Bill Blain: There Is A "Last Days Of Rome" Feel To The News These Days...

By Bill Blain of Mint Partners

Blain’s Morning Porridge – August 22nd 2017

     “”Forty-two,” said Deep Thought, with infinite majesty and calm.… ”


I’m wondering if I’ve stumbled into a parallel universe after coming back to the office yesterday. Its too damn quiet out-there! Everybody else is apparently still on holiday. It’s scary. Every headline is about thin markets or how markets have shrugged off last week’s sell off.. (what about next week’s?) There doesn’t seem to be anyone actually at their desks… That’ll change…

This week? Since no one is out there.. I can say what I like.. It’s no wonder news flow noise is being magnified out of proportion..

It used to be the summer was the right time for big Jackson Hole style gatherings – safe on the basis holiday markets weren’t paying much attention. Central bankers/economists/investors and other influencers could gab and pontificate without upsetting anyone. But today.. well maybe there are just too many journalists, bloggers and other market parasites just desperately keen to make sure folk are acting upon their supremely important insights into what Stephen Mnuchin’s wife was wearing during his visit to Fort Knox and what it means for global asset prices.

There is a “last days of Rome” feel to the news these days…

But some stuff is still well worth thinking about, so I have to comment on a great Bloomberg Article this morning: “Unintended Consequences of Quantitative Easing” by Jean-Michel Paul.

Regular readers of the morning porridge will know I’ve been deeply suspicious about QE since Day 1. I’ve been writing about the dangers of QE and asset price inflation, for years. Cassandra like, I’m probably right to be concerned, but was anyone listening?

THEY ARE NOW!

The end of QE is now very much “of the moment”; central bankers around the globe are finally waking up to the threats and understanding just why Normalisation is now so critical. That is what the real sub-text at Jackson Hole will be about this week.. although I doubt we’ll hear much about it.. its just too scary..

Can you imagine how global market sentiment would react if a phalanx of Central Bankers were suddenly to admit.. “Er.. we’ve just figured out we’ve profoundly broken the global economy through unforeseen financial asset price inflation, while negative interest rates have killed capitalism and destroyed the underlying processes of market based economies?”

Believe me... that would not go down particularly well… 

I’ve long argued it’s the unintended consequences of QE, aka: massive financial asset price inflation, that are storing up enormous trouble for the future – including breaking the current financial system. Mr Paul points out the value of “investible assets” (broadly parallel, I suppose, to what I call “financial assets”, ie bonds and listed stocks) has grown by 40% from $350 trillion to $500 trillion since 2008. He notes the real assets behind these numbers have barely changed… meaning we don’t have $150 bln of new airports, planes, roads, ports, factories, etc actually visible.

But that cash has to be somewhere…

The reality is simple. In 2008 the global economy just about crashed and burned. It was saved because Governments (the Authorities) poured aid into the broken financial system at enormous expense to tax-payers. Following the crisis, sage politicians announced they would never, ever, never again give tax-payer cash to bankers or financial markets.

Yet, subsequently, while trying to financial engineer recovery and financial stability, what they did was pump massive amounts of cash into the financial system. At what point did they not figure out that would 1) create massive inflation, and 2) build up enormous future tax obligations as central bank balance sheets expanded like balloons (hold that vision).

What has QE created? Massive Financial Asset Price Inflation which is just as pernicious and damaging as any other form of inflation eating away real value. In fact, it’s causing untold additional unintended consequences – including a massive explosion of wealth and income inequality.

Paul notes in his comment that financial asset inflation is killing the processes that drive Capitalism. We see that in the end of “creative destruction” and the number of Zombie Companies held together solely on low rates. A massive Credit Bubble – what? You never spotted it?

Massive Financial Asset Price inflation has not been matched by consumption – in fact low rates have made us all poorer at a time when inflation could be set to jump from the unreal financial asset world into the real world of real assets! Prices are going up and people can afford less – That is what you might call a sell signal!

What’s the solution?

Don’t know.

I suspect we’re into completely uncharted waters here. The central bankers know we need to normalise and rebuild the broken structures of capitalism and market based economies, without it becoming too apparent they are so broken – which would cause financial panic… On the other hand the cure might prove as painful as the self-inflicted injury of QE – analysts who assume a gradual slow steady normalisation of real interest rates will not prove impossibly painful may be kidding themselves…

Arg! It’s all so Bleak.

I have to start reading happier stuff in the morning…

Which is why I come back to Stephen Mnuchin and his wife.. I, for one, will giggle when the  whole Trump thing implodes, but I don’t reckon its as important as some folk think.. Washington will carry on indifferent to whatever fool sits in the office. Cynical and dangerous view.. but checks and balances and all that..

But folk hate shocks and uncertainty… Which is why what what Mnuchin’s wife was wearing matters.. The rationale goes something like: We’re all doomed because it turns out one of the saner members of the Trump cabinet has married a “let-em-eat-cake” Marie-Antoinette without enough common sense to STFU. (Unfortunately… although I’ve never heard of her before, apparently his wife, Louise Linton, is a famous Scottish Actress… Really?

Enough.. back to the day job!

Comments

BetterRalph Aug 22, 2017 11:44 AM Permalink

How far did Someone travel from the effects of "ROME burning" and how good was the intelligence to alert an impending ROME was going to actually burn on which date and time and which direction to have ran exactly what distance by what time and date. If monetary ducks are poison, you eat pheasant, quail, turkey and chicken.

How does the Awan Brothers and The "Petraus Rat Lines" make so Much Money? Diamonds, BOdy Parts, Chop Shops, Drugs WHO NEEDS A Dollar when the CIA HAS ALL THESE RAT LINES and the SENATE has the SPY RING with diplomatic immunity.

With all those black berries STILL SPYING RIGHT NOW...Current Compromised COngressional Blackberry Users, districts, scandals, PORTS, foreign ties.
https://trello.com/b/RMx1r5dG/hillarys-hamlettruth-leaks-hcs-leakershac…

Mix in a few non loyal dual citizens, and a media with an amplifier, "yeah boss."

Freedom Lover Aug 22, 2017 10:41 AM Permalink

There is a solution go back to the system we had prior to 1999. Re-instate Glass steagall. What that does is separate plain vanilla banking (lending and financing for homes,autos,furnishings ,etc. and for business/industrial expansion) from risk investing ( sub-prime, stock buy backs,credit default swaps and other exotic derivitives). Then governments could re-capitilize banks to provide productive investments in technology and infrastructure (i.e. Trump's $1-Trillion infrastructure program, Fusion energy research and space exploration). Infestment banks would be left to twist in the wind. I suspect that in the neighborhood of 50% of the outstanding world debt & credit derivitives simply need to be wiped off the books. That means that companies with high levels of debt will lose about half their value but companies with more resonable balance sheets will remain pretty much unscathed. Many of the stocks I personally own have manageable levels of debt and consequently have not appreciated nearly as much as the oveerall market but I am somewhat protected for the downtrurn. I also own gold. I am not trying to give investment advice here. I could just as easily lose if our government doesn't act rationally which if recent history of congress is any guide seems remote but I have to hope and believe that common sense and the American system will prevail over the bastard elite central bankers and their oligarchical masters.

gregga777 Aug 22, 2017 10:31 AM Permalink

Quantitative Easing is "Universal Basic Income" for the Oligarchs and they are never going to willingly allow the international banking gangsters to end it.

Posa Aug 22, 2017 10:24 AM Permalink

QE was the mechanism for the greatest wealth TRANSFER in history... free money handed over to the Predator Class to buy up choice assets at fire sale prices... all of which destroys consumption and savings... which destroys productive investment... and leads the Predators to inflate assets in a vain attempt to increase returns. Theoretically this should all end in a big crash... but the Fed will throw up a wall of oney to stave this off.  

Solio Aug 22, 2017 10:17 AM Permalink

The banksters were given, gratis, millions of the boomers' homes and funds. So, the boomers have nothing left to spend.Got opioids?

Hume Aug 22, 2017 9:16 AM Permalink

Um, in the ten years following the burning of Rome, they built the Colliseum.  The "fall" was a long slow process, and didn't fully happen for about another 1500 years, when the ottomans took Constantinople.   

taketheredpill Aug 22, 2017 8:52 AM Permalink

  I actually enjoyed Linton's comments.  Decide for yourself: “Glad we could pay for your little getaway,” the user said.To which Linton replied, “Cute! Aw!!! Did you think this was a personal trip?! Adorable! Do you think the US govt paid for our honeymoon or personal travel?! Lololol. Have you given more to the economy than me and my husband? Either as an individual earner in taxes OR in self sacrifice to your country? I’m pretty sure we paid more taxes toward our day ‘trip’ than you did. Pretty sure the amount we sacrifice per year is a lot more than you’d be willing to sacrifice if the choice was yours. You’re adorably out of touch. Thanks for the passive aggressive nasty comment. Your kids look very cute. Your life looks cute. I know you’re mad but deep down you’re really nice and so am I. Sending me passive aggressive Instagram comments isn’t going to make life feel better. Maybe a nice message [sic], one filled with wisdom and hunanity [sic] would get more traction. Have a pleasant evening. Go chill out and watch the new game of thrones. It’s fab!”

Cloud9.5 Aug 22, 2017 8:36 AM Permalink

We just got back from Charleston South Carolina last night.  We spent a couple of days in Savannah and then drove into Charleston the day before the eclipse.  We chose a quality inn north of Charleston because we thought it would be less crowded.  We ate a fabulous supper and spent the evening smoking twenty dollar cigars and drinking hundred dollar whisky.  The cigars and whisky were gifts from my son.  We spent the evening talking politics, religion and baser matters in anticipation of the coming event.  We had a high priced attorney, a former army ranger and a couple of old school teachers in the forum.  I had not participated in such a high level bullshit session since I had left college.  We touched on every popular talking point.By noon the next day we had set up our projector using a cardboard shield and a spotting scope on a tripod.  We donned our Meade eclipse glasses and periodically glanced up to watch the progress of the eclipse. Just as the total eclipse was about to occur, clouds rolled in and obscured the final phase, then the world went dark.A little dog went crazy yapping in the distance.   There may have been some fireworks or gun shots, I am not sure.  The world got notably cooler and the parking lot lights came on.  We all commented on how bizarre it was and then it started to lighten up. The rain rolled in and we rapidly loaded up and began the long journey back to Florida.All the predictions of the zombie apocalypse, the end of days, and the rapture were premature.  The world did not end; the bikes we had loaded and the bug out bags we had packed were not needed.  Most of the people we met of all colors and political persuasions were pleasant.  What rudeness we encountered was in traffic, even with that, we all made it home safely.This is a vast country with a tremendous amount of inertia.  We have had coups and civil wars with the last two administrations.  A great many people initially saw Obama as the risen messiah.  Others saw him as an illegal alien and a usurper. And for the most part, nothing changed.  The war machine got bigger.  The monstrosity that masquerades as Obama Care got enacted.  The banks got bigger and more small business went broke.  The grand schemes of gun confiscation, the closing of gun shows and in the final days, the planned establishment of martial law never happened. What did happen was that Obama became the most successful gun salesmen in history. Now we have had another civil war and the deplorables have installed Trump. The wall is supposed to go up.  The swamp is supposed to be drained.  Hillary and crowd were supposed to go to jail.  Just like Obama, Trump has run headlong into the inertia of this massive thing we call the United States.  The left now thinks gun abolition might be a bad idea.  In time they may discover protecting freedom of speech is important.Just like the eclipse, the sun will come out again and life will go on.  

Son of Captain Nemo Aug 22, 2017 8:28 AM Permalink

"The central bankers know we need to normalise and rebuild the broken structures of capitalism and market based economies, without it becoming too apparent they are so broken – which would cause financial panic… On the other hand the cure might prove as painful as the self-inflicted injury of QE.""

Well Bill ya sorta left out the important details in that statement that includes wars of choice that will get roughly 2/3 of World's population wiped out if we don't take care of the "stick" those central bankers tend to use in emergency situation(s) that include "deep underground bunkers" when they know what they have done that "broke" that THANG may involve their heads on the end of a wooden pole?!!!

Just sayin!

Kina Aug 22, 2017 8:17 AM Permalink

When empires are about to die it is a very dangerous time for the world.Maybe the USA at that time will want a Korean peninsular war with all that destruction.They can false flag a drone bomb from NK onto Seoul.

NobodyNowhere Aug 22, 2017 8:15 AM Permalink

I hear that some good souls are keeping a list of those who need to swing from lamp posts.I believe it will be far more effective if instead a list is kept of all their seed.  Especially if the list is periodically leaked.Killing off the seed turns the most hardened criminals into sheep. 

Kina Aug 22, 2017 8:14 AM Permalink

People continue to underestimate Trump.A remade billionaire, that beat everything and everybody that was against him day after day, and still made President.A high level narcasist that doesn't give in. And knows how to stir up his base with Trump language.YOU can guarantee that any 'serious' attemp to impeach him will result in absolute chaos nation wide as he fights it on all battlefields.The plan is probably to neuter him, which they have pretty much done now, turned him into a neocon. For decades he has always come out against the warmongering, and now has joined in.  And then in 2020 if his polls are average, replace him.Of course Trump could have an 'accident'

new game Aug 22, 2017 7:08 AM Permalink

hey think of it as central banker laid land mines here and there and everywhere. walking in the finacial patch is very dangerous. some of these mines sit for years before detonation. normalize my ass. plez tell me how to normalize a land mine?

sinbad2 Aug 22, 2017 6:56 AM Permalink

Caligula made the wives and daughters of Senators work in brothels for the troops.That should be introduced into the US, with a slight change, as there are so many faggots in the US military, the Senators and Congressmen should also work in the brothels for the troops. 

Last of the Mi… Aug 22, 2017 6:54 AM Permalink

One of the most spectacular lies of the millennium is that the massive income equality effect of QE was not by design. That somehow the asset bubbles blown and complete lack of money velocity are a surprise to the Fed. Not so, these are all known entities and were at the beginning of QE. Overlooked, pushed aside, or however you want to characterize it up to and including collusion to destroy a free market economy is exactly what happened. The dead wood of a free market economy must be allowed to die off so that new industries can get enough sunlight in the economic forest to thrive and grow. Crony capitalism sending billions of dollars to the manufacture of electric vehicles that is mathematically more economically destructive than IC engines is the problem and the income and wealth divide of QE is at the heart of it all. Look at your news media and the absolute crap they sell on a daily basis. It's not even propaganda anymore, if no one believes it. The wealth divide has created an alternate universe, not "asset bubbles" and the coming realization that it is not reality is going to bring panic to many a crony capitalist as the "one trick pony" printing presses of the Fed have run their course. Destroying a fiat's value by printing train loads of it for the few destroys the economy and the political effects will be felt for years. Who'd a thunk it? To call this an unintended consequence is just crony reporting.

shankster Aug 22, 2017 6:53 AM Permalink

Newsflash! The last days of this modern-day Roman empire AKA former USA fell many decades ago. This is the aftermath and it gets worse..much worse from here. The economy and financials are only one small part of the reason.

NobodyNowhere Aug 22, 2017 6:46 AM Permalink

Circa 2050"The Decline and Fall of the American Empire" by A. Historian.The thesis is that it was all caused by greedy and conniving bankster dynasties in London and NYC.

Debugas Aug 22, 2017 6:39 AM Permalink

capitalism ( defined as companies exist for bottom line ) has run its courseit is the end of this type of capitalismbecause if companies exist to have profit then workers get paid less than they have to pay to buy all the goods they produce. All kinds of life support ( expansion of markets, borrowing money from the future ) have run their way already. It is the end, the limits of finite demand have been reachedSo we need a new type of -ismFor example china suggest that companies should exist to satisfy the needs of the society

blargg Debugas Aug 22, 2017 6:53 AM Permalink

if companies exist to have profit then workers get paid less than they have to pay to buy all the goods they produce.

So you're saying that if a company produces say garbage bags, and makes a profit, that their employees won't be able to purchase enough garbage bags for their home because they can't purcase all of the garbage bags the company produces?Also, isn't the very act of working for money taking a profit for the labor? A person works for money, spends some of it for costs (food, rent), and ends up with extra that's the profit they use to buy things like TVs and precious metals.

In reply to by Debugas

Memedada Aug 22, 2017 6:35 AM Permalink

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“…including a massive explosion of wealth and income inequality”. I don’t see this as an unintended consequence of QE. It is all by design. The ownership class created the crisis and is behind the subsequent robbery (of the public, commons and future generations). The consequences of QE are not unintentional but unofficial – there’s a huge difference. The next crisis will be used as another excuse to enrich and empower the 0,01% even more. Only a full blown revolution will be a real game changer. 

AG17 Aug 22, 2017 6:35 AM Permalink

All i read every day is about soon to be inevitable finance doom, expected war between nations, natural disaster waiting to happen, a muzzie killing someone in Europe. Where is the asteroid which killed earth million years ago?