The unparalleled global money experiment makes us laboratory rats

2024 Author: Seth Attwood | [email protected]. Last modified: 2023-12-16 15:55

There are many warning signs that a serious financial cataclysm is on the way.

However, these warning signs are strongly ignored by the majority.

After 10 years of near-constant central bank intervention to prop up markets and make stocks, bonds and real estate rise in value - while simultaneously killing commodities to disguise the inflationary impact of their printing money from the masses - it's hard to imagine that "they" would allow markets ever fall again.

This is known how the “Central Bank” works: whenever the markets start to fluctuate, the central banks will intervene to support / push the markets in the “right” direction, which is always: Up!

In retrospect, it is easy to see how central banks fell into this self-made trap, where they are now responsible for supporting all markets at all times.

The 2008 crisis scared them very much. Therefore, their mass printing of money has accelerated, they are printing more fun to "save" the system.

But instead of admitting that the great financial crisis was the logical result of misguided policies implemented after the 2000 Dot-Com crash (which in turn was the result of misguided policies in the 1990s), central banks decided after 2008 doubling your rates is an even worse policy.

Largest Monetary Experiment in Human History

It is no exaggeration to say that the monetary experiment conducted over the past decade by the world's leading central banks (and its social and political implications) is the largest in human history:

This global flow of newly printed "air" money is unparalleled in historical records. All over the world, each of us is part of a grand experiment conducted without any previous experience or control. Its result will be binary: either super-great or spectacularly awful.

If the former, then don't worry. We'll just keep borrowing and spending more and more money - forever. Eternal prosperity for all!

But if a tipping point comes, then you better be prepared for some really really bad times.

Excessive printing of money leads to the destruction of the currency. Fiat money (such as the US Dollar, Euro, Yen, and any other world currency) is a social contract and has a set of related agreements associated with it. When this contract and these agreements are violated by the reckless expansion of the currency base, things quickly fall apart. We need to look no further than today's Venezuela to understand this.

It's important to remember that money - whether physical or digital, stocks or bonds - is just a claim to real wealth. Real wealth is land, clothing, food, oil … you know, real things.

We expect our cash to buy us the real things we want, when we want. We believe that our shares give us a stake in a real company that produces real things for real profit. We rely on our bonds to be redeemed together with interest in the future; but if not, we expect our bond to become a collateral claim.

Ideally, the money supply and the amount of real wealth should exist in equilibrium. Since money is a claim to “material”, since economic growth (ie, “material”) is increasing, then claims should also increase. Conversely, during periods of economic downturn.

But what happens when the claims start to far exceed the real “material things”? That's when things get shaky.

Notice how sharply claims represented by the S&P 500 index alone have quadrupled since early 2009, thanks to central bank quantitative easing programs:

The flow of money unleashed by QE did not create a huge amount of new actual wealth (i.e., more per capita output). But it has led to grotesquely inflated financial asset prices that have helped create some of the deepest wealth and income inequality we have seen in our lives (perhaps ever).

The Many Sins of Central Banks

The list of injustices caused by the Central Bank is long. It reads like a rap list of a virulent psychopath: trillions of dollars plundered from depositors and given to big banks and leveraged speculators; destroyed pensions; ruined retirement dreams for millions; record amounts of debt in every corner of the global economy and an increasingly unsuitable cost of living for all but the 1% of the elite.

"But we had to save the system!" Central bankers shout in their defense.

Even if that were the case (but I bet … is the world really a better place by saving Citibank et al.), This rescue should have ended no later than mid-2009.

But instead, central banks have stepped up their mindless efforts in the years since the GFC. Did you know the biggest print spree in history has happened in the past two years? (2016 to 2017):

The larger the typing volume, the greater the fundamental distortion. In such a world, top becomes bottom, black becomes white, and right becomes wrong.

All this means that fundamental analysis was practically useless as a price predictor. All that mattered was the answer to the question, "How much more will Central Banks print?"

In such conditions, there is no place for investors. It makes us all become speculators, trying to predict what the little cabal of bankers is thinking.

But among their worst crimes was the manipulation of feelings. The prices of financial assets and commodities have become a political and propaganda tool, which means that nothing can be left to chance. All prices must send the “right” signals at all times, just as news releases infinitely pump one point of view. Repetition creates its own reality.

With increasingly frequent (perhaps daily) interventions by central banks and their proxies, financial markets have become "bazaars." They no longer give us any useful signals about the future or the current state of the economy.

Instead, they only tell us what the authorities want us to hear.

For them, all that matters is strength and stability. As long as these conditions are met for stocks, bonds and real estate prices, most people are happy that everything is in order and do not dig too deep.

But when this scam comes to its inevitable end, the wreck will be spectacular.

This reckoning is already on the doorstep. Now we have already found ourselves in a position where everyone understands that it would be better if this happened as soon as possible, since the potential energy in the system is gaining strength every day. We are concerned that if this all drags on for a much longer period, then her carnage will be so widespread and overwhelming that it is difficult to imagine.

But it must also be borne in mind that they can make disaster literally impossible if a political "solution" diverts blame from central banks and their DC partners - and it will be a kinetic war.

Seen in this light, America's attempts to demonize Russia over the past few years are starting to take on alarmingly more meaning.

We've talked a lot lately about the many signs that a serious financial cataclysm is brewing. Turkey hit global markets this week and this is just one example.

Yes, there is a terrible time ahead and many will fall painfully. But if we carry out the necessary correction in ourselves, we will have the opportunity to cope with it.

We can piece together the pieces and start building a future that we can all believe in.

Yes, we can't escape the pain of getting our bumps on past mistakes we've made. But we must not make our suffering worse by continuing to do exactly what has brought us into this mess. We just need the courage to deal with the psychological burden of admitting our past failures.

It is doable.

It all starts with the fact that we must become honest with ourselves.

Look, we all know the world is limited. Infinite economic growth on a limited planet is impossible. We now have all the data to draw this conclusion. Every day that we pretend that it isn't, or that things are still going to work out, makes possible adjustments that much more excruciating.

This is an intellectually simple exercise. But an emotionally impossible task for those whose internal belief systems would be hopelessly compromised by allowing this logic to permeate their worldview.

And thus, this rapidly approaching imminent future will be represented by two types of people: those who who can confront what is to come and prepare accordingly, and those who can't.

I sincerely hope that you are not among those who are deterred from preparing for the coming disaster by the flickering of today's sparkling stock prices. In the near future, we will need as many trained people as possible.

And we will need them very soon. The recent sharp deterioration in emerging markets threatens a contagion that could well lead to disaster.

Turkey is currently in a major currency crisis, threatening to metastasize into a full-blown sovereign debt collapse. The defaults there will spill over to the European banking system (which has made a lot of shaky loans to Turkey), and from there will cause a domino effect in the rest of the world.

But Turkey is not the weakest or most alarming country to hesitate: Italy, Brazil and even China stumble. But in Asia, with the exception of China, this is a real problem. Their bad debts overshadow everyone else.

For years, we have predicted that the next global crisis will progress “from the outside,” as weaker players give way first. It looks like this is what we are seeing now, and it makes me start my personal preparations.

I recommend that you do the same.