G’wan…bet you haven’t. I have, and now my brain hurts. Simplistic is bad, but simple is good. Impenetrable is worthy, but clarity and vision are worth more.
Four years ago, I asked two questions about the arrival of QE and Zirp into our linguistic lexicon. One, what will you do if QE doesn’t work? And two, why will Zirp help recovery, when the biggest single demographic group with the lowest overheads needs Zirp + 4% to keep spending?
They were both naive questions – I know that now. When the first two bouts of QE didn’t work, I took out Bear Notes, on the wild and crazy assumption that Ben and Merv must change tack. They didn’t, and I saw a third of my investment capital wiped out. And of course, without Zirp most of Wall Street would’ve gone bankrupt, followed in fairly short order by the US Government and the United Kingdom. I did a quick sum and worked out that if rates were at 4% for 3 years, for example, by 2015 $2.30 in every $5 would be going on just managing US Sovereign interest.
Anyway, 2014 has dawned, and here we are with the same crazy people saying “one more heave” for both stimulation and austerity at the same time. Here we are with Greece, Spain and Italy on the edge of default – and debt bonds from these countries flying off the shelf. Here we are with Zirp having saved nobody really, and the tapering of QE about to start a little bit and if anything goes wrong well, it won’t hahahahaha. And above all, here we are talking about interest rates as if these Masters of the Universe could forbid them to rise, ever.
In that context, 2000-2013 The Corporate Issuance Global Frenzy: what role for US Quantitative Easing? by Marco LoDuca of the European Central Bank et al doesn’t exactly hum with relevance. There are many who will be glad about this, but my point is based on reality rather than long equations: there is no point in doing learned studies based on the logic of madness unless you are a CBT counsellor or psychiatrist.
This is where we are, actually, now, on Planet Earth:
1. The Americans, Brits, Eurozoners. Japanese and Chinese are all emitting drivel, spin and desperately clutched, atypical statistics to tell us the recovery is under way. It isn’t. QE has failed, and the response of the authorities is now that of managing crack addict withdrawal rather than getting a better policy.
2. Printing money to purchase poo simply gives the central banks a very big and wide poo-based balance sheet, while starting out on the fast lane to inflation.
3. Interest rates must and will rise, because market pressures on gold, commodities, bonds and a hundred other formerly good investment areas have gone, and the smart money knows that the Bourses have had their day in the sun: it’s about to start drizzling.
4. When they rise, money will have to be printed to manage debt owed by the debtor countries. This will result in the fast-lane inflation vehicle sprouting James Bond wings and zooming up into hyperinflation. Don’t even think about what that will do to the markets.
5. Neoliberal economics demands consumption 24/7/365. Sadly, they also demand a 30% reduction in mass consumer spending power. And guess what – inflation will merely exacerbate that. This is a circle that simply cannot be squared. It’s the flaw in the theory, the ghost in the machine, the Mammoth in the downstairs lavatory.
Those five factors demand a crash. They don’t point to it, or suggest it, or even persuasively propose it: they demand it. Flatlining consumption will meet tentatively tapered easing, skid into a bond balloon, and bounce over the central reservation where it will hit rising debt costs towing hyperinflation. In the raging inferno that follows, the stock market will be burned to a crisp.
I have no idea any more how long the boys in the the bubble can keep up the denial. Japan’s road looks pretty short to me, and Germany’s austerity shtick will hit the buffers once the directionalising debt money pulls out of ClubMed. The bank bailin surrealism will not get past the first French bank that tries it on, and that in turn will make France’s real situation obvious. Britain’s Chancellor George Osborne has a carpet-bag like a tardis: I’m constantly amazed by the consistently superficial credibility of the cons he pulls off. And in theory, until the tipping point, the States could keep pumping smoke into the Hall of Mirrors almost indefinitely.
But in time, “almost” will be passed, and then Janet Yellen will be heading like Speedy Gonzales for the downstairs loo. In there she’ll find a hairy mammoth saying “I was here first”.
Enjoy the week.