Last week, volatility made a long-overdue return to the US and global
equity markets.
It began with a 2-day back-to-back violent drop. Day 3 saw a big rebound,
swiftly followed by two more days of gut-wrentching losses. And then finally,
last Friday, the day saw massive swings both high and low, ending with a huge
upside run.
During this period the S&P 500 lost more than 300 points. Since
then, though, the market has been steadily rising.
Is the danger past? Are the markets safe once more?
And if so, did the markets recover organically? Or were they rescued by
The Plunge Protection Team (PPT)?
The answer matters.
If such intervention was rare we could almost justify it, if it took the
form of simple, pre-arranged circuit breakers that shut the market down for a
"cooling off" after they�ve moved too far, too fast. Indeed, these
already exist, and are sufficient in our view.
But if such market interventions are routine, persistent, and generally
depended on by the major market participants, then they're highly destructive
over the long term.
Sadly, we live with the latter.
Insiders get stinking rich by front-running the scheme (check). Normal
adjustments are prevented (check), allowing dangerous bubbles of extreme
overvaluation to form (check), while fostering malinvestment (check).
Do this long enough and you end up with a deformed economy, an eroded
social structure, and markets that no longer function as appropriate
mechanisms for capital distribution and economic signaling.
This is where we find ourselves today.
Modern-Day Soviet Crop Reports
In the former Soviet Union, the communist method of assuring economic
progress was to set targets for production. Famous among them were the crop
reports.
In these, year after year, the various regional oblast (province)
authorities would declare having met or exceeded the crop targets, despite
rarely ever truly doing so.
These crop reports were so famously unreliable that the Kremlin leadership
eventually took
to obtaining their information from US satellite reconnaissance data
rather than their own internal reporting from local Communist Party bosses.
Basing next year�s crop planting decisions on these reports often led to
famines, and sometimes even mass starvation of entire regions.
Poor data = Bad decisions.
The Soviet crop reports are now a famous example of an unreliable measure
that led to disastrous consequences. Because of the false reporting, poor
decisions were made. Eventually it became clear to even the Soviets that
attempting to centrally micro-manage a major economy is an act of
folly.
Too much of this and too little of that were
produced. Cement, steel, and auto quotas harmed rather than helped for
obvious reasons; poor information flows assured that production decisions
were late or flawed or both. All this contributed dearly to the Soviet
economy's collapse.
The lessons here are instructive and simple:
- centralized management of complex systems doesn�t work,
and
- bad data leads to bad outcomes
Today�s stock and bond markets are no different than the Soviet crop
reports of old. They mainly represent what a small committee of central
planners believe are the right numbers to achieve very broad macro-economic
goals.
Enormous damage has already been done by the interventions and distortions
resulting from the pursuit of the delusional aims of todays central planners
(with the world's central banking cartel being the most culpable).
But it's poised to get a lot worse from here.
A Great Irony
The ironic parody of all the current US concern over the possibility
of Russian meddling in US elections is that virtually nobody from either
political party seems the slightest bit concerned that the US is actually
recreating the very worst mistakes of the now-defunct Soviet empire.
In point of fact, the Federal Reserve has done far more self-inflicted
harm to long-term US interests than anything that Russia has been accused of,
let alone been proven to have done. At this point, there�s no contest between
the two.
If the damage inflicted by the Federal Reserve had been done by a
terrorist organization, it would for certain be public enemy #1.
Consider that, under the Greenspan/Bernanke/Yellen Federal Reserve, the
following has occurred:
- Pension plans, both public and private have been
ruined. Millions of future retirees and taxpayers will not have
trillions of dollars they would and should otherwise have to support
them in their later years.
- Income inequality is at the highest its been in over 100
years
- Wealth inequality is also at historical extremes
- Student debt is now nearly $1.5 trillion, up ~ $1
trillion since 2007
- More than a trillion dollars of interest payments on
savings accounts has been forfeited -- denying funds to the
next generation for use in business creation, household formation, and
education.
- Total debt in the US and globally is up massively since
the 2008 Great Recession (itself a central banking accident), and now
stands at more than $233 trillion worldwide.
These are among a few of the destructive results of the Federal Reserve�s
decision to lower interest rates to 0% in order to reward the big banks, well
connected private equity firms, and unrestrained government borrowing.
Of course, when you print money (as the Fed does) you cannot create
wealth; you only transfer it from one party to another.
Put another way, the Federal Reserve and its foreign partners
(the BoJ, ECB, etc.) have been picking winners and losers.
Losers have been seniors dependent on a fixed income, Millennials and
every generation following them, and savers, pensioners, and taxpayers. The
winners have been the banks, the ultra-rich, entrenched political parties,
rentiers, and baby boomers with sizable financial portfolios.
Here's just one example of the kind of devastation the Fed's deeply unfair
actions have wrought. A simple Google search on "pension" brings up
the following spate of alarming headlines:
The catastrophic losses that will result from these massive pension
shortfalls is nothing less than an act of domestic terrorism by the Federal
Reserve. They will haunt the US for generations.
There should be serious consequences for destroying the futures of tens of
millions of retirees, on purpose --and knowingly -- simply so
big banks could not just enjoy fat profits, but record fat profits,
for nearly ten years in a row:
Put more bluntly: approximately 90% of US citizens have been financially
and economically tossed under the bus simply so that the already-rich could
get a little richer. If that�s not a form of terrorism, I don�t know what is.
This chart shows the future burden amassed under the last three Federal
Reserve Chairmanships:
None of that could have happened under responsible banking practices.
Instead, such excess was enabled and encouraged by an activist Federal
Reserve that loosened and loosened some more whenever reality began to exert
itself.
They did this to reward themselves and their colleagues and banking
associates. It has been a series of self-dealings and unchecked
conflicts of interest.
My point here? None of this was done by accident. It has been deliberate
and done with full intent to create exactly the conditions in which we find
ourselves.
Sure, we could go ahead and obsess over the claim that somehow an
insignificant $100k worth of Facebook ads purchased by Russia are
somehow responsible for our current misery and overall state of domestic
neglect. But we'd be focusing on entirely the wrong parties.
The worst threats we face are right here at home.
Conclusion
As bad as the damage done so far has been, the real pain has not yet
begun.
The entire command-and-control system of the US and other western
economies and markets has resulted in several decades of increasingly poor
decision making and mal-investment.
When it comes to repaying the current global debt levels of ~310 % of GDP,
we can confidently predict that such a debt load can never be repaid. They
can only try to roll it over as long as they can -- which can't go on much
longer without real consequence. Mounting losses are certain at this point.
When it comes to underfunded promises and entitlement programs, such as
pensions and social security (clocking in at nearly 800% of GDP!), there�s
really only one all-important question that matter at this point: Who�s
going to eat the losses?
In Part 2: It's Even Worse Than You Think, we reveal the
much further extent of the racket being run against the public by the world
central banking cartel, and how it's efforts to continue this racket have
sentenced us all to another massive financial/economic crisis -- one that is
both now inevitable, necessary, and overdue.
By preventing that which should happen, the central banks have set the
stage for an enormously dangerous and disruptive market crash. The kind
that forces markets to close for days and weeks on end. The kind that
leads to major banking crises punctuated by 'holidays� where depositors can
not access their money. The kind where disorder and social unrest
becomes a real risk.
Click here to read Part 2of this report (free
executive summary, enrollment required for full access)
