"...The stock market, meanwhile, has recovered in large part from its initial disastrous fall, despite one of the most spectacular increases in unemployment in US history. That confirms something I've been thinking for some years now: our financial establishment, the guardians of the largest part of our economy, regards the financial crisis of 2008 and its aftermath as a triumph. They have learned how to ope with any grave shock to asset prices, whether caused by trillions of dollars in bad investments (as in the 2000s) or by a sudden, drastic fall in output (now.) In either case the Fed can simply pump enough trillions of dollars in the markets to keep them up. Only time will tell whether this is a workable long term strategy, or a new kind of macroeconomic Ponzi scheme that carries new and even greater dangers with it. I don't know..." DK
I hate to clutter his site. So what can one note about these observations?
I have noted that we have been in Ponzi globalization for a long time now.
Let's unpack a few key components.
Interest rates. I am not an accolyte of James Grant, but he has said it perhaps best, re zero interest rates as a hegemon fiat currency market and economic policy.
Without interest rates as an indicator, you have an even more flawed system of risk reward assessment.
What does that mean? You cannot assess creditworthiness, or likelihood of profit or loss, of anything very well.
Moving on to fiat currency, easing, and bails. If you can print easing and have it accepted, you have temporary advantages.
These chits flood the market, but they have ended up being backed by nothing but military force.
They are creeping offshored inflation.
This scenario did not start yesterday or the postmodern last month. The seeds of it were planted in Bretton Woods with the US being a sort of faux reserve currency backed ostensibly by gold, a gold standard, a fixed convertibility, at least for the big boys who could cash in. The gold window closed in 1971, about the time of the Nixon Shock.
Because other countries do the same thing, they are dueling inflations, and building inflations, in the event of a crisis.
As in so many cases now, there are few places to run because all is debased in one or multiple ways at once.
What about the market? Let's look at the stock market, although it is dwarfed by the market for debt.
The market has been holding in spite of all kinds of traditional signs of bearishness. Why?
Many of the reasons mentioned above in my remarks. Especially bails, subsidies, and easing.
Also, a nice area to explore, companies have been buying back and retiring stock, especially where they have a lot of fiat cash and the stock price plummeted.
What does this mean? It means that a share is worth more because there are fewer shares outstanding. In a depression, this conceals the decline in business activity we have seen being reflected in stock prices, at least for a moment.
Think of it as a Malthusian effect on stock ownership for the survivors. But, it is also, tragically, somewhat illusory and temporary, in that it is not based on a business expansion or business growth, in fact the contrary.
Rather like owning fiat currency that has been further eroded by easing. You don't see that either. At least not right away.
I have noted that we have been in Ponzi globalization for a long time now.
Let's unpack a few key components.
Interest rates. I am not an accolyte of James Grant, but he has said it perhaps best, re zero interest rates as a hegemon fiat currency market and economic policy.
Without interest rates as an indicator, you have an even more flawed system of risk reward assessment.
What does that mean? You cannot assess creditworthiness, or likelihood of profit or loss, of anything very well.
Moving on to fiat currency, easing, and bails. If you can print easing and have it accepted, you have temporary advantages.
These chits flood the market, but they have ended up being backed by nothing but military force.
They are creeping offshored inflation.
This scenario did not start yesterday or the postmodern last month. The seeds of it were planted in Bretton Woods with the US being a sort of faux reserve currency backed ostensibly by gold, a gold standard, a fixed convertibility, at least for the big boys who could cash in. The gold window closed in 1971, about the time of the Nixon Shock.
Because other countries do the same thing, they are dueling inflations, and building inflations, in the event of a crisis.
As in so many cases now, there are few places to run because all is debased in one or multiple ways at once.
What about the market? Let's look at the stock market, although it is dwarfed by the market for debt.
The market has been holding in spite of all kinds of traditional signs of bearishness. Why?
Many of the reasons mentioned above in my remarks. Especially bails, subsidies, and easing.
Also, a nice area to explore, companies have been buying back and retiring stock, especially where they have a lot of fiat cash and the stock price plummeted.
What does this mean? It means that a share is worth more because there are fewer shares outstanding. In a depression, this conceals the decline in business activity we have seen being reflected in stock prices, at least for a moment.
Think of it as a Malthusian effect on stock ownership for the survivors. But, it is also, tragically, somewhat illusory and temporary, in that it is not based on a business expansion or business growth, in fact the contrary.
Rather like owning fiat currency that has been further eroded by easing. You don't see that either. At least not right away.
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