More Economic Straight Talk
Financial truisms bear repeating. Money creation madness assures trouble. Irrational exuberance follows. So do bubbles.
Imploding is just a matter of time. The bigger they are, the harder they fall. It happened in 2000 and 2008. Perhaps this year or next is 3.0. The fullness of time will tell. Excess creates its own demise.
New era rhetoric doesn’t wash. Market analyst Bob Farrell’s Rule Number Three says “There are no new eras – excesses are never permanent.”
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Reality has final say. It arrives in its own due course. Often it’s when least expected.
On February 22, market analyst Marc Faber said stock markets peaked. At the same time, bonds may rebound. “I think we have made an intermediate top, and it could be a longer-term” one, he believes.
Markets are “significant(ly) overextended.” Bullish sentiment is extreme. “Everybody says ‘sell bonds, buy equities.’ And when everybody thinks alike, one has to be careful.”
Recent Fed minutes gave readers pause. Divisive opinions were expressed. Hawks want QE ended or at least substantially reduced.
Concerns were raised about “potential costs and risks arising from further asset purchases.” Complications may result.
Longterm policy accommodation risks inflation. “(F)urther asset purchases could foster market behavior that could undermine financial stability.”
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“(I)t could expose the Federal Reserve to significant capital losses when these holdings (are) unwound.”
“Several participants emphasized that the (Open Market) Committee should be prepared to vary the pace of asset purchases, either in response to changes in the economic outlook or as its evaluation of the efficacy and costs of such purchases evolved.”
“(A) number of participants stated that an ongoing evaluation of the efficacy, costs, and risks of asset purchases might well lead the Committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labor market had occurred.”
It’s nowhere in sight. It’ll deteriorate further before improving. It may do so significantly. Protracted Main Street depression continues. Bad policies produce bad results. Experimenting with near-zero interest rates failed. Nothing ahead looks promising.
Global economic slowdown is real. Most areas show it. The entire EU is troubled. Germany, France and Britain are mired in recession. Southern euro countries face protracted depression.
The European Commission predicts back-to-back year declines for the first time. The Financial Times called it a “grim economic picture.” At issue is rising unemployment, lower consumer spending, less business spending and investment, and force-fed austerity.
Japan entered its third recession since 2008. Chinese, Indian, and Brazilian growth rates fell by half. Fourth quarter 2012 US growth was virtually zero.
Walmart may be the canary in the coal mine. It reported its worst monthly sales start in seven years. Company vice president Jerry Murray called them “a total disaster.”
At issue are higher payroll taxes, rising energy and food prices, less consumer credit, exhausted savings, punishing austerity, and much more to come.
Perhaps a tipping point approaches. Currency wars loom. Waging them assures trouble. Competitive devaluations reveal dire economic conditions.
During the Great Depression, devaluation by fiat deepened hard times. It extended them. In 2010 and 2011, wage cuts tried to boost exports.
Fed, ECB, Bank of England, and Bank of Japan QE try doing so now. It’s a duplicitous money grab. It’s robbing poor Peter to pay rich Paul. It’s official policy. It’s got nothing to do with stimulating growth.
Monetary policy has limits. An ancient proverb perhaps explains. “Those whom the gods wish to destroy they first make mad.” Perhaps they had central bankers in mind.
Money printing madness substitutes for stimulative growth policies. Coordinated central bank intervention repeats what hasn’t worked before. Speculation follows. So do bubbles.
It bears repeating. They all burst. The bigger they are, the louder the pop.
Economies bereft of stimulus stumble. Conditions are worse now than earlier. Force-fed austerity assures decline. Living standard deteriorate. Societies aren’t fit to live in. Bankers, war profiteers, other corporate favorites, and super-rich elites alone benefit.
The longer fiscal pain continues, the closer an ultimate day of reckoning approaches. It’ll arrive disruptively. People take only so much before reacting.
Consumers can’t make ends meet. Inflation-adjusted median household income is declining. Extremes in income dispersion usually foreshadow financial/economic/market trouble.
Global economies are weak. Deteriorating conditions are accelerating. Trouble assures more of it.
Consumer spending is slowing. So is business inventory accumulation. Small business confidence is falling. Operating revenue forecasts portend major slowing.
Productivity is collapsing. Currency wars exacerbate conditions. Lower government spending comes when more is needed. Higher taxes don’t help.
Polyannish forecasts abound. They’ve been wrong four straight years. Talking head economists lie. They’re well paid to do so.
EU leaders haven’t accepted reality. Its two biggest pillars are troubled. France suffers from lack of competitiveness. It’s economy began to implode. Wealthy business people are leaving. Investment’s drying up fast.
Germany’s in protracted slowdown. Eurozone troubles impact it greatly. Warning signs abound. Europe resembles a house of cards. Cronyism and fraud replaced trust and transparency.
Reality is swept under the rug. No one gives a damn. Spain’s Prime Minister Mariano Rajoy just warned “There are no green shoots. There is no spring.”
Its entire banking system is troubled. So is its sovereign debt. It managed 2012 by tapping 90% of its social security fund to buy it. Over 200 billion euros in new debt must be financed. How remains to be seen. Banks are net sellers. Investors are wary.
Default looks more likely. Doing so will be multiples greater than Lehman’s collapse. Things look likely to get ugly. When is anyone’s guess. Debt problems aren’t solved by adding more of it.
Economist John Williams predicts a massive May dollar sell-off. Other countries will dump them for safer currencies. Collapse he believes may follow.
Washington has weeks to get its fiscal house in order. Williams calculates FY 2012 deficit at $6.9 trillion. That much more was spent than collected in taxes. America is bankrupt he says.
Real growth hasn’t occurred for five years. Prior to 2008′s financial crisis, consumers compensated for declining incomes by taking on debt.
Banks now freeze credit. Housing values are stagnant. Most Americans have no new revenues sources. Polls show they expect to spend less. It’s their only viable choice.
Nothing ahead looks positive. Global slowing exacerbates crisis conditions. Force-fed austerity assures it. Money printing madness delayed day of reckoning time.
Economies were wrecked in the process. So were millions of lives. People haven’t enough to live on. Policymakers plan making things worse. Austerity represents bad economics and moral failure. Let-eat-cake economics doesn’t work. It sparks revolutions.
They don’t turn out much better. Things often change but stay the same. Europe is sinking. So is the American dream. For most it was largely illusory. Now it’s disappearing altogether. A nightmare replaced it.
Cutting back when stimulus is needed is madness. Doing so assures decline. For most people, it’s the worst of all possible worlds. Middle class societies are destroyed. Neoserfdom replaces them. Public anger follows.
Social inequality defines immorality. It’s also bad economics. Stimulus improves lives. Jobs are created. All boats are lifted. When people have money they spend it. Hard times forces belt-tightening.
Obama embraces the worst of bad government. He’s pro-corporate and soulless. He’s a moral coward. He’s amoral, wicked, lawless and uncaring.
He’s beholden to powerful monied interests. They own him. He assures protracted hard times.
How much more ordinary people will take they’ll have to explain. Perhaps they’ll become more assertive. It’s high time they defended their own interests. No one will do it for them.
Stephen Lendman lives in Chicago and can be reached at firstname.lastname@example.org.
His new book is titled “Banker Occupation: Waging Financial War on Humanity.”
Visit his blog site at sjlendman.blogspot.com and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.
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