On the Status Quo

“Lulled To Sleep” | ZeroHedge.

Former heavyweight champion Mike Tyson once said, “Everyone has a plan until they get punched in the face.” Iron Mike was talking about boxing, but he could easily have been discussing the markets. The plan is to keep buying stocks, because the Fed will jump in to save the market from falling. Sooner or later, this plan will meet reality just like the face of a challenger meets Tyson’s fist.

One of the issues with these central bank interventions is that they reduce the vigilance of investors. The interventions or talk of the interventions do their job. After central bank action or jawboning, markets generally calm themselves and rise.

The fact that they work is the problem. Whenever the markets begin falling, the central banks quickly step in to offer more cheap credit or talk thereof. Markets rise, and people begin to think that the central banks have everything under control.

The existence of the Bernanke/Draghi put encourages investors to remain exuberant and take increasingly larger risks. Eventually, something will happen that is not part of the plan. It could be a bank failure in another part of the world, a market-shaking fraud revealing itself or many other surprise contingencies. The central banks will not be able to control the resultant panic, and we will have a much more horrible crash as thwarted selling pressure return with a vengeance.

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One thought on “On the Status Quo

  1. You’re missing the fact that, bailout by way of central bank intervention is NOT bringing all markets to rise in tandem and to a commensurate degree. Just look at the euro-zone periphery. Since the advent of extraordinary measures taken by central banks backstopped by intellectually and morally bankrupt authorities at the helms of national treasuries (to wit Geithner, and Paulson before him), the fortunes of euro-zone periphery economies have been anything but positive. Considered strictly from a financial perspective (never mind devastating physical effects), both bond and equity market’s in euro-zone periphery economies have been trapped in a decided downtrend (with effect that, in fact only puts further pressure on finance outside the periphery). The same fate currently being suffered by the euro-zone’s periphery awaits the trans-Atlantic banking system’s core economies should further central bank intervention ensue. Were the intellectually bankrupt pricks running these institutions — fascists, no doubt — to further confess the trans-Atlantic banking system’s insolvency, this via further intervention, do you suppose today’s core bond holders might more surely conclude the likelihood of their holdings maintaining today’s purchasing power is zero? I’m betting they will, and thus precipitate the sale of their holdings, and this is why the Fed and ECB have been reduced to playing the media game of promising more liquidity, but not delivering. Thus, indeed, we are at the precipice of the 1923 Wiemar Germany experience, and it appears these central bankers in fact know it. Yet if they don’t go there, then it is straight to a 1930s-like debt destruction. There simply is no middle ground.

    What most people fail to fathom is that, bond markets dwarf these lilliputian central banks. These are trapped by their own devices, the likes of which entered onto the scene long before QE. The question of our time, really, is how is it that, Alan Greenspan is not sharing a prison sell with Bernie Madoff? If there is any American responsible for laying the trap we presently find ourselves in, it is King Ponzi himself.

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