Why The Markets Are Overdue For A Gigantic Bust

Authored by Chris Martenson via PeakProsperity.com,

Let me begin with a caveat: confirmation bias is an ever-present risk for an analyst such as myself.

If you're not familiar with the term, 'confirmation bias' suggests that once we've invested time and emotional energy into developing a worldview, we'll then seek information to confirm that view.   

After writing about the economy for so many years, I'm now so convinced that we can't print our way to prosperity that I find myself seeing signs confirming this view everywhere, every single day. So that’s the danger to be aware of when listening to me.  I'm going to keep repeating this mantra and Im going to keep finding data that supports this view.

Based on lots of historical inputs, I have concluded that Printing money out of thin air can engineer lots of things, including asset price bubbles and the redistribution of wealth from the masses to the elites.  But it cannot print up real prosperity.

As much as I try, I simply cannot jump on the bandwagon that says that printing up money out of thin air has any long-term utility for an economy. It's just too clear to me that doing so presents plenty of dangers, due to what we might call 'economic gravity': What goes up, must also come down.

Which brings us to this chart:

The 2000 bubble blown by Greenspan was bad, the next one by Bernanke was horrible, but this one by Yellen may well prove fatal.  

At least to entire financial markets, large institutions, and a few sovereigns.

It's essential to note that more than two-thirds of the net worth tracked in the above chart is now comprised of ‘financial assets.’  That is, paper claims on real things. 

As the central banks have printed with abandon over the past decade, they’ve created the most extreme gap between real things (GDP) and the claims on those same things (Net Worth) in all of history.

Following the Great Recession, the ‘plan’ of the central banks, such as it was, seems to have been to jam up people’s paper wealth, under the theory that people who feel wealthier are more likely to spend more and hopefully borrow more, too. 

That plan has worked rather well, at least from the standpoint of creating vastly larger amounts of new borrowing (debt and credit).  But  how much GDP growth has resulted? Not that much.

The gap between the two only grows and grows at this point. And the central banks are now stuck at this point. They literally have no idea how to undo this problem they've managed to create.

At some point that gap is going to have to close. Either GDP growth recovers to its highest rate in all of history and then stays there for many years (a complete fantasy if we're being honest), or the global debt pile starts getting defaulted on (which will have very ugly repercussions).

This is why we’ve focused so heavily lately on central banks. It's why we recently produced the End Of Money webinar with an excellent panel of experts (including G. Edward Griffin, David Stockman and Axel Merk) to increase our understanding of what actions the increasingly desperate central banks are likeliest to try next.

As the above chart chillingly shows, the damage down by the bursting of each previous market bubble blown by the Fed has been worse than the ones that preceded it. This time will not be the exception. This third bubble, the largest and most ill-considered of them all -- which we've written extensively one as The Mother Of All Financial Bubbles -- will be enormously destructive. 

It will be so bad, that here at Peak Prosperity.com, we not only focus on helping people navigate the tricky world of building and preserving their financial capital at a dangerous time like this, but we also advise building true resilience across the other important forms of capital such as Social, Material, Living, Emotional, Knowledge, Time and Cultural capital. So much will likely be lost in this next reset that true wealth in its aftermath will be dependent on more than just money.

Actions, Not Words

Most people take their cues from the price level of the stock market.  Once upon a time, equities were a useful barometer. But that was before the central banks began intervening heavily in them, starting under Alan Greenspan. He was responsible for the first big bubble on the earlier chart above.

If you listen to the words in the public statement of the central banks, you'll hear a lot about ‘improving conditions’ and ‘nearly full employment’ and ‘strengthening growth prospects’. However, if you then look at their actions, you'll see they're in complete opposition to these statements.

As always, you should put far more weight on what someone does rather than on what they say.  Actions speak louder than words, and so here’s all you need to know about the central banks, their influence on markets, and what they really think about things at the moment:

First, we have the red line trundling up at about a 30-degree angle from left to right for several years.  But then, in early 2016, the trajectory changed.

Do you remember what was happening then?  Emerging markets were in disarray, many had entered bear market declines, and the dollar was shooting higher ruining the economies of many developing nations. The western stock markets started rolling over and appeared ready to suffer a serious decline.

"Not on our watch!" declared the central banks. See what happened at the same time, as indicated by the orange line rising at a much steeper 45-degree slope?

That’s right: the central banks began dumping far more money in the equity and bond markets, in an attempt to save everything from the inevitable downturn that threatened to result from the prior central bank printing spree.

Now, here in early June of 2017, the Big 5 central banks have poured a whopping $1.5 trillion dollars(!) of newly created, thin-air money into the markets since the beginning of the year.

And because they have, we see things like this, where all the hot speculative money flows to the very hottest stocks, in this case the "FANGs"(Facebook, Amazon, Netflix, and Google):


The above chart shows that while these hot, sexy stocks have been rising (remember, we were all genius investors in the 1990’s, too?), the non-FANG stocks have not.  Further, the chart reveals the extent to which such stock price action has been coincident with central bank money printing (balance sheet expansion).  The connection is completely obvious.

But back to our story. This $1.5 trillion is a record-breaking amount.  As in, never-been-tried-before-let’s-see-what-happens sort of amount.

So, while the words of the central bankers may be soothing, their actions are panicky.

What are they afraid of exactly?

Well, that their entire scheme will prove to be another gigantic bust.

The only thing that can bail them out at this point is a swift return to robust, sustained economic growth. So let’s take a look at growth again, shall we?

Growth Is The Answer (And The Problem)!

The global growth scene is a mixed bag.  Right now, China and Europe seem to be in better shape than the US or Japan.

However it’s important to remember where we are in the economic cycle. Nothing grows forever, and we are now very far into this so-called 'recovery'.

In the US, it ranks as the third-longest recovery since WWII:


Apparently, not all ‘recoveries’ are built the same. If you look at the average yearly GDP growth rate over the past decade, it's the same as we experienced during the Great Depression era of the 1930’s:


The above dismal rate of growth perfectly explains the growing gap between household net worth and GDP.  If you boost financial assets ever higher using central bank stimulus, but the economy remains stagnant, you get a gap.

Global economic growth is weak, has been weak, and will continue to be weak for many reasons. Not least of which is the massive overhanging piles of accumulated debt across the global economy, which are very growth unfriendly.

As Professor Steve Keen has shown, if your debt grows at 10%, and this enables your economy to grow at 5%, anything less than a more rapid rate of credit growth in the future will cause your economy to contract.

Said another way, as long as you can grow your debts at a faster pace than your income -- forever -- you'll never have to experience another economic downturn.

That statement right there, lays bare the entire ridiculousness of everything the central banks have, and are currently trying to engineer. 

Eventually, reality always catches up.  And there are plenty of signs indicating that reality is now arriving.

And it doesn't look happy. 

In Part 2: Get Ready For The Coming Massive Correction we explain why there's a better than 50% chance of a global recession occurring in the next year -- and nearly a 75% chance of one in the US.

We then detail out how the coming predicted massive market correction may well rip the financial markets apart in a way that could take generations to repair in any meaningful sense.

Click here to read the report (free executive summary, enrollment required for full access)



Troy Ounce MillionDollarButter Sat, 06/10/2017 - 15:10 Permalink

 Chris.I can't wait.I have so many friends who want to break ties with me because "I am so damn negative" that it is really starting to piss me off.So I start talking about the kids, the weather and sport on TV: all the nonsense they want to hear.What's worse: these friends are all highly educated and have prominent positions in society! Extraordinary times we live in.

In reply to by MillionDollarButter

Gordon_Gekko MillionDollarButter Sat, 06/10/2017 - 16:44 Permalink

They already do. Whoever owns the currency owns everything by default. Only the overt RECOGNITION of this (hidden) FACT is in progress.And what are they "buying"? The decaying remains of a dilapilated and hollow "economy". They are reaping what they have sown. Eventually people will see the naked Central Bank emperor and leave them to play their insanity games while the real economy and productivity shifts the so-called "black" (read REAL) market.

In reply to by MillionDollarButter

silverer MillionDollarButter Sat, 06/10/2017 - 16:40 Permalink

Exactly. For as long as they can get away with it. That's why real, honest money like gold and silver would destroy their business model. You can't create it out of thin air. But right now, what a deal! Trading nearly worthless paper and essentially worthless zeroes and ones for real, hard, tangible goods. This thing will come off the tracks. It has to.

In reply to by MillionDollarButter

GUS100CORRINA Raffie Sat, 06/10/2017 - 15:39 Permalink

Why The Markets Are Overdue For A Gigantic BustMy response: All the evidence suggests that a plan to inflate market assets was hatched in 2011-12 with QE. Of course, we had a CLUELESS DESPOT with REPROBATE MIND in the OVAL OFFICE. That is when the WAR on GOLD/SILVER began is well. While I agree with the data, a crash will never happen UNLESS it is caused by the GOD of the Bible as judgment against America and the world. While GOD is long suffering and patient, his patience is not infinite. Watch the SENATE on their progress or lack thereof on HEALTHCARE. If they vote for ABORTION, this action could be one of the many triggering events.The other triggering event maybe the immoral, corrupt PROGRESSIVE LIBERAL DESPOTS. If the Progressive Liberals continue to attack this sitting president, GOD may finally say: ENOUGH IS ENOUGH and financial armageddon will arrive. President TRUMP is KING CYRUS and KING JEHU all wrapped into one. All the evidence would suggest President TRUMP is GOD's annointed. America needs to be wise at this time because the days are evil. The money changers in the end will have their comeuppance. Until that time, the money changers have the computers and can add '0's to anything going into infinity.

In reply to by Raffie

fbazzrea Raffie Sat, 06/10/2017 - 15:53 Permalink

It's mathematically impossible.cwazy wabbit... no such thing. ask Einstein... simply add a constant. an interesting feature of mathematics is the open-ended spectrum of available mathematical functions to produce predesignated outcomes. if one is not currently available, one is created. there is always a workaround to sustain agendas.

In reply to by Raffie

Hugh_Jorgan balz Sat, 06/10/2017 - 16:44 Permalink

"Eventually doomers will get it right."EVENTUALLY you'll see that the doomers ARE right. NOTE:EVERYONE has underestimated the level of control that the crisis of 2008-2009 brought to .GOV and the Banking Cartel. EVERYTHING we know that is Financial and Civil is currently artificial. This is the reason for all the wierdness in these things today. Just thought you might like to know. 

In reply to by balz

VWAndy Sat, 06/10/2017 - 14:53 Permalink

 Nothing that cant be fixed with more printing. Its the answer to everything in some circles. The secret is in being as close to the printing as possible.

Interested Reader Sat, 06/10/2017 - 14:56 Permalink

************** URGENT ************* United Arab Emirates places "WITHDRAW ALL FUNDS" order to all Qatar banks! ! ! ! This is the "Black Swan Event" no one saw coming.In order to fulfill this order and try to remain alive, the top 6 banks in Qatar will have to place "WITHDRAW" orders to other banking and financial institutions worldwide.  THAT will take out some of them in Asia, Europe and the USA.As words gets out that certain institutions cannot fulfill the demand, it will cause bank/fund runs.  Bank after bank could see catastrophe starting Monday morning.Details: http://halturnershow.com/index.php/news/world-news/577-united-arab-emirates-to-withdraw-all-money-from-qatar-banks-massive-banking-crisis-to-follow-immediately 

silverer Sat, 06/10/2017 - 15:01 Permalink

Trade directly in PM's. Owe someone four grand? Three gold coins at spot. If you're slightly over or under, use silver. Get it close with one ounce silver spot, then make up the rest with cash or credit. See how easy?

Overleveraged_… Sat, 06/10/2017 - 15:31 Permalink

On the Contrary, we don't have to print our way to prosperity. We only need to Print our way to brand new All Time Highs in the S&P 500. People, let's look a the real situation here.You can short stocks, or stay in cash, but by doing that you're GUARANTEED TO LOSE MONEY. Right now I'm 3x Long and Leveraged, ALL IN, in the S&P 500. This is a strategy that is GUARANTEED TO MAKE MONEY. You see, this is because I have the President's Working Group on Financial Markets at my back. No matter what happens in the market, Janet yellen, Mario Draghi and Kuroda will be there to hit the "buy" button in order to cover any dips that might come to stocks.So knowing this, and knowing that $300+ Billion Dollars of freshly created money is entering the stock market per month, Why WOULDN'T you be all in?I still see some dumb people who are truly thinking that a "crash" is right around the corner. LMAO. Could not be FARTHER from the truth. If you want the truth, listen to my posts. Go Long stocks and go long hard. Any 'dips' are just bear traps meant to skim money off the dumb shorters.I will be quitting my job soon at this rate, as I am up about $48,000 on the year. Economy, Schmeconomy. I am on the Money Train.

veeger Sat, 06/10/2017 - 15:02 Permalink

' it is not possible to print  our way to prosperity "......this person is a genius..............maybe if we just counterfit enough for the exceptionally chosen.......then that would be fine ? right.......

Deep Snorkeler Sat, 06/10/2017 - 15:11 Permalink

Timecan be either thin or dense.It all depends,on the number of events.Stock marketsare not human-based systems.The ecological foundation for your life,has disappeared.Our genome has lostits time, our skeinis not tight.  

BigCumulusClouds Ajax-1 Sun, 06/11/2017 - 05:53 Permalink

I am not a rancher. So I don't know if the cows do eventually come home. But I do know that the western powers can only control the synthetic price at the COMEX for only so long. The physical price will overtake the synthetic price in good time. Low manipulation prices only encourage more physical buying.

In reply to by Ajax-1

falak pema Sat, 06/10/2017 - 15:19 Permalink

Don't quote your pet Hayekian surrogates to justify this question.Its more a question of Hayek and Friedmanite inspired Reaganomics that made supply sider scamming the toxic US 1% er casino formula,  that justified "our money your problem" toxic hold on the world, after Berlin wall fall and NWO proclamation of towering colossus, in the image of Alexandria's old beacon to the world.We are the seven wonders all rolled up in Pax Americana !It started the fiat bonanza, now coming back to bite "our fake money your REAL problem"...that the Duck sings--against the tide of past globalist scamming-- like a holographic icon of corrupt fiat hegemony to the world.A runaway train has sucked the US "exceptionalilst" meme, until deplorable moonshining of Bannon's ilk, made it the laughing stock of the world, with the orange skinned toupee as its Nerotic icon.QED.

meditate_vigorously Sat, 06/10/2017 - 15:20 Permalink

We've been talking about why the market should bust for years. The truth is, the Central Banks will not allow it, because the next crash may be the last one. I expect this could go on for years. Maybe a good many years, until they can capture enough that the market may not ever crash again due to "market forces" or "fundamentals".

They may have already captured enough of the market that the only thing that could bring it down is proxy financial warfare between nation-states or Central Banks. Since the Western CB's are all controlled by the same cabal of Jews, it would have to be between China and Russia and the Rothschilds. India is still a puppet regime of the BOE.

Cutlery Hill Sat, 06/10/2017 - 15:44 Permalink

From their blog    SPECIAL Update for Monday Published. IMPORTANTby ShepWave.comPosted: 6/10/2017 00:29 EST Important Special Update for Monday Published. Weekly time frame analysis for the major US equity indexes as well as crude oil and gold.The indexes ended close to unchanged this week; Oh, except for the Nasdaq. The divergence here alone is enough to raise some interest.Keep in mind that when the indexes are making key market tops--either for a mid term or longer term trend--that measuring how the markets are making their tops is important.  Is there divergence? Are there chart patterns that give rise to sudden reversals? These are just a couple of the technical factors that one wants to consider regardless of how aggressive of an investor or trader he may be. These patterns are pertinent to the current market conditions.Please read the notes and analysis carefully in this update. Analysis for the major equity indexes is given in this update as well as the critical weekly time frame analysis for Crude Oil and Gold. Again, these two commodities continue to be very predictable--and therefore very profitable--but that is not a reason to be sloppy. Always be alert.Log In at www.shepwave.com for Monday's Special ShepWave Update showing the weekly time frame analysis. Monday's Regular Update has been published. This update shows the daily time frame analysis for the major US equity indexes as well as Crude Oil, Gold and the VIX.It is recommended for new subscribers to go through past updates to get a feel for what technical information has brought us up to this point.ShepWave analysis is always building upon previous technicals and analysis.As a note of caution: There are a lot of analysts who try to predict wave counts. Please be careful of doing that. It is good to understand the dynamics and underlying principles of Elliott Wave Theory but in the labeling of wave patterns, remember that no pattern or wave count is official until the next wave series begins. So many otherwise really good analysts seem not to understand this simple concept with regards to Elliott Wave Theory.  Proper Technical Analysis is a Science, an Art, and a Discipline: It is a SCIENCE in that we identify and analyze key technical occurrences and correlations. These lead to patterns which can be used to identify probable