One by one the stock markets were crashing all over the world yesterday. What have I been telling you? The ‘economic recovery’ was never anything of the kind. Since before the 2008 crash, but at a more intense rate, the central banks, governments and commercial banks have been inflating bubbles within bubbles in an effort to maintain the illusion that they were in control. The truth is the recession that became a crash has turned into a depression as deep as the great depression of the twentieth century. Which is not what you wanted to hear before Christmas.
Unfortunately the monster the establishment created could not be controlled, it has to be fed or it will die of course and their monster grew so big it devoured everything. Printing money (Q E) has failed because it devalued everything, inflating asset values has failed because few in the developed nations can now afford to buy homes as increasing prices outstripped increases in earnings, bolting down interest rates to stupidly low levels failed because maxed out consumers could not take on more debt even at 3,4, or 5 per cent.
Yesterday saw world energy prices plunge, stock markets record massive sell-offs, credit begging to become an issue, record private, corporate and sovereign debt threaten the global financial system and rating agencies suddenly start downgrading everything from mining companies and extractive companies, via entire countries to the shirt on your back.
It was inevitable really, the case is that the west has pumped trillions of dollars into a system that was bloated with debt in the first place. As a result of enormous QE programmes that have almost universally rewarded only a few bankers and billionaires* while enormously increasing the burden on taxpayers. Almost every asset has had its value blown up so it can serve as collateral on more loans, the whole system has been so bloated it looked likely to burst for a long time.
Now there is no more money to throw on the bonfire, the Ponzi scheme is imploding. Control freak politicians and business leaders thought they could beat market forces by manipulating markets, in the end we have all ended up in hock to Uncle Rothschild.
Is this the big one or will “The Controllers” once more manage to stretch sticking plasters over the jagged stumps of severed limbs? Will We The People be fool enough to keep on consuming or are we about to enter a period of self imposed austerity which will snowball into a deflationary avalanche?
Things could appear to unravel much more quickly than in previous bust cycles. This is because they are already unravelling but corporate control of the media has presented bad news as good. The energy bust began 4 months ago and already prices have fallen 40%. We could see $50 a barrel soon. And, already we are seeing stock prices falling and rating agencies throwing downgrades around like confetti. Is that good? Only in the short term, we poor punters are never going to see a 40% reduction in our bills or the cost of filling the car and looking further ahead it means profits will drop, jobs will be lost and demand will dry up.
Housing markets will be hit too. Even the insane market in London, where a broom cupboard can sell for £250,000, property prices in some areas are starting to stutter. Property prices have for a long time underpinned the value of the currency but a correction is overdue.
Looking at the carnage around the world yesterday, all the major asset classes look likely to take more hits; energy, property, stocks, tech and bonds, and it is long overdue. A measure of how insane the global economy has become is that Uber, a taxi booking software service with no assets is valued at $40billion for its Stock Market launch. We are seeing a repeat of what happened just prior to the dot.com bust just 15 years ago.
Even commodities took a small hit yesterday so there really is nowhere to hide. Good thing I bought some acreage and have been practicing aiming a shotgun and saying “Get orf moi laaaaaaaaand.” We could be on the way back to feudalism. Keynesians may now with to retire to their chamber with a bottle of Single Malt of Vintage brandy and a loaded revolver before I say ………………………..
Quantitative Easing involves insolvent governments issuing bonds and central banks buying them in, effectively the taxpayers are buying government debt. This is bad enough, but with base interest rates (the rates at which governments lend to banks) at zero or close to zero and bonds carrying a 3.1% (USA), 3.5% (UK) and up to 10% for basket case economies like Greece, all that happens is banks borrow from the government at 0.5% and lend the money straight back at 3%+. Nice work if you can get it.