Guest Post: So is Everyone Printing Money? (Short And Sweet)

From James Vinall

Henry Morganthau Jr., said in 1939:

Never in the history of the world has there been a situation so bad that the government can’t make it worse

So is Everyone Printing Money?

Greenspan started this calamitous monetary expansion to bail out US Inc and banks from the tech wreck in 2000,as revealed in the chart of the price of gold  below.  Bernanke continued the stimulus and Darling/Osbourne, Trichet et had no choice but to follow.

The Japanese has had thrown vast amounts of stimulus money at the economy since 1990 to little or no effect and all they got was more debt (sounds like Henry Morganthau Jr.)

Here is a chart of 6 major equity market crashes caused by overburdening debt, starting 6 years before the ultimate market peak and the aftermath.  In 1931, the DJI bottomed out at 10% of its peak value as there was no meaningful stimulus package and it took 25 years to make a new high.  The NASDAQ bottomed at 23% of its peak value in 2003 and remains under 60% of its ultimate.  Japan saw massive stimulus in 1992 supporting the market at 40% of its ultimate, but when that stimulus ran out 8years later the markets fell to 20%.  The Chinese since 2007, seem the be following the Japanese path of smoothing a decline.

Japan has found out the perils of a long term zero interest rate policy means the banks have no incentive to assume credit risk and lend to each other or anyone else, so they trade their own book.  The performance of the FTSE 100 and S&P500 suggest the true extent of the banks continuing to use cheap government money to trade bonds and equities.   Japan knows what happens when the “extend and pretend” gravy train stops rolling.

Equities should continue to rise while government stimulus money can find no other home. This is why politicians are irked at bankers bonuses, because they wouldn’t be making fat profits without cheap government money raised at the expense of the tax payers.  All tangible assets, commodities (metals, energy, agricultural) and rare artifacts are likely continue rising until growth is undermined.  The threat of rampant inflation and civil unrest will eventually cause the US, UK, Eurozone, Japan and China to rethink stimulus packages.

We are in bubble caused by politicians across the world trying spend their way out of debt.  It hasn’t worked before and it won’t work this time either.

The problem we have is not knowing when the bubble will burst.