The third stage of economic grief
The global economy is suffering from a third massive misallocation of capital. And when each stage means a larger and larger distortion of our financial system, the third time is definitely not the charm.
Early last week there was some chatter regarding the upcoming G-20 meeting that tried to play down the idea that the G-7 countries -- the biggest of the industrialized nations -- are engaged in a competition to see who can debase their currency the fastest. Of course, such chatter is meaningless, because even if those countries were in a currency war, they wouldn't acknowledge it.
More important, what is under way is bigger than squabbling over who can make the most confetti. We are in the midst (or, more likely, somewhat past that point) of the third massive misallocation of capital of the past 15 to 20 years, all three of which have been precipitated by irresponsible central bank activity.
Anyone hear an echo?
The first instance was mostly a Federal Reserve-inspired party/debacle (the equity bubble) that allowed people to live beyond their means, dream that they could be day traders or start up spurious businesses they believed would one day be worth billions of dollars.
When that burst, the Fed printed even more money and we had the even more dangerous misallocation of capital that resulted in the real estate bubble, where people used debt to live beyond their means and the financial system itself embarked on a similar strategy. The result was a cataclysm that nearly wiped out the world's banking structures in 2008/2009.
The response to that was worldwide quantitative easing (as central banks monetized government debt with money they created with the click of a mouse). While this has not produced the bubble-like euphoria we saw in the equity and real estate bubbles, it has allowed governments to behave in totally irresponsible fashion.
That has allowed people to believe that a recovery is under way, that the bond markets are OK and that we don't have any inflation; thus, all of our problems are in the process of being solved. In other words, everything is just right (à la Goldilocks).
Aka, a Grimm reality
That is, sadly, pure fantasy (again). What has caused the stock and bond markets to levitate is nothing short of an extraordinary amount of worldwide money printing that thus far has not resulted in "enough" inflation for people to recognize it as such. (Most likely, the fear of a deflationary accident still lingers, even though that is receding into the background.)
How long folks will remain in denial (delusional) is not knowable in advance, just as it wasn't possible to know when the equity and real estate bubbles would end. What is knowable, as it was with the prior two bubbles, is that it will end, and very badly.
Once central banks cannot monetize government debt, we will have a variation of the scare we saw over the past couple of years involving European governments, but this time focusing most likely on Japan, Great Britain and the U.S., as well as Europe.
In other words, we are in the final misallocation of capital. As I have noted before, we can't really call it a bond bubble, since we don't have the euphoria and behavior-changing aspects that normally accompany bubbles. But the warping that has been caused during this go-round is no less significant, and the ramifications will be even more powerful, simply because the scale of the abuse is gargantuan.
I think all of us without money know it's a game of "Risk". and we don't get to play. only the ones with a certain number of "pieces" can buy and sell countries, wheat, armies, commodities
gold, silver. you get the idea. If you own the bank anything is possible. But Insurance
companies rule the world. No I'm not paranoid, just practical....once in a while they let 'us' think we can own something. It's a Wonderful Life.........
It never ceases to amaze me that people do not see that the Federal reserve and all other Central banks with their FIAT money system are the core of all economic troubles. They create COMPOUND DEBT and INFLATION. These two factors NEVER rest. They are constantly at work slowly transferring the wealth of a nation to the Central banks. We blame Republicans, Democrats, entitlements, Corporations, Unions, ETC., ETC, for our problems but these factors only change the SPEED of the collapse not the collapse itself.
Think of the central banks as a casino. The casino will only keep 2% of what is gambled. There will be times you may be up on the casino (just as you can make fortunes under a FIAT money system, or when a "bubble is created) There will be times you will be down (just like some will lose under a FIAT money system, or we have recession/depression). But, given enough time, it is with mathematical certainty that the casino will take all your money. That 2% never goes away or takes a rest just, like COMPOUND DEBT and INFLATION in our FIAT money system.
As this system slowly takes away, the poor will be the first to fall. As it continues the middle class begin to suffer and join the ranks of the poor (47% proves this). Corporations feeling the squeeze must resort to outsourcing to remain profitable. Taxes go up to pay the mounting public debt. Prices rise as inflation devalues the dollar. These things all compound each other to cause the downward spiral to speed up. SOUND FAMILIAR?????? We are living it!
Start blaming the REAL ENEMY.....The FEDERAL RESERVE....The worlds CENTRAL BANKS....FIAT MONEY....This is what is causing our economic problems.
Bill; you are a freak!
But I think you are right, and I am acting just like I believe it.
Folks, if you are smart enough and quick enough to be early at the exit, well god bless you!
I am out of equities, and I won't be back until we see a major bottom.
Best of luck in whatever you do; I'm with Bill and playing it safe...
I hope everyone has a strong community. We will need it when the dollar crashes and the banksters come knocking to claim our homes. It will be a war of attrition. Do not submit do, not comply. Defy them with all you have and help your neighbors do the same.
Don't know if this whole circus just collapes or like the once great state of NY where I have lived for 63 years. Just kind of keeps getting worse and worse. Here our road, bridge, building are falling down, we have the 2nd generation of do nothing males, and of course the single moms. They line up every morning at the busiest mall in town, the welfare office. Can't find a place to park if your life depended on it. We also have cops on top of cops all make phat stack of cash, teachers with 10-12 kids in each class. Also making well over 125k per year, with benefit to die for. As far as the private sector, well that died a long time ago. Good luck out there, your all going to need it, hope your ready.
what were witnessing is the ultimate conclusion of free trade. Its caused a relocation of the worlds manufacturing base to low cost third world labor. This labor pool doesn't earn enough to buy its own manufactured products. Its concentrated wealth into the hands of a very small amount of people. The same thing happened during the depression
to have a healthy economy you need money finding its way into the hands of people that will spend it. Ostensibly the middle class. You do this by making outsourcing unprofitable via tariffs and you organize labor so that they can demand a fair share of the profits. The last thing you need is a prohibitively high progressive tax system that makes reinvesting in america essential to capital retainment.70 to 90 percent is about right
Obamanomics cannot continue... We must stop trying to Borrow and Spend our way out of debt... We must stop trying to Tax and Print our way to prosperity... We MUST balance our budget and PAY down our debt... We cannot continue to spend 34% more than we take in...
This will not end well, inspite of what the democrat minions say...
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ABOUT BILL FLECKENSTEIN
This column is a synopsis of Bill Fleckenstein's daily column on his website, FleckensteinCapital.com, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.
[BRIEFING.COM] The stock market capped the trading week with losses across the major averages. The S&P 500 fell 0.5% to surrender its weekly gain, while the Dow Jones Industrial Average (-0.7%) and Russell 2000 (-0.9%) underperformed. The two indices posted respective losses of 0.8% and 0.6% for the week.
Equity indices were pressured from the get-go after several heavyweights disappointed the market with their earnings and/or guidance, which led to some broader profit-taking. After ... More
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