Although I never thought it was possible, it makes me angry to write this book review. I'm not angry because I don't like the book. On the contrary, this is the best economics book I've ever read. Indeed, it may be the best and most influential book I've ever read in my life. I only wish I had read it the moment it was published in April 2013.
Were this extreme policy to be implemented it would be a further and deliberate debasement of fiat currencies. Alan Greenspan’s warning of “fiat money in extremis” becomes more real by the day. Were this silly proposal ever to become policy, it would significantly increase the risk of inflation and stagflation. In a worst case scenario, it will lead to currency collapse and hyperinflation.
The more the Status Quo pursues the same old Keynesian Cargo Cult script of central planning and free money for financiers, the more self-liquidating the system becomes.
Has Germany had enough? Hot on the heels of Mario Draghi's 'demands' that EU leaders undertake "structural reforms" to boost competitiveness and overcome the legacy of Europe's debt crisis, German Finance Minister Wolfgang Schaeuble unleashed perhaps the most worrisome statement tonight for all the free-money-party-goers - the music is about to stop. In an interview with Bloomberg TV, Schaeuble blasted "Europe needs to find ways to foster growth." In a clear shot across the bow of his 'core' cohort, Schaeuble said he "understood" Hollande's demands but shot back that "monetary policy can only buy time," adding that "the ECB has reached the limit in helping the Euro Area."
How do we know when an asset class is in a bubble? When everyone who stands to benefit from the continuation of the expansion declares it can't be a bubble.
The Status Quo is dysfunctional because its model of how the world works is broken. It won't matter if gridlock remains in place or one of the parties gets to impose its "brand" of policy-tweaks; since no one on the political spectrum has any concept that the current model described in these 12 points is broken, fixing the political dysfunction won't fix the systemic dysfunction.
The Status Quo is desperate to mask the declining fortunes of those who earn income from work, and the Misery Index 2.0 strips away the phony facade of bogus unemployment and inflation numbers.
While the Federal Reserve presents itself as free to do whatever it pleases whenever it pleases, the reality is the Fed's own policies are constraining its choices. The Fed is being forced to end its bond-buying, cutting off the "free money for financiers" that has sustained a frothy stock market.
The Federal Reserve's communications and policies are a form of crazy-making double bind. No wonder the economy and everyone participating in it are beset by various manifestations of mental and physical illness. On the one hand, the Fed insists the economy is expanding and all is well. If this is true, then the Fed should allow interest rates to normalize, i.e. be unleashed from the Fed's financial prison and allowed to rise to whatever the market of borrowers and lenders sets as fair in the current climate. But the Fed also insists that it cannot allow rates to rise. The ultimate Fed crazy-making double-bind is this: you can't live without us, your financial Overlords who keep you safe from recession and the volatility of creative destruction, but you can't be free or prosperous with us in control.
Nobody really believes the official narrative that the "recovery" is powering the remarkable strength of U.S. stocks, bonds and real estate. The real Main Street economy is quite obviously struggling, outside the energy and Federal government sectors, and so many see the Federal Reserve's free money for financiers (a.k.a. quantitative easing) bond and mortgage-buying programs as the real reason bond yields have declined and stocks have soared. This leads us to wonder if capital inflows into the U.S. aren't a largely overlooked driver of rising U.S. markets.
There is no reason rooted in the real world for today’s frothy stock market rally. In every single region of the planet, the post-crisis, central bank fueled expansion cycle - tepid as it was in the global aggregate - is faltering badly. So with the global expansion cycle faltering, profit ratios at all-time highs and PE multiples in the nose-bleed section of history - nearly 20X reported earnings for the S&P 500 - there is only one thing left for the Wall Street robots to do. Namely, vigorously buy the latest dip because the Fed has yet another new sheriff heading for Jackson Hole purportedly bearing dovish tidings. To wit, after 6 years of pinning money market rates to the economic floorboard at zero, Janet Yellen espies an economy still encumbered by “slack”, and will therefore be inclined to keep Wall Street gamblers in free money for a while longer.
Much of the supposedly godlike power of central banks is participants' faith in their powers to control not just finance but the real world that can be leveraged by finance. Implicit in this narrative is the notion that there are no hard limits on credit or central bank money creation. Equally implicit is the assumption that the central banks repressing interest rates and creating trillions of dollars out of thin air can control any blowback or unintended consequences triggered by the free money for financiers tsunami.
Any Bond Idiot Can Buy into Fear, but they are Forced to Sell into ‘Good Times’!
With credit markets beginning to creak, market internals flailing, and numerous sectors and individual stocks in a state of correction or bear market, it appears Marc Faber's calls for a big correction in stocks is more right than wrong but the algo-driven exuberance in indices maintains the illusion a little longer (even as the number of leading stocks drops). However, with redemptions increasing in credit, and costs of funding rising, perhaps Faber's insights in the following interview with a radiant Trish Regan are about to be realized. "By printing money, [The Fed] has delayed the cleaning process," as mal-invested capital (and self-referential buybacks) have sustained (and even encouraged) the worst quality companies. As corporate defaults pick up (and The Fed's free money dries up), perhaps that cleaning process will be allowed into the free-market producing "the big sell-off" Faber sees in the Fall.