Podcast
by
charleshughsmith
Executive Summary
- The dangerous unintended risks and consequences of central bank policies
- Returns diminish as you move along the expansion S-curve
- Why the current practice of moderating extremes will fail
- What comes next & how to prepare for it
If you have not yet read Part 1: The Inescapable Reason Why the Financial System Will Fail, available free to all readers, please click here to read it first.
In Part 1, we covered the financial system’s dependence on credit, and the central bank’s conundrum: they can’t raise rates without stifling the credit-binge-dependent “recovery” and asset bubbles, but they also can’t keep pushing asset bubbles higher without increasing systemic risks, as valuations are already stretched to historic extremes.
So what happens next? Can central banks raise rates without popping the bubbles the system needs to remain solvent? Or can they keep yields near zero and keep pushing asset valuations higher for years or decades to come?
I hate to spoil the ending, but the short answer is: these are incompatible goals. The central banks cannot raise yields (i.e. normalize rates to historically average levels) and push asset valuations higher, nor can they eliminate the systemic risk generated by extreme valuations and leverage.
Unintended Risks and Consequences
Extreme financial policies generate unintended consequences as a result of being extreme: a moderate policy wouldn’t have the “whatever it takes” impact, but it also wouldn’t jam all the levers to maximum.
Once the levers are on maximum, the extremes generate instability and blowback, as those who benefit from the extremes are incentivized to go even deeper into speculative gambles in the mistaken belief that “the central banks have my back” while those who did not benefit express their dissatisfaction in the political arena, a dynamic that is often dismissed or derided as “populism.”
Central banks have suppressed measures of volatility in an effort to mask the rising risk that their policy extremes will trigger… [enroll now to continue reading]
So What Comes Next & How Can We Prepare For It?
PREVIEW by charleshughsmithExecutive Summary
- The dangerous unintended risks and consequences of central bank policies
- Returns diminish as you move along the expansion S-curve
- Why the current practice of moderating extremes will fail
- What comes next & how to prepare for it
If you have not yet read Part 1: The Inescapable Reason Why the Financial System Will Fail, available free to all readers, please click here to read it first.
In Part 1, we covered the financial system’s dependence on credit, and the central bank’s conundrum: they can’t raise rates without stifling the credit-binge-dependent “recovery” and asset bubbles, but they also can’t keep pushing asset bubbles higher without increasing systemic risks, as valuations are already stretched to historic extremes.
So what happens next? Can central banks raise rates without popping the bubbles the system needs to remain solvent? Or can they keep yields near zero and keep pushing asset valuations higher for years or decades to come?
I hate to spoil the ending, but the short answer is: these are incompatible goals. The central banks cannot raise yields (i.e. normalize rates to historically average levels) and push asset valuations higher, nor can they eliminate the systemic risk generated by extreme valuations and leverage.
Unintended Risks and Consequences
Extreme financial policies generate unintended consequences as a result of being extreme: a moderate policy wouldn’t have the “whatever it takes” impact, but it also wouldn’t jam all the levers to maximum.
Once the levers are on maximum, the extremes generate instability and blowback, as those who benefit from the extremes are incentivized to go even deeper into speculative gambles in the mistaken belief that “the central banks have my back” while those who did not benefit express their dissatisfaction in the political arena, a dynamic that is often dismissed or derided as “populism.”
Central banks have suppressed measures of volatility in an effort to mask the rising risk that their policy extremes will trigger… [enroll now to continue reading]
by
Adam Taggart
by
Chris Martenson
Executive Summary
- It's Time To Name The Guilty
- The Gross Global Mis-Pricing Of Risk
- The New Fed Looks Even Worse Than The Old
- What You Should Do To Prepare
If you have not yet read Part 1: You're Just Not Prepared For What’s Coming, available free to all readers, please click here to read it first.
So I just want to raise my hand here and say that I am in favor of handing out serious punishments to the central bankers who negligently placed all but a very tiny few directly into harm’s way, knowingly and maliciously. They knew they were harming pensions, savers, retirees, the young, the poor and the middle-classes. They knew what they were doing was harming an entire generation of young people, fostering a deeply unfair and ultimately dangers wealth and income gap, and backstopping bank losses even (especially?) when those banks did stupid things that deserved losses.
Yet they insisted and they persisted. And here we are, with the third set of bubbles in 20 years and the largest wealth and income gaps in all of history. I say the people responsible should be held accountable.
This Time Is Going To Be Different?
When these bubbles burst, and trust me they will, the aftermath is going to be especially ugly. Like all bubbles, we’ll discover that a vast amount of lending took place towards ideas and projects and in support of spending habits that really should not have been undertaken.
Credit bubbles always end up making a pile of loans to really derelict ideas. This time is no different, except the scale is so much larger. There are so many bright red warning lights that it’s difficult to figure out which ones to convey.
Like the charts above, each one of these next charts could easily be an entire meditation that, if deeply understood, would reveal the whole story. So settle in, take a deep breath and please consider the following.
First up, we have this deeply shocking chart for which the data has only gotten more shocking in recent months…
When The Bubbles Burst…
PREVIEW by Chris MartensonExecutive Summary
- It's Time To Name The Guilty
- The Gross Global Mis-Pricing Of Risk
- The New Fed Looks Even Worse Than The Old
- What You Should Do To Prepare
If you have not yet read Part 1: You're Just Not Prepared For What’s Coming, available free to all readers, please click here to read it first.
So I just want to raise my hand here and say that I am in favor of handing out serious punishments to the central bankers who negligently placed all but a very tiny few directly into harm’s way, knowingly and maliciously. They knew they were harming pensions, savers, retirees, the young, the poor and the middle-classes. They knew what they were doing was harming an entire generation of young people, fostering a deeply unfair and ultimately dangers wealth and income gap, and backstopping bank losses even (especially?) when those banks did stupid things that deserved losses.
Yet they insisted and they persisted. And here we are, with the third set of bubbles in 20 years and the largest wealth and income gaps in all of history. I say the people responsible should be held accountable.
This Time Is Going To Be Different?
When these bubbles burst, and trust me they will, the aftermath is going to be especially ugly. Like all bubbles, we’ll discover that a vast amount of lending took place towards ideas and projects and in support of spending habits that really should not have been undertaken.
Credit bubbles always end up making a pile of loans to really derelict ideas. This time is no different, except the scale is so much larger. There are so many bright red warning lights that it’s difficult to figure out which ones to convey.
Like the charts above, each one of these next charts could easily be an entire meditation that, if deeply understood, would reveal the whole story. So settle in, take a deep breath and please consider the following.
First up, we have this deeply shocking chart for which the data has only gotten more shocking in recent months…
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