The Fed managed to pull a rabbit out of a hat last time... by resorting to extraordinary policies. In doing so, it's used up most of its ammo. So there's no telling what will happen if we get another systemic deleveraging again.
Here we are now, two years later, and the ECB has failed to create the sustainable recovery that it promised. Because of this, in June of 2014, Mario Draghi implemented Negative Interest rate Policies or NIRP and hinted at launching a QE program
The market is extremely tired and the systemic risks underlying the Financial Crisis are in no way resolved. With investor complacency (as measured by the VIX) at record lows, the Fed withdrawing several of its more significant market props, and low participation coming from the larger institutions, this market is ripe for a serious correction.
When you are leveraged at these levels, you only need the assets you invest in to fall 4% before you’ve wiped out all of your underlying capital (€26 * 0.04 = €1.04).
The Fed wants asset bubbles because they hide the rot within the US economy. If the Fed didn’t raise stock or housing prices, people might actually start to wonder… “hey, why is my life getting more and more difficult despite the fact that I’m working all the time?”
Central Banks, Bank CEOs, politicians… all of these people are focused primarily on maintaining CONFIDENCE in the system, NOT on fixing the system’s problems. Indeed, they cannot even openly discuss the system’s problems because it would quickly reveal that they are a primary cause of them.
The reality of what happened in Cyprus is a far different matter. And the reason that this reality has not been featured as headline news is because doing so would reveal the following:
History is replete with the total failure of Central Planning. Whether one look to China or the USSR or the US today, Central Planning has never successfully worked. It creates the illusion of stability in the short-term, but eventually the truth comes out: that it is a TERRIBLE means of deploying capital (both human or monetary).
Today we’re going to explain what the “final outcome” for this process will be. The short version is what happens to a cancer patient who allows the disease to spread unchecked (death).
So not only are we dealing with an investment landscape in which virtually no working fund manager has experienced a bear market in bonds… we’ve actually got an entire generation of investment professionals who have experienced only one increase in interest rates in 14 years.
No one knows how this will play out. We all know on some level that it will not end well, but exactly how and when it will all backfire remains to be seen. We’ve already had two epic Crises in the last 15 years. By the look of things, we’re heading for a third one in the not to distant future.
If the notion that the single most powerful entity in the world economy is ignoring warnings signs everywhere and continues to operate based on debunked and delusional academic theories worries you, you’re not alone.
