The mainstream media is beginning to wake up to the reality of the Fed’s policies. Eventually, they may even figure out that the money printing is not only making the rich richer, but it is making workers poorer.
UK inflation is decreasing, but has it fallen enough to allow incoming BoE head Mark Carney the latitude to fire up the print presses? Yes!!!
Decreasing bond yields throughout the world in virtually every asset class do not reflect falling risk but rather increased demand amidst stagnant supply. Institutions are gobbling up every issue that they can get their hands on. When the process reverses itself, these same institutions will need to be bailed out by their governments who will hopefully remain solvent.
Mario desperately wants to join cool kids Ben, Haruhiko and Mark and print money. After all, everyone is doing it. The problem is that the Germans won’t allow Mario to buy sovereign debt (yet), so the latest money printing scheme floating around Frankfurt is having the ECB purchase ABS from euro banks.
The pretext for this action is that if the banks unload some of their small business and consumer loans they will be willing to increase lending. This plan assumes that the banks have better lending opportunities that they are unable to take advantage of due to the garbage on their books. Considering the state of Eurozone economies, this is not the case.
These trading programs are essentially using the same data to make the same choices about whether to buy, sell or hold. This new market structure has already caused a few minor crashes, which brings me to the Power Law.
What the power law tells us is that many small events predict larger events in the future. Think of it in terms of earthquakes. Areas with lots of minor tremors are prone to large earthquakes. We do not know when these catastrophic events will occur, but the quantity of the small quakes points to the existence of the large.
All of these minor market crashes are telling us that a major, data-driven crash will occur, but no one knows when.
Congratulations, Ben. You have succeeded in reinflating the credit bubble that burst in 2008. Everything should be fine now, so you can retire.
The key takeaway from this piece is that there is plenty of money in austerity racked countries. The problem is that much government spending is wasteful, but mainstream politicians prefer to cut social programs rather than their own perks. Spain will run a 10% budget deficit this year. If Spaniards reduced government worker’s salaries and abolished all of their perks, could the country balance its budget without having to resort to cutting social programs and raising taxes?
Since businesses in Europe have learned how difficult it is to shed workers during recessions, they are loathe to increase hiring during boom times. Paradoxically, worker protection laws do not protect workers on a net basis. Sure, the few who have good jobs may get to retain them a little longer but at the expense of the many unemployed.
Bass has really been running his mouth about Japan, and surely he realizes that the problem with Japan’s collapse is the timing. Examining all of the evidence, a geologist would have been able to tell you that Japan will someday have an earthquake of magnitude 9.0, but when is someday?