for full access)
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Thanks captain obvious.
Now, as to the real question. What will actually be done about it?
Awesome job, Chris Martenson! You nailed it: All the major central banks have intentionally blown the biggest asset bubbles in world history. And this is quite possibly the "final bubble."
This so-called "recovery" is nothing more than the intentional blowing and reflation of massive bubbles.
Let he with no margin account, mortgage, car lease, credit card, or student loan cast the first stone.
But, the economy grew 4.2% in Q2 !!!!
http://www.csmonitor.com/Business/2014/0828/US-economy-grew-4.2-percent-in-Q2-but-weaknesses-remain-video
No wonder no one knows what's going on.
And the economy will shrink by at least double that when the bubble pops.
Lets pass this hot potato off as a raw one.
"If the pile should start to contract, the game of Who Will Take The Losses? begins. "
That game has been in play for the last decade or so, but the losses aren't counted on balance sheets just yet. The loser taking the losses? Ukraine, Greece, Egypt, Spain, Argentina, PIGS, Detroit, Europe, the middle class everywhere, etc.
Sleep well
I'm your Huckleberry. I meet all of the criteria.
I assume your question was rhetorical.
somewhat. we past the rubicon a while back, calorie deficits will be making decisions for us from here on out.
Global debt exceeds $220 trillion and is not $100 trillion as claimed by the BIS.
Perhaps they accidentally deleted one of the tabs in their spreadsheet.
http://blogs.wsj.com/economics/2013/05/11/number-of-the-week-total-world-debt-load-at-313-of-gdp/
Agreed my friend.
The bullshit comes to an end when the ability provide the "bread" falls apart. Even the "circuses" dont matter at that point. What I wager is that somewhere in-between (on average) is the limit. Hard to say exactly. But, it is there somewhere.
Well, LawsofPhysics:
Since it is NOT obvious to the vast majority of people, and there are no practical ways to motivate most people to learn about the basic social facts, there are no good reasons to doubt that NOTHING "will actually be done about it!"
We can only watch and wait as that fundamentally fraudulent financial accounting system automatically gets worse, faster. While it is EASY to come up with a list of OBVIOUS theoretical solutions, there are NO politically practical ways to implement those solutions, inside of the runaway double-bind paradoxes, or Catch 22s, due to the ways that the monetary system has become metastasizing cancers, which have become terminally fatal diseases, that have no feasible treatments which would not precipitate killing those suffering from those diseases, which are nevertheless, eventually, going to kill them anyway.
I like to think that I have worked hard at attempting to learn more about the Central Banks, as the Kings of Fraud, than most people. However, I am still surprised at the degree to which things are worse than I previously imagined, every time that I learn more about the real social facts.
For example:
http://www.thrivemovement.com/reality-check
What percentage of GDP does the U.S. spend on infrastructure such as bridges, water, roads, and energy systems?
2.4%.
For every American tax dollar spent in 2010, how much went to education?
2 cents.
CENTRAL BANKS ARE THE CORE TO THE RUNAWAY DEBT SLAVERY BACKED BY WARS BASED ON DECEITS SYSTEMS, THROUGH WHICH THE RULING CLASSES ARE ABLE TO DOMINATE THOSE THEY RULE OVER.
THE VAST MAJORITY OF THE PEOPLE WHO ARE RULED OVER BY THE BANKSTERS ARE INCOMPETENT POLITICAL IDIOTS, OR ZOMBIE SHEEPLE, TO THE DEGREE THAT THERE IS NOTHING WHICH CAN PRACTICALLY BE DONE ABOUT THAT VICIOUS SPIRAL OF LEGALIZED LIES, BACKED BY LEGALIZED VIOLENCE, SPINNING OUT OF CONTROL!
In my view, the primary reasons why NOTHING "will actually be done about it" are that the opposition to the banksters is mostly a controlled opposition, made up of mainstream morons, and reactionary revolutionaries, or Black Sheeple, who attempt to lead the Zombie Sheeple backwards, towards the same old-fashioned false fundamental dichotomies, and related impossible ideals, which always actually make the opposite happen in the real world.
As demonstrated in Zero Hedge comments, there is surely a small minority of the general population that is able to do a correct analysis of the problems presented by the central banks, or Fraud Kings, dominating our political economy with their government enforced frauds. However, there is no general agreement regarding what to do about that! In my view, almost all of the proposed "solutions" are bullshit, indeed, most of the suggested "solutions" operate within taking for granted the same basic bullshit world view promoted by the banksters.
In my view, it would take profound paradigm shifts, through a series of intellectual scientific revolutions, in order for our general understanding of politics to be able to become more scientific, so that more scientific solutions that actually worked could be researched and developed. However, doing anything like that is OBVIOUSLY NOT possible, from any practical political perspective!
The world we live in has become a Bizarro Mirror World Fun House, where everything appears proportionately backwards and distorted. Those relatively few people who begin to understand that still then tend to take most of the rest of the ways that they are perceiving everything BACKWARDS for granted. Therefore, the majority of the people (who are a small minority of the population overall), who better understand that the privatized public "money" supply, made out of nothing as debts, is a criminally insane monetary system, which is due to the history of the banksters applying the methods of organized crime to dominate the political processes, continue to then promote bullshit "solutions," that are still based on understanding things BACKWARDS, in ways which they still take for granted.
THE PROBLEM IS OBVIOUS, TO ANYONE WHO BOTHERS TO INVESTIGATE. HOWEVER, THE SOLUTIONS ARE NOT OBVIOUS!
Education in this country sucks, why would you devote any more resources to a failing idiology.
Yeah, right!
The banksters' foundations were able to dominate the funding of "education" institutions, to turn them into propaganda production places, the same as the banksters were able to buy up consolidated control over the mass media. We are terminally screwed by the degree to which the ruling classes have successfully waged a war against the consciousness of those they rule over.
Did you see the Kentucky 8th grade exam from 1912? I barely passed it and my 32 year old son who was an honor student failed miserably.
Well my heart bleeds for you then.
When something is stolen, we either go to court and have it returned or, if their theft goes unpunished, steal it back. If there are wars for oil, there surely should be wars for gold.
Any realistic ways to fix the problems of the banksters' runaway frauds, robbing people blind for a long, long time, would have to deal with the consequences of that having already been done! Nothing that theoretically "fixed" the problems being caused by changing the systems in the future is enough to cope with the cumulative problems driven by the past successes of the banksters' enforced frauds dominating the legalized social robbery systems, for a long, long time in the past!
Situation normal, all fouled up.
Hostage situation, held for ransom - Return our loot and our country or watch Mr. The Powers That Be (Carnage, Rotchild, Rotfella). Just a thought.
One cannot do anything about global contagion except let it run its
course and eventually die down to something managable with whatever population is left over from the contagion spread. From margin spread to contagion spead we go. Whomever survives the fallout will have to
survive somehow and an upperpaleo nomadic hunter gatherer lifestyle will carry some through to survive. Most people in North America
cannot withstand a complete shutdown of all economic activity for the time duration that they will have to. Mass starvation will manifest if the economy blows like the prognosticators are saying it will. I am assured of one thing and that is the fact that most don't have a clue as to how horrific this 'bubble burst' is going to be the next time she blows. The above article gets that much right on the money. And as for the 'real' question what does one actually do with mass contagion and mass starvation when it manifests in every city in the Western world all at the same time?
Well....duh....
"The current bubbles in financial assets -- in equities and bonds of all grades and quality -- raging in every major market across the globe are no accident."
The FED certainly didn't accidentally inflate its balance sheet several trillion dollars.
Neither is it a defect in policy; it's a deliberate act to legally steal the assets of everyone on earth.
The whole thing/con is as accidental as the launching of the Space Schuttle.
You didn't launch that balance sheet
You're right Knukles.
But if you like your balance sheet, you can keep your balance sheet.
Central bank and organized religion were invented by the Oligarchy.
Moses would disagree.
He turned his back for 5 minutes and there was cow love going on.
Moses was a Pharaoh, Akhenaton.
He introduced monotheism in Egypt (The 10 Commandments).
After his death, the cow god religions returned.
Do you want to know who Caesarian was?
Hmm? never heard that one. Did you ever read about the late Bronze Age Collapse? I find it very intersting. Most people only talk about the fall of Rome but there was a global civilization collapse that affected the entire world around 1200 BC and then a Dark age that lasted for centuries before even the Classical period of ancient Greece and Homer.
Maybe iron swords were stronger than bronze swords.
Peple don't like change until it's forced upon them.
I'm sure the Oligarchs tried to keep iron a secret as long as they could.
Nothing changes. Always secrets holding back progress.
I don't know, I think the iron age came about many years later. The collapse happened suddenly across many different cultures, Egypt, Minoans, Assyrians etc, all collpased at the same time, and there was a dark age for 700 years. That's a very very long time, imagine a dark age since 1314
The Catholic Church is the oldest, existing institution on earth. They must know what happened?
"Maybe iron swords were stronger than bronze swords."
Nope, Bronze was stronger than Iron. Early Iron had a lot of impurties and carbon which made brittle swords. However It was cheaper and more available than Bronze.
"Peple don't like change until it's forced upon them."
More likely some sort of environmental changes or perhaps disease caused disruption that lead to increase violence.
Of course the World is facing lots of problems: Drought, Overpopulation, declining cheap energy and of course excessive debts. Its all slowly converging, leading to increased belligerence and the population selected increasingly carpet bagger leaders (Obama, Hollande, Cameron, etc) that make grand promises that can't possible be met. Western population have grown too stupid to vote for anyone capable of digging us out of this mess.
Actually read about this a couple of weeks ago.
But you've got me on the Caesarian thing ... who was he?
The bastard son of Julius Caesar & Cleopatra.
Apparently, they considered a non-vaginal delivery akin to a virgin birth back then.
Caesarian birth is attributable to this son of a god king.
No more clues. You fill in the blank as to who he was in history.
So basically what you're saying is we're totally fucked like a duck, like forever. Okay got it.
Understand, I don't have any actual problems with everything burning down. I like fire, I like flames and destruction. I'm just totally into it. Of course I am also a damned soul but you know what, I roll with it. Nothing about ashes doesn't appeal to me.
#B2CAD7
I heard Tiga Island doesn't have a central bank...
WOW. Just look at that margin debt!
House of cards....house of cards!
Give them one more chance. They'll get it right next time around.
/sarc
Yeah... like the progression from Medicare to ObamaCare.
Shitstorm Troopers at the controls !
interesting but the author fails to point to the root of the scam :
that 10% reserve rate paradigm to create the debt (and then charging interest on it).
the greatest robbery of the millenia.
ie : with a 100% reserve rate on a money backed by a commodity, all this could never happen and the mother fuckers that imposed this system upon all the world were totally aware of it.
& indeed it's not by accident or stupidity, it's by design.
Gotta admit that creating money out of nothing and not going to jail is a pretty good gig.
I wish my high school guidance counselor was a lot smarter back in the day.
John Paulson belonged to 'the Jesus Club' back in high school. Screw the guidance counselor, you should have joined 'the Jesus Club' like John Paulson did. Paulson made more than Bernanke, Geithner, Henry Paulson, or Larry 'the Luddite' Summers put together. Ontologically you need to remember this for the next life forward. ;|
Nonsense.
It is the pressure that each of us exert upon the government...give us war, give us free stuff, give us corporate welfare, give us plain welfare, give us our social security checks, give us Medicare, give us agricultural assistance, give us STUFF!!!....that leads to spending in excess of revenues from taxation, that pressures the central banks to buy those bonds.
To see this as a plot by the central banks alone is just silly.
Notice that in Europe they don't buy bonds from countries with deficits. They know that if they allow the ECB to respond to pressure from every branch of government in every EZ country that they will wind up like the USA. Eventually they might but for now they demonstrate that this can be controlled.
This is human nature, repeated for the nth time. We all use the government to get what we want. Yes, many of us see the problem but as a whole we are just using the power of government as humans always have.
There are some solutions. It willbe a real advance in human history to mitigate the problem of repeated destruction of a currency.
Expand the monetary base. A Quad(rillion) or bust!
Exactly. Blank check to congress. Fuck it. Go big or go home. Incremental bullshit is a tease. Let's see Washington, FED, Wall Street, etc. put it all on the table.
Lorem ipsum dolor sit amet.
Everything is fine. Gold's going nowhere and silver won't budge. Everybody's happy and confident. The central banks are managing global finances very well and everything is under control.
Wait... everything is under control....just a moment....let's see....if they have that under control too.....and if they don't have to....and the regulators won't.....
Got to think this one out. I'll get back to you on that.......
On the other hand, I’m willing to believe there are Gods of Economics and blame all financial catastrophes on them, provided we get to sacrifice a central banker once a week to appease them.
Globull debt 100+ T
US debt 17+ T
Don't fret, if we get a few more part time jobs on the books next quarter we can "grow" our economy out of this temporary economic hiccup.
Always look on the bright side of life and all that...
Gollum, gollum!
The roort of this evil is the non-separation of state and money.
As our ancestors decided to separate state from religion and divided the state in three powers, we must separate state from money.
Free markets. Free markets of money too (and derivatives of money, as BTC or other currencies).
When all new money is created from loans at banks.
New money = new debt
So to increase the money supply you have to increase debt.
It is a system that is reaching the end, visit the positive money website for an alternative.
Money creation and debt creation do not have to go hand in hand.
The Founders did seperate money. They said that only gold and silver was money. Any counterfitting was the death sentance. The problem is the idiotic people of the times (1971) that bought into Nixon's bullshit.
screwing the taxpayer since 1913
Why didn't we celebrate the 100th anniversary of the federal reserve banks? If it is such a great institution you wooda thunk AMericans would have been lighting off fireworks like it was the 4th of July.
Why don't we get rid of the Fed Res and say every state has its own bank? Why wouldn't that work?
just sayin. I think the banks and the govt want me broke. And these cable companies, ...
https://en.wikipedia.org/wiki/Bank_of_North_Dakota
http://billingsgazette.com/business/montana-state-bank-concept-debated/a...
Dude, this nation is already a failed state. Nobody is fighting yet. I plan on no water, radiaton contamination, no food, no electricity and death squads roaming the streets. I'm still questioning myself if that wasn't the world I should have been born into anyhow. So who cares.
Damned if you do, damned if you don't. Keep the debt bubble expanding because you don't want to adapt or deflate it and have to adapt.
This is all academic to a Fed Phd. It is an exponential formula. They have to create enough new debt this year, so that there is enough new money in the economy to pay off last years principal and interest. If they don't, then there is a liquidity trap, where everything they have done since 1913, and especially since 1971, begins to collapse in on itself. It is simple mathematics, nothing more. The problem these Phd's do not even contemplate is that at some point the money creation becomes hyperbolic, which some people call hyperinflation. In mathematical terms, it is not hyperinflation, it is a destruction of value that can never be recovered. Hence the death of fiat currency, as has happened with each and every one throughout history (ask Addison Wiggins of the Daily Reckoning for proof, he researched over 500 fiats, and only got through the letter A and half way through B).
The fact of the matter is that even though they try to keep it going, they cannot possibly keep it running. All of the printing presses in the world, all of the bullets, guns, and tank in the world, all of the fast talking politicians in the world can't stop the inevitable outcome. Yep, we are talking destruction of the currency, civility, and society. Politicians and bankers lives won't be worth spit in the future. They'll be hanging from light posts and trees soon enough. Many will go down into their DUMBS (Deep Underground Military Bases), but when the venture up to the topside years later, they'll have about as much luck as the others that were left hanging from trees. The survivors of the catastrophy they created won't tolerate the ones who caused the problem in the first place.
The next civilization will be better. THe children will be taught how these greedy crooks and smooth talking politicians destroyed everything from this civilization. The future is bright indeed!
Blue Ivy is the negros paradise to freedom. Someone had to say it, and I don't work for the asshats at BET cable channel.
Parasites don't make decisions based on whats good for the host. They don't require you to be happy, just obediant.
BTFD!
"To reiterate, the carnage will be the very predictable result of some terribly shortsighted decision-making and defective logic."
I disagree, the carnage will be timed to coincide with some other event for maximum effect.
Nothing happens by accident.
Cool chart. The implication for me is that Ponzi-ism has been put on full auto computer control.
If and when there is a mean reversion it will be an intentional act. Those who create the reversion will probably be reviled, but they are more likely saviors, while those who created and benefitted from the Ponzi-bubbles are the miscreants who should be punished.
Arrest the three circus performers and charlatans: Greenspan, Bernanke and Yellen. Put them in cuffs for treason.
Hope for pitchforks bitchez.