Submitted by Brandon Smith via Alt-Market blog,
It is difficult to find the motivation to write about the state of the global economy these days, if only because there is not much left to say. I feel like I am composing multiple obituaries for the same long dead corpse. Most of the Liberty Movement and I suspect a small portion of the mainstream market understand that there is no tangible or legitimate recovery, let alone a stable fiscal ladder to rest our feet upon. There is literally nothing left to the financial system but rigged statistics, false promises, and ever expanding debt. In fact, the concept of debt creation is the only thing holding our facade of an economy together.
You and I probably find this rather strange. We come from a long forgotten school of economics, in which demand, supply, and savings actually mean something in terms of our fiscal health. I have come across many mainstream economic acolytes and cultists in recent months who disregard ALL logic and reason, forsaking the realities of demand based trade and immersing themselves in a grand delusion in which central bank generated debt and inflation are the real source of “prosperity”. I feel sorry for them in a way, because the truth is right in front of their faces, and yet, they will never see it, not until they are buried alive in it.
Nothing makes this problem more apparent than the behavior of equities in the past month.
Stocks are, of course, a sham of the highest magnitude, but they do still say something about the greater truth behind our financial condition. The fact that many market traders clearly KNOW that it's all a farce, and are actually banking and betting on the scam, tells me exactly how close we are to the end of the line. The recent near 10% drop in the Dow at the beginning of Fall must have certainly been a shock for the day trading community as well as mainstream pundits. The assumption for the past few years has been that central bank stimulus guarantees a constantly growing bull market, and to experience a considerable decline in equities even while QE was still in action was at least a noticeable wake up call.
I suspect that this decline in markets was not necessarily planned by the central banks, and was a stumble in their scheme to keep stocks elevated until after the QE taper had settled. It was also a stumble I expected a little earlier, around the end of Summer to be exact. Since the drop, central banks and the mainstream media have reacted forcefully to manipulate public perception as well as investor optimism, but this cannot go on for much longer.
In almost every instance of market decline, financial news group Reuters has injected false rumors of more stimulus from the European Central Bank. This was also the case in October as markets began to crash. These rumors were later dashed by the Financial Times, but not before the mere mention of more fiat stimulus from any central bank sent stocks soaring yet again.
This also occurred when middle management Federal Reserve member John Williams hinted in interviews of the possibility of “QE4” if the economy began to show signs of regression. Williams, of course, has no say in the decision to reintroduce QE, but this did not matter to investors, who immediately latched onto the meaningless news like anxious children, and threw their money back into stocks again.
And, most recently, Japan's central bank announced a sudden and surprising re-ignition of stimulus measures to the tune of 80 Trillion Yen a year. This announcement, once again, sent global stocks skyrocketing, even though it was a stark admission by Japan's financial elite that all their inflationary printing efforts for the past several years have failed miserably. As I have warned in the past, when bad news becomes good news because bad news promises more central bank intervention, the economy is truly on the verge of a reckoning.
Hopefully, we can all see the trend taking place here. With the end of the Federal Reserve taper now complete, and questions circling as to when interest rates will be raised, a market volatility not seen since 2008-2009 is returning. The ONLY measure that has slowed the crash is the use of false news stories hinting at further stimulus, as well as futile efforts by other central banks to pick up where the Federal Reserve left off. This shows that the investment world is so thoroughly addicted to QE that even the mere hint of another small fix of their favorite drug is enough to get them out of bed and excited. They know that the entire system is rigged by central banks, and they don't care. In fact, they revel in it. The only goal of your average day trader now is to profit on the scam for as long as humanly possible, even though the ultimate conclusion of the scam will mean the utter destruction of their profits and the end of their way of life.
I hate to use a cinema analogy for a very real threat, but investors today remind me of Joe Pantoliano's character in 'The Matrix'; the guy who is fully aware that the Matrix is an illusion, but wants to experience the pleasure of the illusion all the same. So much so that he doesn't mind being exploited like a slave by the system, and is willing to sacrifice all measure of truth and even the future just to get a taste of the fantasy again.
But what is the reality that the central banks are trying to hide, and why? This I have written about in detail on literally hundreds of occasions, so I will only cover the very latest news briefly here, and why I think the overall dynamic is about to change for the worse.
Global exports, and thus consumer demand, are plunging. Germany, the only pillar left to prop up the failing European Union, has experienced a severe decline in exports not seen since 2009.
China, the largest exporter and importer in the world, and Chinese companies, have been caught in a number of instances using fraudulent invoices to artificially inflate their own export numbers, in some cases reporting 50% more exported goods than had actually existed.
China's manufacturing has also declined for the past five months, exposing the nature of its inflated export stats and indicating a global slowdown.
The Baltic Dry Index, a measure of global shipping rates for raw goods, and thus a measure of demand for shipping, continues to drag along near historic lows.
The U.S. consumer (the only economic asset the U.S. has besides the dollar's world reserve status), has seen declines in spending as well as wages.
In the meantime, long term jobless Americans continue to fall off welfare rolls by the millions, making unemployment numbers look good, but the overall future picture look terrible as participation rates dissolve into the ether of government statistics.
How is such poverty being hidden? Foodstamps. Plain and simple. Nearly 50 million Americans now subsist on food stamp programs today, and this number shows no signs of dropping. In states like Illinois, two people sign up for food assistance for every citizen that happens to find a job.
But this is all rudimentary. Most analysts in the Liberty Movement agree that our fiscal structure is on the edge of collapse; what they tend to bicker about is HOW and WHEN the structure will collapse.
Guessing market declines has been extremely difficult in the midst of a fiat soaked fiscal environment. Nothing is ever quite what it seems. My predictions of a 10% drop by the end of Summer were off by three weeks. Because of the nature of QE stimulus manipulation of the Dow, our only real guide has been the timeline of the Fed taper, and the fact that major banks have been relying on fed fiat to continually cycle capital into equities through the use of low interest loans to corporations and the stock buyback scam. Company buybacks have given steady boosts to the markets at least since 2008, and many corporations are using up to 50% of their “profits” just to continue buying their own stocks.
This strategy, however, is reaching a point of diminishing returns as many companies are issuing too much debt in the process. IBM is a perfect example of a company that has hit the ceiling on stock buybacks. This odd coordinated attempt by corporations and central banks to keep markets propped up even as companies sacrifice whatever debt stability they had left indicates a state of collusion between such institutions that goes far beyond the mere idea of "mutually assured greed". Since at least 2008, there has indeed been a "conspiracy" amongst banks and international companies to generate a massive stock bubble designed to keep the masses calm and placated. However, these groups understand, better than many give them credit for, that such measures will have to end, or be revealed.
With the taper finished and QE money drying up, it is important to ask a few questions. For example, how are companies going to continue to accumulate capital to dump into their own stocks if fed money is becoming scarce and consumer spending is in decline? And, if they can't continue stock buybacks because of a lack of funds or an overburden of debt, how are equities markets going to stay afloat?
And what about government debt? As it stands now, foreign interest in U.S. treasury bonds is waning. The vast majority of new bonds sold are short term. Until now, the Fed has been the primary buyer of long term debt, snapping up 10 year bonds from the market while other investors lose confidence in America's ability to pay off liabilities in the future. Now that QE is over, who is going to buy the ever expanding U.S. government debt? I aimed this question recently at a Fed cultist and his response was “Well...obviously somebody will buy it...”, though he couldn't specify.
The spike in short term debt purchases after the end of QE3 was also predictable, but it can only be sustained IF stocks begin to fall considerably yet again. Think about it; interest in U.S. debt has been on the decline for years, not just because foreign banks are shifting away from the dollar, but also because stocks have been a much more attractive investment with greater returns guaranteed by Fed QE. The taper announces a violent change in circumstances. The only way for interest in U.S. debt to be energized, even for a short time, is for stocks to crash, leaving bonds as the only safe haven left. I discussed this development in detail in my article 'The Final Swindle Of Private American Wealth Has Begun' at the beginning of this year. All other investment avenues seem to be in decline, from foreign markets and forex, to commodities like oil. Even gold and silver have taken a hit. For the average investor, if a route in stocks occurs, they will immediately jump into bonds. This plays into my theory on the coming financial end game, which I will be discussing in my next article.
Investor's are counting on an eventual QE4, but I think this might also be wishful thinking.
At the end of 2013, I predicted the Fed would indeed follow through with the taper of QE3, and that they would drastically reduce stimulus measures. I believe this is in preparation for a major implosion of U.S. markets in particular. The whole point of the taper is to support the illusion that the U.S. economy has recovered, and that the Fed has “accomplished its mission”. When a crash does take place, I think it will be ALLOWED to move freely and that new QE intervention will not be taken. I have no doubt this crash will be blamed on an outside force or act of fate (the ebola outbreak, which is doubling in cases every three weeks, is a perfect possible catalyst), and that banks will be absolved of all blame in the mainstream.
A coming crash is not only my personal view. It is important to note that behind the background noise of the recovery party, international bankers are sending a very different message about economic health.
On the same day as the Federal Reserve announced the end of QE3, former chairman Alan Greenspan gave a speech to the Council On Foreign Relations in which he lamented that the QE unwind would be painful, that stimulus measures had not achieved their goals in the past, and that gold might be a good investment today.
The International Monetary Fund and the ECB also released statements warning that “accommodative stimulus policies” could contribute to economic volatility. That is to say, stimulus might be setting the stage for fiscal instability. The IMF claims that “bold action” is required to “reset” the global system.
And, the ever present overlords at the Bank Of International Settlements have posted a stark warning about our financial future, predicting a “violent reversal” in markets. The last time the BIS made such a prediction was in the summer of 2007, just before the derivatives crash. But this is the M.O. of the central banks, to warn of coming calamity just before the event, but not long enough before the event to make any difference. They present themselves as prognosticators of economic future, but in reality, they are the instigators of every disaster they predict.
I do not know how the markets will react to the likely landslide "victory" by Republicans in mid-term elections (can one ever be "victorious" in a rigged contest?), but what I do know is that a Republican majority offers an even greater opportunity for further collapse. Negative movements in markets that have been obstructed through manipulation can now be unleashed and then blamed on "government gridlock", or the inability of conservatives to "compromise" fiscally. A Republican shift in government only offers more cover for a collapse that is slated to occur regardless.
I believe that the admissions of financial danger by internationalists, the sharp drop in stocks at the beginning of fall, the reversal of the political theater, and the fact that mainstream investors now recognize the illegitimacy of the markets yet continue with the scam anyway, signals the last gasp of the global economy. I expect increasing market instability from this point on, as well as numerous geopolitical distractions which will be blamed for the fiscal chaos. I have left out my explanation of the final end game so that I can cover it more fully in my next article. Needless to say, the coming storm is a deliberately engineered one, meant to achieve very specific goals, including a fearful and panicked populace, easy to manipulate as the system goes off the rails for the last time.