My view is that things may be rapidly progressing to the "torches and pitchforks" stage...
Observe carefully the USD vs SP 500 chart.
Need tar. Have feathers.
>> A friend passed this along to me this morning, and it seems to make a lot of sense. What do you all think?
Personally, I agree with the theory that “all that loose, cheap money” — intended to be lent to productive enterprise and thereby fuel an “honest” recovery — has instead found its way into “carry trade” speculation in equities, metals, and commodities. (Interestingly, pretty much every asset class but real estate, which I guess still has bad juju associated with it.)
I will also be the first to admit that it’s all very confusing, uncharted territory. What Denninger says could be part of the reason, most of the reason, or little of the reason. And the end game is anyone’s guess.
A time to move VERY carefully, IMO.
You can post his articles in full. I read him daily another freeper said he is a national treasure. Now here’s the part for the pitchforks!
What Judy misses (perhaps because she’s unaware of it, or perhaps because she simply doesn’t feel comfortable saying it) is that deflation destroys over-levered debtors. It forces them into bankruptcy.
When that happens to the “little people” (that is, you and I) it doesn’t matter to the oligarchs and robber barons on both Wall Street and Washington DC.
But defaults also destroy lenders who made imprudent loans. That’s unacceptable as a matter of Washington DC’s bought-and-paid-for policy, which is why we have Treasury Secretaries and the Chairman of The Fed corralling Representatives and Senators in a room and literally threatening them with the collapse of America if they don’t fork up $700 billion of taxpayer funds for an open-ended, one-page slush fund that includes absolute legal immunity for whatever might be done with it.
If this had ended at $700 billion it would have been bad, but it didn’t. No, The Fed then continued onward to announce the purchase of $1.2 trillion dollars (that’s $1,200 billion more!) of debt and securities that, according to Section 14 of The Federal Reserve Act, they are not lawfully allowed to buy. (Section 13.3, often cited as justification, only allows the making of loans - not the purchase of assets. All purchase authority rests in Section 14.)
The FDIC then stepped outside of its legal mandate as well, “deciding” to guarantee bond issuance by banks - something that has absolutely nothing to do with depositor insurance. Why? Because once again, it is unacceptable in the Washington DC establishment if those who make bad loans - on purpose - have to eat them. Only the borrower - that is, the “ordinary Joe” - is allowed to have his future destroyed. The lender, who is supposed to also lose his money when he makes a bad decision (thereby providing a strong disincentive to making bad loans) is to be protected by the taxpayer, thereby screwing the borrower twice - first by bankrupting him, then demanding that he bear the cost for the lender who made the bad lending decision as well!
Keynesian Economics and it’s offshoot (”Chicago” economic theory) is, at its core, a scam. Not because the idea is invalid, but because it dictates that during times of plenty (”booms”) the government must raise taxes and pay down debt - not just “decrease deficits.” Yet in the post-war era we have never managed to run a material surplus, not even during Clinton’s years despite the claims of his boosters - he, like all other modern administrations, cheated by “banking” FICA and Medicare deposits (which are pledged against liabilities in the future!) The boosters of Keynes refuse to discuss the fact that they’re not even following his claimed theories, but rather are playing “black sharpie marker” with the parts they don’t like.
Now here’s the scary part: Even though more than half of all American households now own equities directly or through mutual funds, an increase in equity prices does not figure into the Fed’s calculation of inflation. So while measures of core inflation (which exclude food and energy) carefully register minute gains in the price of a fixed basket of goods and services meant to reflect what a typical family buys to achieve a minimum standard of living, they ignore massive price surges in what has effectively become a widely held consumer good: stocks.
Moreover, the Fed’s inflation-targeting approach overlooks price increases for real estate and rising commodity prices. Don’t even mention gold, which has gone from $707 to $1,114 since a year ago.
Of course not.
But again, this is by design. The Fed is intentionally applying the wrong standard for the construction of the monetary base, because if it were to not it would have to recognize the asset price moves that underlay the actual economy in its economic numbers. This, in turn, would have led housing price increases to have been reflected in monetary aggregates and people would have freaked out starting in about 2004 - instantly derailing the bubble before it could get going.
As I have repeatedly argued if you get the original premise wrong everything else you do from that point forward is also wrong.
The monetary base in a credit-based monetary system is not “M0”, “M1” or “M’” (M-prime.) It is the unencumbered assets against which one is both willing and able to borrow.
Further, the definition of sound lending is not predicated on some leverage limit or wildly-distorted view such as Basel-II. It is in fact very simple: if one never lends unsecured beyond one’s capital there is never a systemic risk that can arise.
Here’s the problem with all the games once one gets down to brass tacks: you cannot screw people indefinitely and expect them to come back for more abuse. Oh sure, you can occasionally con people a second time, but since these “big interests” rely on a continued volume of business.....
As just one example, how many municipalities will buy interest-rate derivatives from one of these “big banks” after the disclosure that Jefferson County overpaid by 400% - and a good part of that overpayment went to bribes? Further, it has become clear that the municipal government didn’t understand the risks involved - and one can reasonably presume that was because those risks were intentionally hidden - probably by the bribing parties, the recipients of the bribes, or both.
There are solutions here but it is increasingly obvious that if Government doesn’t step in the market will. All I have to do is look at volume - the percentage that is represented by “high frequency computer trades” has gone sky-high since last fall, yet volume has been dropping dramatically since March.
When the market degenerates down to a handful of trading houses with high-frequency trading computers passing the same 100 shares back and forth between themselves as the remainder of the market participants have gotten tired of getting reamed on a daily basis due to the cheating and decide to take their ball and go home, how do the “big trading houses” make money?
We’re witnessing the destruction of the capital markets as the system is imploding from within as a direct and proximate consequence of willful blindness and outright fraud.
I think the bubble is in gold if anything.
Prices of commodities should move together if the reason for the movement is monetarily based. But gold is rising out of sync with other commodities like silver. Where it’s usually been 20x or maybe 30x the price of silver, now it’s touching on 60x silver.
That’s a hint I think that gold is overpriced and it’s time to sell it, not buy it.
Should a person to pay their bills? Gold is SO confusing. Can one buy food with it? Can one pay his/her mortgage? Who is going to buy it?
Heck, the whole economy is confusing. The market should NOT be where it’s at given the other factors. Someone, somewhere is inflating it artificially, as the article states.
“Corrections” happen. They WILL happen. If you delay the correction, or push it somewhere else, you’re just re-arranging the correction and probably making it cumulatively worse. Smart people will either take advantage of it (great risk, but hence great profits), or stay the heck away (great losses if you bet wrong). There is no “fixing” the problem, esp. by doing more of what made it worse in the first place.
The peasants carried pitchforks and torches because those were the best weapons they possessed...
We have better.
The fact that Wall Street super computers buy and sell millions of shares every one-tenth of a second means that individual investors are powerless.
Yep, this makes sense, even to someone as myself who really doesn’t follow the markets.
This is what happens when people make politicians their gods. When things get rough, the politicians can head for their jets and leave town. That leaves us with each other.
(Who would YOU want as a neighbor? A "gimme" liberal, or a self accountable Conservative?)