"These Are Astonishing Figures, Evidence Of A 1930s-Style Depression"

Tyler Durden's picture

Just a few numbers, courtesy of the Telegraph's Ambrose-Evans Pritchard:

Barnaby Martin, [Bank of America]'s European credit chief, said world asset markets may face a stress test as the US Federal Reserve starts to tighten afters year of largesse. “Our biggest worry is the end of the liquidity cycle. The Fed is done and it is preparing to raise rates. The reach for yield that we have seen since 2009 is going into reverse”, he said. 

 

Mr Martin flagged warnings by William Dudley, the head of the New York Fed, that the US authorities had tightened too gently in 2004 and might do better to adopt the strategy of 1994 when they raised rates fast and hard, sending tremors through global bond markets.

 

Bank of America said quantitative easing in Europe and Japan will cover just 35pc of the global stimulus lost as the Fed pulls back, creating a treacherous hiatus for markets. It warned that the full effect of Fed tapering had yet to be felt. From now on the markets cannot expected to be rescued every time there is a squall. “The threshold for the Fed to return to QE will be high. This is why we believe we are entering a phase in which bad news will be bad news and volatility will likely rise,” it said.

 

What is clear is that the world has become addicted to central bank stimulus. Bank of America said 56pc of global GDP is currently supported by zero interest rates, and so are 83pc of the free-floating equities on global bourses. Half of all government bonds in the world yield less that 1pc. Roughly 1.4bn people are experiencing negative rates in one form or another.

 

These are astonishing figures, evidence of a 1930s-style depression, albeit one that is still contained. Nobody knows what will happen as the Fed tries break out of the stimulus trap, including Fed officials themselves.

Or, as we showed it recently and far more simply, this:

And in other news, everyone is now bullish because for some inexplicable reason the "experts" continue to mistake the world's biggest equity bubble with the underlying economy.

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LawsofPhysics's picture

Correct.  We have not be "saved from a depression", but rather, the Fed has done a fine job of simply hiding it (and enriching the 1% 400-fold in the process).

 

"Success" in the modern, progressive, world of finance.

GetZeeGold's picture

 

 

Fed has done a fine job of simply hiding it

 

EBTs have been a good crutch......but they can only do so much.

economics9698's picture

The Fed did the same thing in the 1930's with the monetary base.  Keep the rich top 0.01% awash in cash and impoverish the peasants.

 

MB/GDP on FRED for those interested. 

John Law Lives's picture

Graph: Gross Domestic Product/St. Louis Adjusted Monetary Base

http://research.stlouisfed.org/fred2/graph/?g=9wK

The site does allow for swapping the numerator and denominator to produce the inverse of this chart (i.e. MB/GDP).  It is alarming.

Alea Iactaest's picture

Thanks for the suggestion, economics9698, and thanks for the link John Law Lives. Eye opening, indeed.

(I sometimes wonder what the Fed does with the analytics generated by the searches and graphs people run off the FRED database. There must be a paper somewhere.)

Franklin Hatchett's picture

Could someone kindly elaborate on the significance of the chart given by John Law? I'm a little confused as to it's meaning. 

Crisismode's picture

 

 

"When I use a chart,' Humpty Dumpty said in rather a scornful tone, 'it means just what I choose it to mean — neither more nor less."

Jumbotron's picture

Well of course.

It wouldn't be FASCISM if only one party participated.

JohnG's picture

 

 

The graph shows the horrifying extent of the fed's money printing.  In 1981, GDP was over 22 times the monetary base, now it is 5.  Said differently the currency emitted is backed up by 1/4 the productive capacity of the country currently than was the case in 1981.  Or how much overstated the GDP is in relation to bullshit CPI statistics.

I think it's even worse than the graph shows becuase of understated price inflation resulting in nonsense GDP "growth" that never really occurred.

 

economics9698's picture

I like John's explanation above. 

To put it layman’s terms the Fed knows exactly what it is doing, it has done it before.  The Fed understands the gravity of the situation and the importance of keeping the rich in cash, and to keep widening the distance of the rich and the rest of us.  This ensures regime support from the people who count and will allow the privileged to buy assets for pennies on the dollar when the crash does come.

In the past hard economic times and exploitation by the government and Federal Reserve were forgotten because of WWII. 

One of four paths, austerity, not happening, inflation, we already have, it will get worse, bankruptcy, the best choice, not happening with this regime, war.

War is the preferred outcome for the sociopaths because it diverts almost 100% of the public’s attention away from the source of the exploitation.  The rich ... really do not care who wins the war.  If the USA lost they would pack up and move to a new host nation.  Money and power over millions of preasants is job #1.

Ms. Erable's picture

Does 'creating a treacherous hiatus for markets'  mean that public companies might have to do things (such as produce something of value or turn a non-adjusted profit) to justify their high valuations?

The horror!

Mercuryquicksilver's picture

JLL and Economics, thanks for making a relevant comment and link. Learned something new today.

eclectic syncretist's picture

Wallstreet can now pull the carpet out from under nations feet at it's leisure.

economics9698's picture

As long as people believe in their fiat.  When the fiat dies the ropes come out.

eclectic syncretist's picture

I have a question, with a long intro, so please be patient.  Remember that companies have been using secured loans from banksters to buy back their shares?

http://www.zerohedge.com/news/2014-07-08/stock-buyback-shocker-companies...

And that companies are compounding this by using most of their profits to also buy their own shares?

http://www.zerohedge.com/news/2014-10-06/why-stocks-just-wont-drop-compa...

And this is all still going on?

http://www.zerohedge.com/news/2014-12-08/q3-buybacks-surging-these-are-t...

WHO IS SELLING THEM ALL THIS STOCK?  (ABOUT 1 TRILLION WORTH OVER THE LAST THREE YEARS)

WHAT IF WALL STREET IS LENDING THEM THE MONEY TO BUY BACK THEIR STOCK,....AND SELLING THEM THE STOCK TOO?  WHAT WOULD BE THE MOST LIKELY OUTCOME?

FreeNewEnergy's picture

OK, I'll take a shot at this, since it's something I've pondered recently.

The companies are buying their own stock back from investors. They could be hedge funds, the Fed, mutual funds, mom and pop, banks (they hold lots of shares, and I think that is your point). The problem I see coming is that these companies have to pay back what they borrowed, and, if they aren't wildly profitable, they will have to begin selling the very stock they bought.

I've always thought stock buybacks were bad decisions, and connotes a failure of management to utilize capital in it's most effective manner.

Since these companies have been buying their own stocks at near all-time highs, once they begin to panic, and start selling the stock they bought at $80, for $70, or worse, it will spread and crimp earnings in a very big way.

In other words, the only way stock buybacks are any good is if your stock keeps rising. If your stock falls, yo look like an idiot and have endangered the existence of the company.

That's the way I see it, and why I eventually see a major market crash as the only possible outcome from all the free money and wild speculation of the past six years.

LawsofPhysics's picture

"If your stock falls, yo look like an idiot and have endangered the existence of the company."  ---

Correct and in a functioning market you would lose your job and wealth to pay back the creditors.

You would then join the ranks of the unemployed, at least until you proved yourself again (which a truly smart person would).

Remember, "no risk no reward" right?

this is also why we now have so many idiots in powerful positions.

pods's picture

Since we transitioned to Nerf Capitalism everyone has fun but nobody gets hurt.

pods

LawsofPhysics's picture

"Nerf Capitalism"  --  Copyright this immediately!!!!!

Almost Solvent's picture

"nobody gets hurt"

 

:) - depends on what nobody means!

rbg81's picture

Tightening my arse.  

Anyone who thinks rates are rising is smoking something  Falling rates are  a 30+ year trend -- and it is happening for a reason: to finance the growth of the Entitlement State.  And the Entitement State is GROWING, not shrinking.  Therefore, I expect rates to continue to fall and go negative.  Because raping savers is the only way the Entitlement State can keep afloat at this point.

So things will continue to distort.  Capitalism as we know it is toast.  It was probably toast inn 1997 when the big bailouts started.

Jethro's picture

That's pretty much how I see this too, and the reason why the stock market keeps climbing, and why fundamentals no longer matter.  It's no longer about mom & pop investors, but about the illusion "investing" in the stock market.  The banks/companies can't afford a loss because it will most likely bankrupt them due to leveraged bets, and the government is almost certainly complicit (along with their media puppets) in keeping the plebes in the dark.

OpenThePodBayDoorHAL's picture

Of course they borrow at zero % and buy their stock back, thinking they would stop is like asking a lion to turn vegetarian. They can't and they won't and it's not really their fault. The fault lies with the people running the currency.

Notsobadwlad's picture

It would be interesting to see the correlation between buybacks and insider selling and buybacks and major shareholders. All of this information is available after the fact but someone would have to do the grunt work of collecting the data from a site such as nasdaq.com and running the correlations.

Farqued Up's picture

Just damn! I do believe you are on their trail.

piceridu's picture

Isn't that the GM/GMAC model...or to be more precise, the US retail model?

nakki's picture

Here is what I think is happening. Companies buy back stock through cheap money bonds or profits. Banks sell stocks that they have in these corporations and buy bonds knowing that when stocks eventually get hammered they can just print FED money to buy stocks. If companies go bankrupt bond holders get first dibs on assets. Eventually banks own everything, or should I say THE BANK owns everything. What the FED has done is allow bubbles to form knowing this. Its a win, win for the people that own the currency. There is no risk at all.

eclectic syncretist's picture

I would tend to agree with you here.  The bailed-out TBTexist banksters had insider information on when QE would kick in, and they bought distressed shares at the bottom in 2008-2009, and have been conniving to get companies to buy this stock back from them now that prices have recovered.  When they have distributed (sold short) all the shares they can they will simply stop lending to the companies (higher interest rates would accomplish this in a most ingenious way), and crash the market.  Many of these companies will then be owned by the banksters, who will only have to figure out how to avoid jail time (duh, bribes), or an angry populace (somewhat more delicate and risky, but offering up lower-level scapegoats is a time-tested option).

Where the hell is Matt Tiabi or that Flash Boys guy on this latest round of fraud?

tumblemore's picture

It's like Weimar. They either engineer situations where the banking mafia get to own *everything* or their behavior inevitably leads to economic busts and in the process of making sure they get bailed out every time - through bribing TPTB - they have money when everyone else is selling at fire sale prices so it ends up the same way.

 

NotApplicable's picture

Who's selling? Pensions and every other retirement fund that has to liquidate in order to meet obligations.

corporatewhore's picture

Interesting that you mention pensions.  Just saw on the news they've reached a deal to essentially "gut" pensions in order to keep the government running--multi state.  Obviously not gutting any govt critter pensions.  So now someone with 33 years and a 3k pension will have to deal with the new reality of seeing their promised benefits reduced.

Your promised job--reduced.  Your promised pension--reduced.  Your savings--reduced.  Your home value--reduced.  Your gas prices--reduced.  Food stamps--reduced (well, maybe on that one --will take some time to get through)  Unemployment reduced (done).

Deflation is rearing its ugly effects slowly but surely.

tumblemore's picture

If it's all going down I think they'd want to steal all the pension money first before they crash house prices (and buy them all at rock bottom prices) as they can steal the pension money by stealth.

gatorengineer's picture

The answer in part is this is just taken out of the liquidity of the market.  Appl buying 40Billion in stock sounds like a lot, but its 5% of the float no big deal.

What happens is the price rises, EPS rise, etc...

What will be interesting is when any of the companies who have bought the stock have to sell it to raise cash.... IBM is likely first in this bucket.

Shizzmoney's picture

Its not so much the EBT, more like the DJIA and S&P debt fueled bubble which has helped fuel this faux unemployment.

Corporate debt has never been bigger; its even bigger than govt debt, and we don't even know how deep the rabbit hole goes because of shadow accounting.

Therefore, we have a bunch of newly created low-wage jobs with no sense of security.  And eventually, the bubble pops.  

Since Japan is the model, it might take some time.  Like 10 years.  But there will be serious blips; oil is one.  Q4 in 2015 will be another, IMO.

tumblemore's picture

Japan has a much more cohesive society though so that might effect the time scale.

 

ejmoosa's picture

Hide, Extended, and Worsened. 

unplugged's picture

the best slave is the slave that doesn't know he's a slave

Farqued Up's picture

Like the slow boiled frog.

froze25's picture

And when they find out they are gonna be PISSED!  I guess that is why they are working so hard to get the guns away from the "slaves".

SeattleBruce's picture

Those of us who've taken the red pill (woken up to reality), need to keep working on the underground railroad to free the other slaves.

tumblemore's picture

and to get the various different ethnic groups fighting each other

Last of the Middle Class's picture

Done since the Roman times, Bread and circus economy, steal all you can then throw bread to the few who would upset the apple cart to keep them quiet, such things as ebt cards and such. Never has a level playing field been such state sponsored propaganda.