Money Printing Debt Monetization Madness Continues
Interest-Rates / US Debt Oct 26, 2013 - 10:58 AM GMTBy: Andy_Sutton
Now that another annoying gut check moment is safely in the rearview mirror, we can all get back to the business of filling the punch bowl yet another time. Yep, once again, we’ve proven ourselves to be among the dimmest of bulbs and are going right back to the bag of tricks that isn’t working anymore, but nobody seems to be noticing that – at least not on a meaningful level. Yes, I’m referring to the umpteenth opening of the monetary spigots announced gleefully in the mainstream press this week. The whole world is awash in money, every one is rich, and the party is bound to go on for at least another hundred years if you listen to the misinformation misfit mafia.
Marc Faber recently shocked some folks with his prediction that we could soon see a trillion dollar per month monetization program here in the US. He’s probably right too. After all, it makes perfect sense when you consider the path we’ve taken over the past several years. If X won’t do it, then 2X must be the answer. Or maybe X2. This is the very nature of fiat-based monetary systems. The supply of money and credit expand, slowly at first, then exponentially into what Von Mises et al have dubbed the crack up boom. This very logical conclusion is based on simple economics, the laws of supply and demand, and the law of diminishing returns.
There are several analogies that we can use to illustrate. Most have been grossly over utilized, so we’ll go with the prototypical heroin addict. The addict starts out with a little and we all know what happens. Eventually he’s committing all sorts of mayhem to get his hands on just enough dope to keep him feeling ‘normal’. There is no more ‘high’ for him. That is precisely where we’re at on the monetary curve right now. Go back ten years and a small intervention like sending out tax rebate checks in 2001, and then again in 2008, gave a little boost. Now we’re piling on debt at a rate that is ever increasing. The slope of that debt curve keeps steepening. And where’s the economic high? As you’ll see below, there is at least one big-time banking analyst who is willing to go on the record by saying that a year’s worth of QE has done absolutely nothing. They’re taking all these heroic measures merely to maintain status quo. So if they want to create another false cycle of growth (infinite sarcasm), they’re going to have to take some monster steps, like what Marc Faber suggested.
Rest assured though, even if that measure is taken, there will in fact come a day when a trillion bucks a month in monetization will feel normal and the high will be no more. I guess the whole point of the first section of this piece is not to have high expectations for any new interventions. There is nothing new under the sun here. It is just more of the same. Maybe some different words will be used. We certainly will never default. We might execute a dynamic financial action, but we’ll never default. Not the United States. Words mean things. Don’t ever forget that.
New Central Bank Interference
Countries that have decided to continue to engage in the foolish game of competitive devaluation at this point are Canada, Sweden, Norway, and the Philippines. Interest rate increases are on hold. Obviously the bigger central banks, namely the not-so-USFed, the ECB, and the BOJ are already engaged in to the Moon and back style devaluation. Of course this is a good thing we’re told.
“We are at the cusp of another round of global monetary easing,” said Joachim Fels, co-chief global economist at Morgan Stanley in London.
Here’s the chicken dinner winner of the week though and a prime example of the mentality that is run amok in the world of banking:
“If you look at where we are economically, versus where we were a year ago, we’re virtually in the exact same place,” Gary D. Cohn, president of Goldman Sachs Group Inc., said yesterday in a Bloomberg Television interview with Stephanie Ruhle. “So if quantitative easing made sense a year ago, it probably still makes sense today.”
However, not all the voices, even amongst diehard Keynesians, are in agreement on the moves:
“We are undoubtedly seeing these central bankers go wild,” said Richard Gilhooly, an interest-rate strategist at TD Securities Inc. in New York. They “are just pumping liquidity hand over fist and promising to keep rates down. It’s not normal.”
The problem, Gary Cohn, is it didn’t make sense a year ago. And because you stood on the gas and it did absolutely nothing as you now so readily admit, the answer in your little Keynesian mind is that obviously you didn’t devalue enough. You didn’t print enough. You didn’t monetize enough. You didn’t interfere enough. You didn’t intervene enough. People must have saved too much! You and Janet Yellen will get along just fine. It never occurs to any of you that maybe the reason things are where they are is because you can’t keep your fingers out of places they don’t belong in the first place? Rich Gilhooly nailed it with his comment above. Of course we walk a fine line between how many of these folks actually believe what they utter and the ones who know exactly what they’re doing. Which is which? It doesn’t really matter.
No, it isn’t normal by sane monetary standards, but it is certainly the new normal. And it is going to continue. Until it seizes up entirely, which it will. People seem to have this problem with the fact that I, and others, cannot (nor would I even if I knew) provide them with an exact date that this will happen. I might point out that the guys on the other side of this debate have been calling for a 20-25K Dow Jones Industrials for years and that particular index, even with the swapping of Goldman, VISA, and Nike for Alcoa, Hewlett-Packard, and BofA can’t seem to crack 15.5K. Never mind the fact that they pitched out AIG and Citigroup after the crash. Can’t have boat anchors in there, now can we? Maybe they should make the index change on a daily basis and include the 30 stocks with the biggest upside moves for the day. Maybe that would get them their 25,000 level?
This is a good side point actually and an appropriate rabbit trail. I’ve pointed out for quite a long time that the concept of value has been totally muddied. Nobody really knows what anything is ‘worth’. This constant rejiggering of indices, GDP, etc. is another contributing factor to this lack of discernment of worth. I am of the opinion that this is being done intentionally. If no one can assign worth to anything because there are no standards, then it is much, much easier for this charade to go just a little bit longer. Remember, any type of standard is the mortal enemy of a fiat monetary system. Usually we relate this to the gold standard, but it doesn’t have to be just gold. Any economic standard forces the analysis to center around something concrete. How do you analyze quicksand? You don’t, at least not accurately, and that is precisely where we’re at today. This is why nothing seems to make sense from an analysis standpoint. We have no standards. And this is not just an economic problem either; our entire society has become something of a free for all. Well, to all those folks who wanted this – you got it. Enjoy it while it lasts.
What is undeniable though, is that while the banksters fiddle, Rome (and most of the first world) is burning. Evidence of this? Consumers are employing their own heroic measures to maintain consumption levels. They’re piling on the debt like crazy, which is exactly what the banksters want. Indebtedness is the whole point of this exercise in stupidity. The USGovt in particular recently re-engineered GDP to allow for the addition of nearly a half trillion dollars in ‘growth’ going back to 1929. Anything to keep things moving forward. When you consider the fact that the dollar has lost 73% of its purchasing power between 1929 and today (and that is using the not-so-USFed’s cooked inflation numbers), then that extra growth they purport to have found goes right out the window. Sure, the dollars were spent but they are not even half what they used to be.
The Usual Justification – Stagnant Economies
As usual, the rationale for this latest round of easing is economic weakness. Let’s get this straight. Out of one side of its face, the government and the lackeys in the media tell us we’re in the middle of a robust economic recovery then out of the other say they need to continue to steal from you through devaluation because the economies of the world are ‘stalling’. Which is it guys? Again, it comes back to the same concept as value. Nobody really knows what is going on. Or at least few do. The rest are just wandering around trying to make even a bit of sense of it all. That is becoming obvious in the many interactions I have with both clients and the general public each week. People are increasingly unsure of anything and are hoping for good news that can actually be backed up, but have no clue where it might come from. The following quote sums this up perfectly:
“There is a concern at central banks that what we’re seeing is another false start in their economies,” said Michala Marcussen, global head of economics at Societe Generale SA in London. “We now need to see two to three months of better numbers before they’re willing to contemplate an exit again.”
Again, no standards. Everything is a moving target. False start? The whole thing is false. The start, the move and the blowoff top – all phony. The only part that will be genuine is the ending. And unlike the current pattern of the world being blown about by the winds of uncertainty and the lack of an anchoring device, when the crack up boom in fact comes, there will be no doubt what is going on. Why do you think the media is totally ignoring Europe and Japan? The crack up boom is happening there in slow motion and this is only the beginning. Yet the policy is business as usual. Out of sight, out of mind. If we ignore it, then it isn’t happening. Europe is rife with 25% general unemployment in numerous countries with youth unemployment at near 50% levels in the more extreme locales. And Japan? Not only is it awash in radiation from the destroyed Fukushima reactors – another media blind spot, but the absurd policy otherwise known as Abenomics is already a colossal failure and nobody is even paying attention. They’re more worried about the 2020 Olympics in Tokyo.
The Consumer – the Canary in the Coal Mine
Let’s take a look at the proverbial canary, the consumer, and just for good measure we’ll throw in the corporations too since they seem to be enjoying the shackles of debt slavery as well.
According to a recent CNBC article:
“As Washington is struggling with debt and all its political ramifications, American companies and consumers are embracing it, running up record amounts in 2013. Whether it’s corporate loans, all quality levels of bonds or simple consumer credit, the debt party is back on in the U.S., whether it’s in the boardroom or the living room.”
- Consumer credit of $3.04 trillion as of Q2, +22% over past three years
- Student loans +66% over past three years
- Total household debt is $13 trillion, almost back to 2007 peak.
- Government debt almost $15 trillion
- Through September, junk bond issuance is a record $372B, +27% y/y
- US loan volume is $1.53 trillion through Q3. +25% y/y
- Globally, syndicated marketed loans hit $2.93 trillion Q3, +15% annualized gain
- High-risk leveraged loans global volume hit $1.23 trillion, highest since 2007
Notice how the subservient media calls it a party and not a disaster? It’s all good! Move along, nothing to see here. The signal has been telegraphed, message delivered. The Greatest Show on Earth will have one more round. Oddly, that is good news, even for those of us who understand the ramifications of this criminality and foolishness: it gives us another window of opportunity to take our own additional ‘extraordinary measures’. The biggest take home of all this is that if you’re grounded in your understanding of the direction of things, keep your eye on the ball. Don’t let the noise distract you. Let the fools do as they will. If you can impact one of them meaningfully, then by all means do so, but don’t let them derail your efforts to protect and provide for your loved ones.
The last ‘Beat the Street’ podcast dealt with several specific protective measures that can be taken by individuals who are interested in avoiding the MFGlobal and Cyprus situations that are becoming more and more prevalent. While these situations by and large have happened overseas, we should take that as a blessing of an additional opportunity to do something rather than using it as an excuse to sit on our hands. Feel free to click here to access the BTS show page and give a listen.
By Andy Sutton
http://www.my2centsonline.com
Andy Sutton holds a MBA with Honors in Economics from Moravian College and is a member of Omicron Delta Epsilon International Honor Society in Economics. His firm, Sutton & Associates, LLC currently provides financial planning services to a growing book of clients using a conservative approach aimed at accumulating high quality, income producing assets while providing protection against a falling dollar. For more information visit www.suttonfinance.net
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