Economic metrics in the United States are starting to take their own unaided steps upward in a widening variety of segments as the effects of quantitative easing begin to radiate outward from the banking center. Its to be expected. It’s the equivalent of oxygen being pumped into the atmosphere in Las Vegas casinos; its just a matter of time before everyone gets a lung full.
But we’ve collectively been coerced into participating in a scheme that, in objective retrospect, is designed to keep the wealthiest individuals and institutions wealthy, while destroying at an incremental rate the structure of the real economy. If the rules of Generally Accepted Accounting Practices were applied to the finances of the U.S. Treasury and the Federal Reserve, it wouldn’t be long until Chapter 11 protection would be mandated.
But that is the real world. And, as we have witnessed these last 5 years or so, the pesky limitations of the real world need not apply, if we all agree to support an alternative reality.
And that is what has happened. Trillions of dollars fabricated from nothingness and funnelled into the top line revenue stream of the world’s economy have factored and replicated and filtered downward and outward, propping up manufacturing, housing, technology, services, and just about every other sector…except commodities.
Withering Commodities Demand Paints the Real Picture
Contemplating commodities, it is important to divide them into two categories for the sake of a holistic economic assessment:
1) Sustaining, and 2) Constructive.
Sustaining commodities are items that are consumed every day to sustain life: food, fuel, etc. Constructive commodities are those which build infrastructure and durable goods: copper, iron, zinc, nickel etc.
If you divide the performance of commodities thus, there is a clear divergence. Sustaining commodity demand is more or less constant, and rising incrementally over time in correlation to world population growth.
But constructive commodities are weakening, and have been weakening since the housing crash in 2007-2008. While they haven’t themselves crashed altogether, the reason for that is partially the artificial economic demand stimulus created by large scale capital and credit fabrication that allows the largest economies to continue pretending there is real economic growth. One need look no further than the trillions of square metres of empty residential and office real estate developed by state run enterprises funded by state-backed credit for the clearest confirmation of the artificiality of the demand.
The Opportunity for Self-Enrichment
In the United States, $85 billion each month in capital fabrication generates fees, commissions, interest, fines, taxes and whole range of derivative revenue streams that, depending on how close you are to the actual source of the flow (The Fed and Treasury) determines what your cut of the national largesse is on monthly basis. The Fed’s Agency Mortgage Backed Securities and Treasury bond purchases are coordinated and overseen by Blackrock, Fannie Mae, Freddie Mac, PIMCO, and a range of other top tier financial institutions, all of whom charge and pay handsomely for the burdensome task of helping the United States government create an illusion of prosperity that manifests itself in real world wealth for those at the top.
The enrichment of those peripheral to these first line institutions radiates outward and diminishes in what is probably a ratio commensurate with links down the food chain. By the time it gets to the pool cleaners and construction labourers, it translates into no additional wages, maybe a job. Maybe not.
But the competition for labour that used to lock, to some degree, a rising top level prosperity to a commensurate lower level prosperity is the main casualty of this artificial economic stimulus strategy. Sure, the illusion of prosperity is there, but it is founded on the premise of a collective delusion wilfully projected, accepted and reflected by all its participants, to the point where the only sane ones pointing out the ephemeral and clear and present danger of the scheme come across as lunatics just because their message is so anathema to the delusion.
And so, yes, we are riding a wave of prosperity expressed in new heights of excess, record market highs and private yacht lengths, artwork auctions and rare wine prices. At the bottom though, the same ol same ol scrapin to get by belies the reality.
But who’s complaining? I’m short Barrick, long technology, and getting myself closer and closer to the tap where all the money’s pouring out of! Hallelujah to the Grand Delusion, I say.
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