Americans still say they believe in free markets, democracy and financial rectitude. But only as platitudes and hypocrisies... the free market was one of the first casualties of the post-1971 fiat money period. In a free market, people earn money by working (income) or by saving and investing it (capital growth). But credit-based money needed neither work nor saving; you just had to know the right people.
In the previous installments of this series, we discussed the hidden and often unspoken crisis brewing within the employment market, as well as in personal debt. The primary consequence being a collapse in overall consumer demand, something which we are at this very moment witnessing in the macro-picture of the fiscal situation around the world. Lack of real production and lack of sustainable employment options result in a lack of savings, an over-dependency on debt and welfare, the destruction of grass-roots entrepreneurship, a conflated and disingenuous representation of gross domestic product, and ultimately an economic system devoid of structural integrity — a hollow shell of a system, vulnerable to even the slightest shocks.
Borrowing in USD was risk-on; buying USD is risk-off. As the real global economy slips into recession, risk-on trades in USD-denominated debt are blowing up and those seeking risk-off liquidity and safe yields are scrambling for USD-denominated assets. Add all this up and we have to conclude that, in terms of demand for USD--you ain't seen nuthin' yet.
The captured corporate MSM is celebrating the six year anniversary of when the stock market bottomed in March 2009. They will spin a false narrative of Bernanke, Obama and Geithner saving the world with TARP, QE, and the $800 billion Porkulus bill. In fact, Bernanke and Geithner stopped the market from falling in March 2009 by threatening the accounting geeks at the FASB and forcing them to allow fraudulent reporting by the insolvent Wall Street banks. The crisis ended – precisely – on March 16, 2009, when the Financial Accounting Standards Board abandoned FAS 157 "mark-to-market" accounting, and Mark to fantasy was born.
"Presidents should get the power to declare economic emergencies along the lines to declare war... [and] take extraordinary actions and not put that all on the Fed." - Former Fed Chairman Ben Bernanke
For those of us who remain horrified and disgusted by the 2008-09 Federal Reserve and U.S. government bailout of the kleptocratic oligarchs who created the crisis, the above comments by the mastermind of this historic theft should be extremely concerning.
Recency bias no doubt once again playing a role, but more likely it is this new-ish trend to deny any damaging economic possibility as it might disrupt the balance of financialism. Any system that cannot even countenance just a small possibility of contrary thought is not robust or “resilient” at all. As we saw in 2008-09, oil liquidations were entirely appropriate for economic conditions; how can “everyone” deny outright something even slightly similar?
Under normal circumstances, after 2008's conflagration of the calamitous collateralizations, we shouldn’t have seen such irrational, reckless, greedy behavior from Wall Street for another generation. But, Wall Street didn’t have to accept the consequences of their actions. They were bailed out and further enriched by their puppets at the Federal Reserve, the lackey politicians they installed in Washington D.C., and on the backs of honest, hard-working, tax paying Americans. The lesson they learned was they could continue to take excessive, reckless, unregulated risks without concern for losses, downside, or consequences.
The average American benefited in no way from the government/banker bailout. Their wages have deteriorated, their daily living expenses have risen, Obamacare has resulted in higher healthcare premiums, higher co-pays, more part-time jobs, less full-time jobs, and less healthcare choices for the working class, while Wall Street generates billions in risk free profits, bankers and corporate executives reap massive million dollar bonuses, and the .1% parties like its 1999. Rising wealth inequality has been systematically programmed into our economic system by bankers and their bought off puppet politicians in Washington D.C. – Corporate fascism at its finest.
So, while the markets have surged to "all-time highs," the majority of Americans who have little, or no, vested interest in the financial markets have a markedly different view. Currently, mainstream analysts and economists keep hoping with each passing year that this will be the year the economy comes roaring back but each passing year has only led to disappointment. Like Humpty Dumpty, all the Fed stimulus and government support has failed to put the broken financial transmission system back together again. Eventually, the current disconnect between the economy and the markets will merge. Our bet is that such a convergence is not likely to be a pleasant one.
No Longer Focused On Deposits Or Loans?!
When you accept the fact history is cyclical and continuous linear progress is not what transpires in the real world, you free yourself from the mental debilitation of normalcy bias and cognitive dissonance. Things do get worse. There are dark periods of history and they recur on a regular cycle. And we are in the midst of one of those dark periods. This Crisis will not be resolved without much pain, sacrifice, bloodshed, and ultimately war. The American people have lost their ability to think, reason, question, do math, control their urges, defer gratification, or realize when they are being lied to by the people they elected to public office. A culture of ignorance, celebration of the absurd, salutation of stupidity, honoring of the inane, being mesmerized by electronic gadgets, and satiating their egocentric shallow impulses on social media, is a sure recipe for societal collapse.
The monetary politburo has every reason to fear Rand Paul’s demand for a “policy audit” of the Fed. An honest one would show that its so-called “independence” has been monumentally abused in a manner which is deeply threatening to both political democracy and capitalist prosperity. Needless to say, we can’t have that audit soon enough. In short, what the nation really needs is not an “independent” Fed, but one that is shackled to a narrow and market-driven liquidity function. The rest of its current remit is nothing more than the self-serving aggrandizement of the apparatchiks who run it; and who have now managed to turn the nation’s vital money and capital markets into dangerous, unstable casinos, and the nations savers into indentured servants of a bloated and wasteful banking system.
The Treasury-created market has benefited a few savvy investors, while saddling taxpayers with a loss. The Treasury, which has held 185 auctions to date, said it has raised about $3 billion on TARP investments that were originally valued at $3.8 billion, for a loss of $800 million at the auctions. The Treasury “set up this market where investors could come in quickly and flip and profit,” said Christy Romero, TARP’s special inspector general, in an interview. Three private funds have won almost half the shares available at auction, often netting either a profit on paper or on the resale, according to SIGTARP. “As a banker I was happy, but as a taxpayer I was not at all happy,” said Chief Financial Officer Donald Boyer. “The discount came out of taxpayers’ pockets.”
It is my expectation, unless these deflationary trends reverse course in very short order, that if the Fed raises rates it will invoke a fairly negative response from both the markets and economy. However, I also believe that the Fed understands that we are closer to the next economic recession than not. For the Federal Reserve, the worst case scenario is being caught with rates at the "zero bound" when that occurs. For this reason, while raising rates will likely spark a potential recession and market correction, from the Fed’s perspective this might be the “lesser of two evils.”
- Fed seen remaining patient with rate guidance amid global turmoil (Reuters)
- National Weather Service apologizes for blizzard forecast miss (CBS)
- Greek PM Tsipras pushes on with radical change, markets tumble (Reuters)
- Obama Drops Plan to Raise Taxes on ‘529’ College Savings Accounts (WSJ)
- Hard Choices on Easy Money Lie Ahead for Fed Chief (Hilsenrath)
- Debt That Once Boosted Its Cities Now Burdens China (WSJ)
- Skymark Said to File for Bankruptcy After Airbus Deal Flops (BBG)
- Heavy Fighting Drains Ukraine Government’s Options and Finances (WSJ)