Buckle Up, The Ride Is Going To Get Wilder

The recent stock market and financial turbulence is going to get worse — possibly a lot worse. This will be true even in the 'core' countries (US, Europe, Japan), while peripheral countries are suffering unusual levels of turmoil.

It’s nothing personal. This is simply how things were always destined to end.

As you are probably aware, our view is that if it were possible to print your way to prosperity, we’d all be speaking Latin.  We figure that a people who could build roads that would last for more than 2,000 years were highly intelligent and therefore, if it were possible to print (or debase) your way to prosperity, the Romans would have figured out how to make it work. Had that been the case, their empire would still be going strong and we’d all be speaking Latin. 

But we don’t all speak Latin. Or German. Or Shona (the main language of Zimbabwe). Because the easy lure of simply printing money has never delivered a lasting prosperity.  All it has ever done is give a quick burst of activity, perhaps several years to a decade or so before the illusion fails, and then everything ends rather cruelly for the afflicted people.

Why must money printing always fail? And why are we so certain it will fail this time, too? 

Because money is not a real thing. It is an idea.  It is an agreement between people, and that's all it is. It is not real wealth, but rather a claim on future wealth.

Real wealth consists of the real things that you exchange money for.  That means that money is a claim on future wealth. That’s all it is: a claim. Taking it one step further (since all fiat money is loaned into existence), debt is a claim on future money. 

If you put all that together, you discover that money printing and its future-stealing analog, debt issuance, do not create wealth. They only make claims on it.

What was supposed to happen when the Fed, et al., printed up all those trillions? The (il)logic was something like this:

1. Money was printed…
2. Bonds were bought…
3. The price of money as expressed by the rate of interest dropped…
4. The prices of both bonds and stocks were goosed…
5. And all of this was supposed to make people feel wealthier and fall in love with low-cost money so that they (and corporations would borrow more so that)…
6. They would spend more so that…
7. The economy would grow…
8. So that all the newly-minted debt could be paid back.