A "Market" That Needs $1 Trillion in Panic-Money-Printing by the Fed to Stave Off Implosion Is Not a Market

It was all fun and games enriching the super-wealthy but now the karmic cost of the Fed's manipulation and propaganda is about to come due.

A "market" that needs $1 trillion in panic-money-printing by the Fed to stave off a karmic-overdue implosion is not a market: a legitimate market enables price discovery. What is price discovery? The decisions and actions of buyers and sellers set the price of everything: assets, goods, services, risk and the price of borrowing money, i.e. interest rates and the availability of credit.

The U.S. has not had legitimate market in 12 years. What we call "the market" is a crude simulation that obscures the Federal Reserve's Socialism for the Super-Wealthy: the vast majority of the income-producing assets are owned by the super-wealthy, and so all the Fed money-printing that's been needed to inflate asset bubbles to new extremes only serves to further enrich the already-super-wealthy.

The apologists claim the bubbles must be inflated to "help" the average American, but that claim is absurdly specious. The majority of Americans "own" near-zero assets that earn income; at best they own rapidly-depreciating vehicles, a home that doesn't generate any income and a life insurance policy that pays off only when they pass away.

The average American uses the family home for shelter, and so its currently inflated price does nothing to improve the household income: it's paper wealth, and we've already seen how rapidly that paper wealth can vanish when Housing Bubble #1 popped. (Housing Bubble #2 is currently sliding toward the edge of the abyss.)

Were legitimate price discovery allowed, the asset bubbles would pop, and the real-world impact on the average household that owns essentially zero income-producing assets would be minimal. Their overvalued house would fall in half, but since it still functions as shelter, the actual economic impact is minimal. As for the life insurance company's losses--where's the benefit today of an "asset" that only pays out when you die?

Meanwhile, the super-wealthy own stocks, bonds, companies and commercial real estate, all of which generate income. The rich get richer in two ways: their assets generate small fortunes in income (unearned income is what separates "the rich" from everyone else) and thanks to the Fed's constant goosing of asset prices, their paper wealth has multiplied.

The dirty little secret that nobody dares whisper lest the whisper trigger a self-reinforcing avalanche is that this Fed-manipulated "market" is illiquid: if any serious selling were to arise, there wouldn't be enough buyers to stave off a complete implosion of the bubbles.

The Fed's game is to create the illusion of liquidity by being the buyer of last resort, only now the Fed is the only buyer. This is the toxic consequence of the Fed's 12 long years of Socialism for the Super-Wealthy: thanks to the Fed's destruction of price discovery, the super-wealthy no longer worry about liquidity, so leverage is the name of the game.

The Super-Wealthy can gamble with hundreds of billions to stripmine the economy and not worry about whether a buyer will actually pay the overvalued price of the asset, because they can count on the Fed to step up and panic-money-print whatever sums are needed to maintain the illusion of liquidity.

If the "market" is so healthy, why is the Fed panic-money-printing over $1 trillion in a few months? Please glance at the charts below: the Fed has printed $213 billion in repos and $336 billion for asset purchases in the blink of an eye, and the Fed has promised to panic-print another $200+ billion in repos and another $300+ billion in asset purchases, for a grand total of over $1 trillion in panic-money-printing.

Why has the Fed been forced to panic-money-print $1 trillion to stave off an implosion of their phony "market"? Moral hazard is coming home to roost, and the Fed is having a full-blown panic-attack because the Super-Wealthy (banks, corporations, financiers) have no fear that liquidity could dry up and markets go bidless, i.e. buyers disappear and there's nobody left to buy their overvalued assets at bubble valuations.

If you want to understand how liquidity can dry up overnight and bids disappear, please read Mandelbrot's book The Misbehavior of Markets: A Fractal View of Financial Turbulence. The point Mandelbrot makes here is that markets are intrinsically unstable and prone to sudden, chaotic turbulence. In a legitimate market with intact price discovery, buyers and sellers understand risk cannot be reduced to zero and so they trade accordingly.

But in our bogus Fed-controlled "market," buyers and sellers are supremely confident the Fed will always buy assets regardless of price, and so they trade accordingly: There are no limits on leverage, derivative positions, credit lines, stock buy-backs or currency (FX) swaps: the Fed has been reassuring the legalized looters that the sky is the limit, go ahead and gamble hundreds of billions of dollars, we'll buy your overvalued assets if things get dicey.

And so the tissue-thin "market" is fundamentally illiquid, and hence the Fed's sudden panic-money-printing of $1 trillion, which is roughly equivalent to the entire GDP of Indonesia.

The Fed's thorough destruction of price discovery and its elevation of moral hazard have created a monster that is about to devour the Fed's phony facade of a "market". It was all fun and games enriching the super-wealthy but now the karmic cost of the Fed's manipulation and propaganda is about to come due, and few of the "market's" supremely complacent and confident participants are prepared for the unraveling of the Fed's illusion of liquidity.

If you want an analogy, try a population of rats that have proliferated on an island, and now the ravenous horde has consumed the last remaining bits of food. You can work out what happens next.

My recent books:

Will You Be Richer or Poorer? Profit, Power and A.I. in a Traumatized World (Kindle $6.95, print $11.95) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($6.95 (Kindle), $12 (print), $13.08 ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

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Thank you, Robert C. ($10/month), for your extremely generous pledge to this site-- I am greatly honored by your steadfast support and readership.

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The "Trade Deal": A Pathetic Parody, Credibility Squandered

Anyone who thinks this bogus "deal" has resolved any of the issues or uncertainties deserves to be fired immediately.

Here's a late-night TV parody of a trade deal: The agreement won't be signed by both parties, though each might sign their own version of it, and the terms of the deal will never ever be revealed to the public, which includes everyone doing any business in the nations doing the "deal."

How is this "deal" not a pathetic parody of a real deal? A real deal is signed by both parties and is made public, so the business community can make informed decisions. The leaders who sign the agreement have to sell their respective nations on the benefits of the deal and explain the horse-trading that is part and parcel of any voluntary agreement.

But nope, this "deal" has none of that. If the "deal" is so great, why is it secret?

Anyone claiming a deal so odious or empty that it can't be revealed to the electorate has destroyed whatever credibility they had left after 18 months of teases and promises. Put yourself in the shoes of a soybean farmer. Are you going to plant another 1,000 acres of soybeans because now that the "deal" is done, you can be absolutely confident that your entire harvest will be bought by China?

You're joking, right? Anyone making decisions based on this travesty of a mockery of a sham "deal" should have their medications checked.

And scene: Corporate America boardroom: CEO stands and addresses the board:

CEO: Now that the President signed off on the "deal," I propose we invest $100 million in a new factory in China, because the President said it was a "great deal."

Board member: But we have no idea what the deal even specifies.

CEO: Well, I'm sure it's "great."

Board member: The Chinese are signing a different version of the deal, they're not even signing whatever the President signed off on.

CEO: I'm confused. The trade "deal" is done, so let's move forward with the $100 million.

Board member: But there are no credible enforcement mechanisms in the deal. Our intellectual property is at risk, and for what gains? Expanding production in Vietnam is less risky, production costs are lower and there's none of the uncertainty we face in China.

CEO: The "deal" has been signed, so everything's fixed, correct?

Board member: Nothing's been fixed, and I'll have to call for your resignation if you insist on gambling $100 million in China, a gamble that could destroy this company.

Please tell me this "trade deal" is a bad joke, a parody being played for laughs. Please don't tell me anyone is taking it seriously. Hey, I have a deal for you, a great deal. The other party is signing another version, but never mind, it's a great deal. And all the terms are secret, but never mind, it's a great deal.

Everyone connected with this pathetic parody has lost all credibility. Anyone who thinks this bogus "deal" has resolved any of the issues or uncertainties deserves to be fired immediately.

My recent books:

Will You Be Richer or Poorer? Profit, Power and A.I. in a Traumatized World (Kindle $6.95, print $11.95) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($6.95 (Kindle), $12 (print), $13.08 ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

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Why "This Sucker Is Going Down"

Once the contagion starts spreading, loose money won't put the fires out.

As the nation's political and economic leaders struggled to contain the 2008 financial meltdown, President George W. Bush famously summed the situation up: "If money doesn't loosen up, this sucker will go down."

Eleven years into the loose money recovery, this sucker is finally going down for reasons that have little to do with tight money and everything to do with the inconvenient fact that none of the structural problems have been addressed, much less actually fixed.

We live in a bizarre world dominated by magical-thinking, a world in which the Federal Reserve creating more dollars out of thin air is supposedly the solution to everything, while all the knotty structural problems--unsupportable pensions and entitlements, unsustainable dependence on debt to fund everything from infrastructure to a new iPhone, a sickcare system that is bankrupting the nation, a higher education system that is looting an entire generation for diplomas with marginal market value, a runaway National Security State that burns trillions on unwinnable wars and lies about it--are left untouched because they're, well, difficult, and it's so much easier to say that looser money will solve everything.

Alas, loose money has created a new set of metastasizing problems that will bring this sucker down: widening wealth-income inequality, the only possible result of our system of creating and distributing new money to banks, financiers and corporations; soaring systemic leverage that few see, much less understand; and perhaps most perverse, yet equally unnoticed, loose money has widened the gap between the real economy and the top layer of arcane finance to the point there is literally no connection at all.

The happy story about debt-dependent capitalism is that thriving companies borrow money from our wunnerful banks to invest in new factories, research, software development, etc., hiring millions of top-notch people--top-notch!--at generous salaries to boost productivity and make the entire nation wealthier.

Alas, it's all a fraud. What actually happens is banks "invest" the new money in faster High Frequency Trading (HFT) computers so they can skim even more profit from the rigged "markets." Productivity increase: zero. Social benefits: zero. Economic benefits to the nation at large: zero.

Virtually all the loose money created by the Fed is socially useless financial activity, enriching the few at the top of the wealth-power pyramid who own the financial machinery of repo's, derivatives, FX swaps, leverage, and all the other tricks of the financial trade that has completely disconnected from the real-world economy.

The conventional media constantly hypes the fantasy that trade deals matter, holiday sales matter, employment numbers matter--none of that matters. The big money is made by gaming the financial system, buying regulatory approval, i.e. legalized looting, funneling a few measly millions to craven politicos who have zero understanding of how the nation's financial system actually works, and then running a monstrous skimming operation behind the complexity thickets of "modern" finance, which all boil down to the same toxic concoction that's destroyed economies throughout history:

-- The unlimited greed of those at the top.

-- No real oversight or limits on financial gaming of the system.

-- Abundant central-bank loose money to fund speculative activity in rigged markets.

-- 100% socially useless financial activity.

-- No limits on leverage, so every $1 of financial legerdemain can spawn a $100 dollar bet.

-- Total dependence on debt to fund the government, consumer spending, corporate buy-backs-- everything.

This sucker is going down, and sooner than we think. The Fed can create trillions out of thin air and give it to banks, financiers and corporations, but they can't force them to actually invest in the nation's real economy or even buy the assets the Fed so desperately wants them to buy, i.e. stocks.

The banks and financiers have used the Fed's trillions to enrich themselves for eleven years, and nothing will stop their legalized looting except a collapse of the entire machine. The great karmic irony is they've rigged and gamed the system so rapaciously, absolutely confident there's no end to the loose money, that they've overlooked the increasing fragility of the entire system they've ruthlessly exploited.

Once the contagion starts spreading, loose money won't put the fires out. The idols and false gods (The Fed et al.) will fail most spectacularly, and the karmic fury will not abate until the every last skim and every last con has been consumed.

My recent books:

Will You Be Richer or Poorer? Profit, Power and A.I. in a Traumatized World (Kindle $6.95, print $11.95) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($6.95 (Kindle), $12 (print), $13.08 ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

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NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Wendell D. ($25), for your outstandingly generous contribution to this site-- I am greatly honored by your steadfast support and readership.

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The Taxonomy of Collapse

The higher up the wealth-power pyramid the observer is, the more prone they are to a magical-thinking belief that the empire is forever, even as it is crumbling around them.

How great nations and empires arise, mature, decay and collapse has long been of interest for a self-evident reason: if we can discern a template or process, we can predict when the great nations and empires of today will slide into the dustbin of history.

One of the justly famous attempts to lay out the stages of expansion, zenith, decline and collapse is Sir John Glubb's 1978 The Fate of Empires. Succinct and deeply informed, Glubb's essay lists these stages:

The Age of Pioneers (outburst or Boost Phase)

The Age of Conquests

The Age of Commerce

The Age of Affluence

The Age of Intellect

The Age of Decadence

The slippery slope to collapse--decadence--is characterized by greed, corruption, irreconcilable internal political rifts, moral decay, frivolity, materialism--hmm, sound familiar?

All of this fits the S-Curve model which I've described here many times, for example:

But what triggers the collapse of a weakening but still functioning empire? For that, I propose a taxonomy of collapse. A taxonomy is a system of classification that groups organisms or types that share characteristics and origins.

What taxonomy of collapse does history suggest? I would start with:

1. Bolt from the blue: a fast-moving, unexpected crisis that overwhelms the usual defenses and responses of the empire. An invasion by previously unknown forces with superior technology and/or organization fits the bill: the Mongols in Eurasia, the Spanish in the New World, etc.

Extremely contagious and previously unknown infectious diseases like plague and smallpox are also bolts from the blue, devastating populations with no immunity. It is estimated that 80% or more of the population of North America died from exposure to smallpox and other European diseases, in many cases long before the victims had ever seen a European, as the diseases spread much faster than the invaders themselves.

A drought that never ends is another unexpected catastrophe that quickly depletes food stores.

These bolts from the blue can strike at the same time: one reason why the small-in-number Spanish forces conquered vast empires in the New World was the empires had already been fatally weakened by diseases introduced by Columbus decades earlier.

2. Irreplaceable declines in essential resources. Food tops the list, as a decline in calories leads to weakened immune systems and heightened odds of pandemics spreading and a subsequent drop in the number of workers needed to support the empire's vast infrastructure.

The book The Fate of Rome: Climate, Disease, and the End of an Empire makes a compelling case that the Western Roman Empire centered around the Mediterranean suffered from a slow environmental transition from an unusually wet era that enabled grain to be grown in previously marginal areas to a drier era that no longer supported the immense grain harvests needed to feed the empire.

Other forms of depletion can also sap the empire of essentials: forests are cut down, silver mines are tapped out, nearby sources of slaves (labor) are no longer available, and so on.

The imperial machinery that is accustomed to there's always more somewhere refuses to trim its expenses, elites refuse to lessen their skim, and since the fat of elite excess is retained, eventually the muscle of military power and trade decay, leaving a hollowed out empire on the edge of a precipice awaiting one final kick into the abyss.

3. Reversal of fortune. Military misadventures top the list, as invasions of nearby competing powers are in effect last-ditch gambles to acquire desperately needed wealth and resources to prop up the status quo. When the imperial army is defeated and destroyed, there are no longer sufficient resources and recruits to rebuild the army.

4. Internal civil conflict: civil wars and political conflicts that break out into society and the economy end up consuming the last of the empire's seed corn, just like an invasion of a bordering empire that fails. Once the conflict is resolved, there are no longer enough resources left to support the imperial infrastructure.

Like Nature, History offers a near-infinite variety, but just as Nature fits into taxonomies of organisms, history can be shuffled into its own taxonomy, however messy and imperfect it might be.

These triggers of collapse can overlap, of course, accelerating the final decline. All complex hierarchical systems are intrinsically fragile and prone to disruption; we don't see the fragility or vulnerabilities until the decline has reached the terminal phase. The higher up the wealth-power pyramid the observer is, the more prone they are to a magical-thinking belief that the empire is forever, even as it is crumbling around them.

My recent books:

Will You Be Richer or Poorer? Profit, Power and A.I. in a Traumatized World (Kindle $6.95, print $11.95) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($6.95 (Kindle), $12 (print), $13.08 ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

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NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Brian M. ($10), for another marvelously generous contribution to this site-- I am greatly honored by your steadfast support and readership.

Read more...