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How The Easy-Money Boom Ends...
Submitted by Bill Bonner via Bonner & Partners (annotated by Acting-Man.com's Pater Tenebrarum),
Checking the Balance Sheet
“Through the door there came familiar laughter
I saw your face and heard you call my name
Oh, my friend we’re older but no wiser
For in our hearts the dreams are still the same
Those were the days”
– “Those Were the Days” by Gene Raskin
Yes, they were good years… 1980-2015. We laughed. We cried. We got married. We raised children. We bought houses. We made money. Whose life has not been improved since the end of the 1970s?
Reagan’s “Morning in America.” Then the Clinton Years. Finally, George W. Bush’s “Fin de Bubble” era. Who is not older and better off (or at least older) than he was when the era began? Should we just stop there, happy to have had such a wonderful time together?
The great communicator back in the day …
Today, US equities sit not far from their all-time high. And about 1,180% higher than it was 35 years ago. A man would be fool to question his happiness in marriage; would he be so foolish to wonder about the bliss afforded by such a bull run?
Should we merely thank divine providence… or the profane feds… for our granite countertops, our rising stock market portfolios, our families, and our fortunes? Should we look in the closets and under the rug? Or maybe – just maybe – should we check the balance sheet?
Unexpected discoveries are always possible when studying balance sheets closely…
Vanishing Capital
The press was unanimous as to what happened on Wednesday: “U.S. Stocks Slip on Yellen’s Testimony.” What was it about her testimony that caused investors to think that their stocks may be less valuable at 4 p.m. than they had been at 9 a.m.? “Yellen hints at December rate hike.”
Investors are no dopes. They know the fix is in. The value of a stock is no longer determined by honest commerce. Now, it is a feature of finance – specifically, the rate of interest the Fed pays commercial banks on their excess reserves. And this number – as tiny as it is at 0.25% – can have a big effect. Set at the “wrong” level, and much of the capital value built up over the last 35 years could vanish – as much as $50 trillion worth, by our calculation.
We mentioned earlier this week “how we got where we are.” We referred to more than three decades of easy money… leading to a big increase in the world’s monetary base. In rough terms, it rose by an average of $500 billion a year every year for the last quarter of a century.
Delta of Plenty
Allan Sproul joined the Fed in 1920. He became the president of the powerful Federal Reserve Bank of New York in 1941… a post he held until 1956. And after leaving the Fed he became a director of Wells Fargo. When he died in 1978 he must have thought he had seen it all.
“As gilt-edged securities [bonds], both public and private, rise in price under pressure of the abundant money supply [which pushes down bond yields],” he wrote in 1946, “funds flow ever-increasingly into lower-grade securities and into equities, and into commodity, real estate and other markets.”
Allan Sproul, president of the New York Fed from 1941 to 1956. He was an old-school central banker and is highly regarded to this day.
Too bad he couldn’t live for another few decades. We’d like to see his face now. The funds have flowed in a torrent into stocks, bonds, and real estate, just as he predicted. That flood of EZ money created the delta of plenty in which we live today. Unfortunately, it’s not likely to continue, because funny things happen when you do funny things to money.
Dreams of Easy Money
That is the lesson from colleague Vivek Kaul’s masterful three-volume history of money, Easy Money. Vivek, who edits the Indian edition of the Daily Reckoning e-letter, goes all the way back… beyond the Carter administration… to the beginning of money – to cowrie shells and cocoa beans.
Anything can be used as money. In colonial Maryland and Virginia, tobacco was widely used as money. And in World War II prison camps, once again, tobacco – cigarettes – were the currency of choice.
“Easy Money” author Vivek Kaul
Vivek traces the development of money and banking from its origins all the way through the crisis of 2008 and beyond. If you want to know “how we got where we are,” Vivek’s book is a must-read.
Particularly interesting is his telling of the 1929 Crash and the Great Depression.
So much was happening, so fast – and with so many meddles and interventions – it must have been impossible to follow events, even if you were right in the middle of them.
Late October 1929 – bad news. People would only realize later just how bad.
Even now – after eight decades and after the story was told by giants such as Galbraith, Keynes, Friedman, and Rothbard – it is still hard not to get lost in the details. Something happens in the markets… the feds react clumsily… it leads to unforeseen consequences… which causes more market action… leading the feds to do something even more asinine.
In Vivek’s account, the comedy is never overt. But the farce is unmistakable. One government bumble leads to another throughout the Great Depression. Finally, World War II comes along and a new round of mistakes begins.
Vivek set out to describe how today’s world of money got to be what it is. He shows how simpleminded, self-serving theories, along with the usual low-bred chicanery and larceny, have caused countless headaches over centuries.
In that sense, there is nothing particularly special about our generation or the boom of the last 35 years. The dreams of easy money are still the same.
Virginia tobacco note, 1780. These were essentially warehouse slips to barrels of tobacco that began to circulate as a medium of exchange.
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No mention of Privat Bank, Ukraine.
Kolomoisky was exiled and in reprisal all the people who had money in his bank are now out. Too big to fail but not to big to go bankrupt after pocketing the American rescue monies.
Easy money is not over, it will continue. The feds not out of bullets, and will not run out of ammo, the gun will blow up in their face!
We will know when it is serious. The Fed and Congress will be exchanging heated blame, the IMF and World Bank will be weighing in, then, all will agree to the final attempt, the final pill, that will strip us all of any monetary value, in an attempt to salvage us, and likely thrust us into the “mother of all” economic disasters. From where we are to where we are headed is much further a drop than at any other time. They will be saying “the masses will always be with us, until they ain’t”.
we will know when its serious when gold can no longer be restrained nor acquired.
del, dup
http://blogs.barrons.com/stockstowatchtoday/2015/11/06/why-costcos-slugg...
Moar green shoots around the corner for Christmas Holidays.
The Virginia tobacco note was at least 'backed' by a pile of something real!
If it wasn't rehypothecated 100X and the underlying commodity that backs it quietly sold off somewhere in the middle of that process.
That is the problem in a nutshell.
I would include the part where the warehouse owner bribes the local constables to keep the "scrip holders" in line.
293X by the latest count, check the comex
As usual...blah, blah, yakkity shmakkity....
WHAT ABOUT TIMING? That's why I ignore Bill Bonner's new radio ads.
Timing is all about emotion, it is when confidence is lost -in the currency, in paper assets, that will be when the fat lady sings...and emotion-based belief in a corrupt system has to do with one's level of delusion and normalcy bias. That's why nobody can give you a date or an hour.
What you say is exactly right. But, "The End Is Near!!!" predictions have worn me out. The end has been near for seven years. Decades by some accounts. If I listened to the End Is Near prognosticators I would now be a middle-aged, but very poor, man. Since I didn't listen decades ago I'm quite well off. How to properly preserve it while trying to continue to keep up with Fed money printing - that's the trick.
The earth is 5 billion years old ...7 ,10 25 years is still a drop in the bucket ....until the bucket drops
The Fed didn't begin when Earth began. Nobody that I know was born when the earth began either. 7, 10, 25 years is a large amount of time in most human's lives.
(Sorry that you thought I was talking about geology in my previous post. In case you still don't get it, I was talking about markets and finance and people calling crashes.)
Easy money means easy wars.
The cost of the Vietnam war, $738 billion in 2011 dollars, forced the US off the gold standard on August 15, 1971.
The wars in Iraq and Afghanistan cost $6,000 billion and there were no immediate consequences and the Nobel Prize winner is getting ready for wars with Russia and China while bombing numerous countries.
Forward - to endless wars funded by easy money
Easy money also means stripping away the economy's production thru their counterfeiting. Ultimately(started in 2008), they must print debt/fiat exponentially to paper over the lost production. Debt servicing's all that matters now, see the O'Care ''tax''.
Didn't you forget the other half of "Guns AND Butter" policies?
The trillions spent on the wars, and lives lost and mutilated, were a horrific waste
BUT
trillions spent on the wars were a TINY fraction of the trillions wasted on the entitlement programs in the "war on poverty", which now consume more than 70% of all gubmint spending. The so called "poverty problem" has been subsidized by the gubmint so that now it is vastly larger than it was at the start, and the trend line is for it to consume ALL of the gubmint spending. This is the one war that has ben the most costly and the most horrific loss.
If the US can not win in Afghanistan, why the United States can win in Russia or China?
The war against countries such as Russia or China, will mean death to the United States. It is true with a five-time guarantee.
So it's all about the interest paid by Fed on reserves? Why not LOSE the rest of the crap and explain? ASSWIPE.
It is over when planet earth rejects USD as worthless piece of printed paper and no long accepts it in trade. And not a moment sooner.
You are welcome.
Short of nuclear war, that simply is never going to happen in our lifetimes. Sorry to burst your doom-and-gloom bubble.
If we get Hillary it will happen in our lifetime
Hillary - this is crazy McCain, but in a skirt.
Define "lifetimes"
1. https://www.youtube.com/watch?v=8CfKaodrttA
2. https://www.youtube.com/watch?v=oX83EzDofrc
what makes you think we will be as much lucky next time?
The death of the US dollar and routing of dual citizen zios shall be welcome. No more money for CIA and all these BS wars for Israel... no more BS wars for fake 'US interests'
Americans can be human again, and not the exceptional indispensible ones - or chosen ones.
All of them eventualy lead to one possible outcome. Hyperinflation,
No, MISERY belies them all.
Tehre are two others-- repudiation and war.
This debacle will probably continue as long as the People allow it to. Fear will end it.
That warehouse slip was for an amount of tobacco. Today however, it is as worthless as our present fiat currency, bonds and stock certificates.
The Silver Certificate circulated for years but you could not receive the metal so again, even with supposed precious metal backing it is only valuable while the 'powers' say it is.
An 1850 US $20 double eagle however will still bring you $1100 paper at the bullion rate.
Moral of the story,,, all paper is trash. When the value of any paper currency can be dictated by the few in power it is not the Peoples money.
Only gold and silver coin / bullion are the Peoples money as only they can survive the self appointed important 'leaders' of any particular time.
And we musn't forget the colonial's favorite form of money and credit - slaves. Especially since they were prone to "natural increase"; you could even 'stimulate' the increased return yourself....sheds new light on the Wicksellian natural rate of interest.
No matter the subject, there's always the race issue. Thank you!
Judging by your avatar, I thought you were going to mention rice.
Geldzins und Güterpreise,1898
I want some...
AND I might mention (dispite the race card comments replying to you Ben) that there is no racism to the new slavery/serfdom. Slaves now are all the working people around the world. Anyone who is not in the club. If TPP and the rest go through then it is fair game world-wide for 3rd world opportunity everywhere.
Mind there will still be a propoganda to pacify and divide. White slaves will be incentivized to divide from Afro origin. Asiatic vs. Arayan. And the ultimate current boogeyman,,,,the Islamic genetics. So no fooling. If you ain't in the club you will be disadvantaged and divided.
Race and serfdom/slavery knows no racial bent. Just look back at the Welsh miners, poor Britons during Industrial Revolution. Predates the "slavery" discussion but serfdom and slavery are not so far apart.
And serfdom is much cheaper in many ways.
Don't worry
Time and again, the Fed has demonstrated its determination to support securities prices, no matter the financial, economic or business realities. The Fed, being able to print currency, has unlimited resources to enact its determination. If they wish, they can buy every last stock, bond, CD and derivative pile of crap. Securities prices, then, have nothing to do with investors anymore. It will only be when the Fed decides to stop supporting stock prices that they will fall. As they say, "don't fight the Fed."
The great black swan collapse that everyone is waiting for will not happen in stocks. We need to be looking elsewhere for that.
Explain 1987, 2000, 2007
All "money" is confidence. Even "money" that backs something tangible. Even "money" that is in itself tangible. For instance, you have food and I have medicine. One of us needs the other person's items. The other does not. Faith must exist for the transaction to occur. Faith that whomever gets what they do not need that it can be exchanged for something they do need. "Money" is critical to society. It represents our civility. And, it need not be backed or be tangible if it can be controlled properly. It is not the "what" that money is, it is the "who" that controls it. This is the argument.
And when faith is lost, it is really the "who" that has lost credibility. Not the "what." And in the case of modern currencies, this is really complicated because there is also external (foreign) demand due to reserve status. For this to fail, it must be an external outcome. Internally, failures are already in motion and the result will just be a pounding of the US population more and more into 3rd world status. The only difference here is whether our journey into poverty happens fast or slow.
"it need not be backed or be tangible if it can be controlled properly."
Backing is how it is controlled like any loan or credit. Politics will never achieve discipline without control, achieved through scarceness. That is the underlying idea of backing.
There is no short term perceived downside to printing money, so they will continue to do so.
Even Bitcoin achieves a better version of scarceness than unlimited printing.
Sorry, but the backing gets manipulated as well. That is why it is the "who" not the "what." Until THIS becomes the subject, history will just repeat itself over and over... each time the masses getting duped into thinking the next system is better.
"Yes, they were good years… 1980-2015"
The power of finance was released.
But, the power of finance is the power of debt.
Sooner or later you reach maximum debt.
Debt was always jam today and penury tomorrow.
We've had the jam, tomorrow is here.
If you want to see the future of the United States, just look at Brazil and Argentina's history. Investigate how many renditions of their currencies they have gone through over the past 100 years. That is our future.
As long as we have the war machine, nothing will change. As long as we can pay to stir up the world into constant wars, nothing will change. There can be no compeition to the USA as long as we have the biggest War Machine, CIA etc in the world. We can continue to destroy the competition, we are the money printers.
Maybe.
all you need to concentrate on is one word....Illegal Immigration.
So, the moral of the story is that we are in an "easy money" secular bull cycle which 1) has lasted a long time, 2) cannot last forever, but 3) will not discretely signal in advance its end? Hmm, leaves the article's author (and me) confidently guessing.
In the last month or two, I have noticed the following trend in the sentiment of th ZH community. As we approached a possible fed rate hike, the stock bears and gold bugs were in a frenzy, claiming that the end was near. Then the after the mini crash and recovery, there was a lot of outrage over apparent manipulation, PPT, etc. Now, as the Fed is a strongly hinting at a Dec hike, and the markets barely react, it seems a lot of the stock bears, gold bugs, Austrian zealots are giving up, admitting defeat, wishing they hadn't been so negative for the past eight years, that they should have participated in the bull run and made some money.
I suggest this is a contrarian indicator. When the ZH crowd turns bullish, the market is about turn over.
.
the fed reserve will end when it takes $1bil dollars to make 1 penny of 'profit'.....as the fed prints profits go down. soon it will take billions to make enough to buy a hamburger. japan is probably there. obamacare (a tax) was created to help the gov pay for shit. regular people cant begin to pay it. we are getting close now to a collapse....
go for a walk and listen to the cars as they drive by.....people cant even begin to fix their cars. sound like they are falling apart. the middle class is busted. the only peple working are gov employees or corps that rely on gov contracts.
It’s not easy money, it is easy CREDIT!
Banksters will never admit their money type is the problem, and will instead blame everything else.
Credit comes into being on a double entry ledger upon moment of hypothecation. This credit depends on debtor’s signature authority, and also ability to transfer something fungible (land usually).
Debtor in effect is really creditor, because it is debtor’s signature that makes credit. But, in a twist of supreme MAGICKAL irony, banker claims to be creditor, and also claims usury on the money they create on their keyboard. It is a giant con game.
Credit as money cycles in an accounting periodicity based on its debt instrument; the debt instrument recalls its credit at the rate determined upon hypothecation. Worse, debt instruments can physically vector away from their former debts, and hence cannot be paid. Or, debt instruments grow in volume relation to their former credit, and hence the debt cannot be paid. Holders of debt instruments then invoke law, and demand payments, even though fraud is at the base of debt system.
Making an economy cycle unnaturally on a periodicity function inherent to credit as money is craaaaaaazy! Having debts grow unnaturally, especially to pay usury, is craaaaaaazy!
Also, think carefully on this. WHO GETS TO HOLD DEBT INSTRUMENT? Upon hypothecation, banker creates and then holds a debt instrument against you – new debtor. He gets power because of government sanction, and because you allowed it upon your signature authority.
Banker credit money pays back usury first, and principle only later. This means that finance is paid first in what amounts to a two loop economy. You, upon signature, have agreed to give banker first use of your credit. You have allowed your credit to be diverted away to finance oligarchy; and there they hold it looking for good things to buy. Finance usury loop may spend your former credit back into transaction economy, or maybe they won’t – instead they will gamble or whatever with your credit, thus making more demands on “credit’’ in real laboring transaction economy.
In a rel sovereign money system, the MONEY (NOT CREDIT) is already available in money supply. Money supply is filled with Treasury money. Your neighbors, who are savers, have put their savings in a bank. Said bank cannot create new credit upon hypothecation – it is illegal. In effect, money fluxes back and forth between creditors and debtors and money already in supply is a permanent tool that doesn’t disappear upon payback. (Credit disappears when paid, but money doesn’t.)
In a sovereign system, when a new debtor shows up to bank, said banker loans out money from savers accounts. Banker earns a fee for this operation, he works for you. If you are saver, you agree to allow this to happen, in order to earn interest on your money. Banker simply matches up new creditors and new debtors.
Let’s play Debt holder game: where is debt instrument physically located in a Sovereign money system? If you as new debtor borrow from your neighbors, then who are you in debt to? Are you in debt to the banker? NO!
This simple act of changing the money supply CHANGES EVERYTHING. It changes human behaviors and it changes national government behavior. It changes the price system too, driving prices down, as the parasite is no longer taking such a large free lunch.
Your neighbor is unlikely to HARVEST you in event you don’t make a monthly payment. A banker and predatory finance want to foreclose and take everything. Banksters love to foreclose on land and real assets in order to own industry and patents.
Banking and finance have inserted themselves in between human credit/debt relations and hence have undone human evolutionary history.
Hypothecating banksters are a third party, claiming to own money power. In effect, they are a parasite. And this parasite has hypnotized everybody to think it is necessary to a functioning money supply. Hypothecating bankster are emphatically not necessary, and instead they represent waste and losses, in addition to distancing humans from each other.
YES it is true that unaware sheeple humans can borrow easy credit, and then bubble it into stock markets and housing, etc. Bubbles and unwanted channeling behavior is a function of CREDIT systems, not money.
Eject the parasite.
www.sovereignmoney.eu
So, how does the easy money boom end? I didn't see the answer in the article.
Badly
So badly, it will re-define our understanding of "badly"
It ends with residents of DC roasting rats and pigeons over burning piles of $100 bills.
they'll have to figure out how to burn 1s and 0s, since there isn't enough physical cash to go around.
This article seems to forget about a couple of recessions in that 1980 to 2015 timeframe...
Tobacco-based money would be awesome, just for its value in pissing off all the smoking-Nazis.
Weed-based money would be even better. Then money really WOULD grow out in the backyard, contrary to what I was told as a kid.
Had an ancestor, in Va, buy 1000 acres of land for 12000 pounds of TOBO (Tobacco) in the 1700's.
So it pays not to smoke !!!