by Matthew Piepenburg, Gold Switzerland:
Below we track years of desperate yet deliberate central bank bubble creation (and can-kicking) to its ultimate end-game: titanic currency destruction.
The Bond Market is the Thing
When tracking markets and asset classes, one eventually accepts the Shakespearean reality that “the bond market is the thing.”
When a completely distorted global financial system is driven exclusively by the greatest credit bubble (and hence crisis) in history, the cost of that debt (i.e., the interest rate) becomes a primary protagonist.
TRUTH LIVES on at https://sgtreport.tv/
When rates are low, for example, bubbles grow. When rates are high, they pop.
Of course, the bigger the bubble, the more fun the ride up; but conversely, the bigger the bubble, the more painful the pop.
And by the way: All bubbles (tech, property, credit and currency) pop.
We are now entering that pop-moment, and the central bankers know it, because, well: They created it…
Once Upon a Time—Natural Forces
Once upon a time, there was a concept and even a dream of healthy capitalism and natural market forces in which bonds were fairly priced on the basis of a now extinct concept once known as natural supply and demand.
Nod to Adam Smith.
That is, when demand for a bond was naturally high, its price rose and its yield (and hence rate) was naturally low; conversely, when demand was low, its price fell and its yield (and hence rate) rose.
This natural ebb and flow of yields and hence interest rates kept credit markets honest.
As rates climbed and the cost of debt rose, debt liquidity naturally slowed down and the system prevented itself from over-heating.
In essence, the bond markets had a natural pressure gauge which triggered a natural release of the hot air within a bubble.
Then Came the Un-Natural and the Dishonest
Then came the un-natural central bankers against which our founding fathers and Constitution warned.
Like everything centralized and human, as opposed to natural, these short-sighted bankers ruined, well: everything.
Rather than allow bonds, yields and hence rates to be determined by natural price forces, these banks had the arrogant idea that they could control such forces, the hubris equivalent of a sailor attempting to control the powers of an ocean.
Nod to John Smith of the Titanic.
The Fun Part
For years, central bankers have artificially supported sovereign bond markets by purchasing otherwise unwanted bonds with money created out of thin air.
This absurd yet popular “solution” of repressed rates created bubble after bubble. That was the fun part.
It is also the part which breeds a school of academic apologists and theories (nod to MMT) who justify and defend the same as an unsinkable market.
Remember Janet Yellen’s claim that we may never see another recession? Or Bernanke’s Nobel-Prize winning observation that we could print trillions at “no cost” to the economy?
Meanwhile market participants, enjoying the tailwinds of low rates and easy/cheap access to debt, ignore the bubble dangers (i.e., icebergs) ahead as they enjoy the admittedly fun part of a rising bubble.
And oh, what fun a cheap-debt-driven and artificially controlled series of cheap-debt-induced bubbles can be…
Like the tuxedo-clad 1st class passengers on the Titanic’s A-Deck, investors (the top 10% who own 90% of stock market wealth) pass cigars and brandy among themselves and speculate like children comparing portfolios, all the while ignoring the rising iceberg off the bow.
How Icebergs Are Made
When it comes to making icebergs, our central banks have a perfect record, and the leader of this pack is the U.S. Federal Reserve, a private bank which is neither Federal nor a reserve.
Just saying…
For those paying attention rather than passing cigars on the A-Deck, you’ve already noticed this pattern of bubble-to-bubble and hence debt iceberg to debt iceberg creation before.
The Fed, with the complicit support of the commercial bankers and policymakers, for example, “solved” the tech bubble of the late 90’s (kudos to Greenspan) which popped in 2000 by creating a real estate bubble which popped in 2008.
Through the same playbook of artificial rate suppression, the Fed then “solved” that housing bubble (kudos to Bernanke) by creating a global sovereign debt bubble/iceberg (kudos to Yellen and Powell), the very A-Deck upon which we all stand today.
Today’s Iceberg: A Global Credit Crisis
Having bought time and bubbles, from tech to housing to sovereign bonds, the Fed is now running out of places to hide its latest iceberg. This kind of can-kicking is more like sin-hiding.
Having squeezed a tech bubble into a real estate bubble, and then a real estate bubble into a sovereign debt bubble, where can the central bankers now hide their latest Frankenstein, bubble and iceberg? (I love metaphors.)
The Currency Bubble
For me, at least, the answer is fairly clear.
The only way to hide and “solve” the greatest sovereign bond iceberg (crisis) in history is to bury it beneath wave after wave of mouse-clicked, debased and hence increasingly worthless fiat currencies.
In short, the Fed will hide its latest credit bubble behind the last and only bubble it has left in a history-confirmed pattern used by all failed financial regimes, namely: Creating a currency crisis (i.e., debased money) to solve a debt crisis.
Of course, if you read that last line (as well as centuries of economic history) correctly, this just means there are no solutions left, just a choice of crisis options: drowning bonds or drowning currencies.
Read More @ GoldSwitzerland.com
