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Market Oracle FREE Newsletter


Coming Soon – The Bubble Economy Tapers Down And Out

Stock-Markets / Liquidity Bubble Sep 21, 2013 - 06:21 PM GMT

By: Andrew_McKillop


By the end of October 1929, the total value of stocks listed on the New York stock exchange had fallen by nearly 40% against early 1929 levels, but this was only the beginning. When the bottom was finally reached in March 1933, stocks had declined by more than 80%. Commodity prices fell by around 50%. World manufacturing output declined by 33% to 60% depending on country. World trade declined by about 67% or two thirds. In less than one year unemployment doubled in several countries, such as the UK, and quadrupled in most countries within 4 years. The International Labor Office in 1933 said that unemployment in the developed world had increased by 33 million since 1928. Corrected for today's population against the world's 2.2 billion in 1933, this would mean about 110 million people losing their jobs, today. The total US labor force as of 2013 is about 150 million.

In several European “PIIGS” countries this 1929 story has been their real daily world since 2008, of course minus the stock market “correction”. Equity values have to rise, to maintain confidence and feed the bankster-broker-trader fraternity with mega profits. No alternative. You know it makes sense.

Like previous times, the elite attitude to the 1929 disaster was identical to what you can read in any government-friendly mindbend media outlet, today. Then as now, herd news rags of the elite, like “The Economist” magazine approved each panic action by the elite. At the time, these typically included temporary shutdowns of stock exchanges when the panic got too extreme, currency controls and occasional radical hikes of interest rates “to throttle speculation”. The panic moves continued from the start of the crisis in 1929, to its finish in the mid-1930s when arms spending in the build-up to World War II aided the slow exit from this epic crisis. Most historians say the Great Depression of the 1930s was a potent basic cause of WW II.

Typical elite media treatment of the “good management” used at the time was laughable. In its 28 September 1929 issue, “The Economist” pompously wrote:  “(the Bank of England) has decided to impose dearer money rates at a moment when the fates are becoming propitious to an early success, which should permit of a relaxation of the present tension before too long a period has elapsed”.

In fact, the crisis had only begun. Then as now the elite attitude is always airily optimist and no-panic. The sweat and threat of total poverty and destitution – the fate of the masses – does not concern the elite. It sails on, Titanic style. Torsten Veblen is the arch writer on that theme.

This is not a theory but a certainty. Measure it anyway you like – using economic numbers – and the finance, banking and national debt-deficit crisis since 2008, to date, is already far worse than 1929.

Also, this fact is known and partly-admitted by the elites through their vetted and approved news outlets like “The Economist”, “Wall Street Journal”, “Financial Times”, “CNN Money” and their lookalikes-talkalikes. The claim for why and how the crisis has been managed, deflected and diluted, pushed back like garlic pushes back vampires, this time around, hinges on just two letters: QE.

Quantitative Easing, fiscal loosening, money printing. Old time panic measures like hiking interest rates are so far off the menu that the elite's favourite mouthpieces, like journalist Paul Krugman, can say this bogeyman has been destroyed. All is well. We only need time - and printed chaff money.

In fact the trap is explained right there. QE must continue for ever. Interest rates must never, ever rise. To ram that message home, personal savings can be – and are – stolen from failed banks in what are called “bail-ins” not bail outs, as already operated in Cyprus. Who would save money when firstly, the savings account pays no interest, and secondly the savings can be stolen anytime the elite decides?

Real world economic recovery since 2008 is ritually hailed every day in elite-serving media – but sadly or otherwise it simply doesn't exist. Examples abound. For example European car sales which in July 2013 were at the lowest since standardized Europe-wide car sales data started, in 1990. Several European countries have jobless rates the same as in the Great Depression. Economic growth rates in the emerging economies, the former “dynamos of global growth” including Brazil, India, China, Russia, Turkey and Indonesia have tumbled – in some cases to barely more than 1.5% a year, from previous rates of 6% - 10% every year. World trade has contracted on an annual base since 2008. Energy demand in many developed countries is still below 2008 rates. World steel output is stagnant and the industry is facing its worst outlook since 1945.

The US Federal Reserve's threatened taper-down of its so-called fiscal easing or QE, never materialized because if it happened, Wall Street would crash. As simple as that. So ”the Fed” will keep on blindly buying $85 billion-a-month of junk securities, politely called bond and asset purchases, using printed money to do it. This is “good economic management”.

Playing its endless game of provocation, chicken, or who blinks first, Wall Street's crony capitalist coterie of banksters, brokers and traders pump up equity values to highs upon highs. From those giddy heights, the fall could only be awesome and terrifying – so the the Fed keeps printing. To be sure, outgoing chairman Ben Bernanke knows QE has to stop some day, after he has quit. Probable incoming chairwoman Janet Yellen lets it be known that she isn't chicken and will go on easing. The hooray Henry circuit of elite-approved mouthpieces like Paul Krugman whoop and cheer the good news.

Nothing happens in the real economy, far, far below the money printing bankster circuit. This is a second part of the trap. QE does nothing for the economy of the type which concerns you or me, it generates its own “perverse feedback”, for example the crash of money circulation rates in all developed countries – the new printed money doesn't circulate. It drops straight into the playtime casino circuit of banksters, brokers and traders. And then disappears. Making this even surer, the new money isn't real, it is only-playtime-money reserved only for that utilisation, explaining why it has not – yet – triggered a fantastic surge of inflation.

The new playtime money issued since 2008 can be calculated several ways using complicated-seeming finance jargon like redemption schedules, repo, interest and currency exchange rates, but can be estimated for the developed countries at maybe $80 000 billion ($80 trillion). Its special feature, apart from being virtual as far as the real economy is concerned, is this un-funny money instantly becomes new and additional national sovereign debt. It always ends up there.

Meaning this new debt is “unreal” and can never be repaid – so why keep up the pretence? This word is banned by our elites and their sherpahs cobbling them soundbytes for Global Crisis meetings.

Their word is “confidence” but its meanings are not what you or me understand by that word, because its opposite, lack of confidence means higher interest rates. And these are verboten, interdit and off the menu for ever. They cannot happen because if they did happen – Wall Street would crash.

Free money for the banksters, and permanent economic recession for everybody else, as national debt piles are clocked up to insane and unpayable heights. That is what we get. To be sure “it has to stop some day” but the start date won't be announced, and will unfortunately be a totally classic panic-and-denial circus act like 1929.

In other words we start with a shock-surprise stock market crash. Following this, and of course only as a temporary measure to throttle speculation, interest rates will rise. Currency controls will be set – as they are already in Europe's PIIGS. Stock exchanges will be shut temporarily and, the new trick, will suffer more frequent “surprise breakdowns” of electronic trading equipment and IT systems. Equity values will be rigged more outlandishly and extremely than they are already, despite that seeming almost impossible to anybody with even notions of how equity prices are set.

Currency exchange rates will surely be a vast burn-out circus of frenzied “trading”, we mean speculate and die, because the crisis that has been cooked up since 2008 in fact dates from the 1980s, and all moneys are now basically worthless. They have been over-printed to oblivion and extinction. The vast debt mountains of all developed countries, and plenty of other countries, will get their special dose of frenzied attacks by speculators or “investors”, meaning vertical-type increases of bond rates on the debt of supposedly “weaker countries”, instantly reacted to by more chaff money printing.

The coming circus act is certain to be bigger than 1929, of that we can be 100% sure. But how it evolves and unwinds is another story. Checking the 1930s model, national aggressivity and angst can only soar. This means we will get economy-based standoffs and challenges between the so-called great economic powers. Apart from declaring war on each other which always comes later, their only near-term options are trade and currency fighting, which is going to radically increase in coming months.

As we already said, the start date will not be announced. It will “emerge” in a before-and-after process that itself has already been launched and is building every day. The pantomine act surrounding the US Fed and will-it won't-it taper down QE was most likely a start signal.

QE has to taper down sometime but when it does, the gloves are off. Stock markets can either “erode” or crash – they don't have any other choice. When they shift from erode-mode to crash-mode, which they will, the Bubble Economy we all heard about, and eked an insecure living under its flimsy shadow will be a thing of the past. After that – the unknown.

By Andrew McKillop


Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2013 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisor.

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