What Is Market "Certainty"?

Tyler Durden's picture

From Bill Buckler, author of The Privateer

What Is Market "Certainty"?

Without going into detail, the concept of “market certainty” is obviously impossible. All one can know is that as long as human beings continue to trade the fruits of their labours amongst themselves, a market will exist. The prices that will emerge from these exchanges in the future can never be known because human beings are not inanimate objects, they have the power of thought and the power of choice.

When an institutional investor or market analyst or market regulator talks of “certainty”, they are talking about an ingrained faith that the interventions and manipulations which “worked” in the past to push markets higher will work just as well in the future. They don’t count on the power of thought or of choice. They count on the power of the common denominator in all prices. As long as the government and its banking system retains full control over the money, the “markets” will always have the fuel they need. That is the “certainty” relied upon by those who claim that markets hate “uncertainty”.

What modern markets actually hate is any hint that the ability to conjure up ever larger supplies of “money” might not be connecting to the markets in the manner it once did. What modern markets fear is the ever growing evidence all around them that this is indeed happening. The last Fed Chairman of the era of fixed exchange rates with a US Dollar still redeemable (by governments and central banks only) in Gold was William McChesney Martin. His tenure stretched from 1951 to 1970. Mr Martin is now best known for his job description. He described it as follows: “I’m the fellow who takes away the punch bowl just when the party is getting good.”

Mr Martin did “take away the punch bowl” several times during his tenure. So did Mr Volcker at the end of the 1970s. But no Fed Chairman has done it since. It has long become market “certainty” in the US and everywhere else that it will never be done again. The markets are still trying to convince themselves that the punchbowl will always be there and they will never have to sober up.

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One of the few things that we do know - for certain - about the future is that actions have consequences. In the world studied by the physical sciences of inanimate matter, it is possible to predict the future with certainty. That is because the entities being studied ARE inanimate. They have no power to initiate an action so they have no power to vary their reaction to a force which is applied to them. In the field of the study of HUMAN action, the situation is fundamentally different. No “stimulus” will ever produce the same response on entities which have the power of thought and the power of choice.

What the study of HUMAN action can tell us with certainty is that a given action will produce a given consequence. The timing of that consequence and its severity cannot be determined. All that can be known is if that a government has the exclusive power to determine what is used as money and if it uses that power to produce ever increasing quantities of it out of thin air, the days of its functioning as  money are numbered. It has been well said that: “There have always been only two kinds of paper money in the world. Those which are already worthless and those which are going to be.