(Global - 2018) - '..manifestations of Monetary Disorder..'

Posted by archive 
'My definition of inflation is as follows "Inflation is an increase in money supply and credit, with credit marked to market".

This is how the real world works in a fiat credit-based system.

My definition is not easily measurable, but neither is the CPI.

There is no such thing as an average basket that makes any sense, especially when the basket excludes home prices and assets.

Based on my definition, inflation is high and rising even if we cannot put a specific value on it.

It's been rising since March of 2009 when the FASB suspended mark-to-market rules.

Why marked-to-market?

Even if it is not directly measurable, banks know if they are capital impaired. In such cases they will not lend. If they do not lend, the credit bubble dies and deflation ensues.

Looking Ahead

When the next recession hits, asset prices will collapse and loans based on those assets will sink, if not collapse. Consumer prices will likely follow.

Once again, this is how the real world works in a fiat credit-based system.

The Austrians, in general (not this one) made a huge mistake in believing the expansion of money and credit would lead to higher consumer prices.

However, the Austrians are correct in that the seeds of demise have been planted.

Meanwhile, the monetarists at the Fed and the Keynesians who seek still more stimulus are oblivious to the entire discussion.

Debt Deflation Coming Up

I expect another round of asset-based deflation with consumer prices and US treasury yields to follow.'

- Mish, Inflation Coming? How About Deflation? February 26, 2018

'..manifestations of Monetary Disorder..'

'Speculative blow-offs and “Terminal Phase Excess” are fundamental to Bubble analysis. It’s important to appreciate these culminations of excess are manifestations of Monetary Disorder. Invariably, prolonged bouts of asset inflation and Bubble Dynamics were fueled by some underlying monetary disturbance. Monetary policies remained excessively loose, with rates held too low for too long, often out of fear of lurking fragilities. Over time, markets will disregard underlying vulnerabilities – or even be willing to conceive of them bullishly. After all, structural deficiencies ensure uninterrupted easy “money” and ever higher asset prices. Speculative leverage accumulates at compounding rates.

As the cycle extends and timid central banks dilly-dally, the gap widens dramatically between bullish perceptions and mounting systemic deficiencies – between inflating expectations and deteriorating fundamental prospects. This chasm, however, is well-masked by the remarkable inflation of perceived financial wealth, along with, let us not forget, the associated boosts in “money,” Credit and market liquidity.

What’s more, loose financial conditions and rapidly inflating asset markets stimulate economic activity, reinforcing misperceptions as to the underlying soundness of the boom. This Wealth Illusion becomes powerfully self-reinforcing throughout both the Financial and Real Economy Spheres. It is one of the great wonders of economic history – how everyone turns so blindly optimistic right before the bottom falls out.

Tremendous structural damage can be wrought during the “Terminal Phase.” Financial flows go haywire, the reign of speculation dominates, markets turn whimsical, resources are terribly misallocated and systemic risk expands exponentially. Meanwhile, over-liquefied markets see sentiment turn wildly bullish. Misperceptions are rife, as rapidly mounting risks go completely unrecognized. When the spell is inevitably broken and markets reverse sharply lower, suddenly comes the recognition that things are not as previously perceived. So much changes so abruptly, as greed swings to fear.

Over the years, CBB analysis has focused on three epic and interrelated experiments: 1) Unfettered market-based finance. 2) A de-industrialized financial/services/consumption-based U.S. economic structure. 3) Activist central bank monetary inflation and market manipulation.

These runaway experiments have combined to inundate the world with “money” (dollar balances), inflating historic asset Bubbles at home and abroad. Unhinged U.S. finance cultivated unhinged finance globally. A Friday headline from ZeroHedge: “Pat Buchanan Blasts ‘The Fatal Delusions of Western Man - We fed the Tiger, and Created a Monster...’” China is unequalled in terms of feeding off unfettered dollar-based finance while championing economic power, national wealth, military might and global ambitions. And not until Bubbles burst will we have a clearer understanding as to how much wealth has been redistributed and how much has been pilfered and destroyed – and to what regrettably great consequence.

Myriad global Bubbles have been fundamental to unprecedented wealth redistribution, inequalities and economic stagnation - potent fuel for populism and anti-globalization movements (Italian election Sunday). The backdrop has nurtured the rise of the strongman politician, dictator and despot. In a deeply divided world, seemingly the only common understanding is that central bankers and policymakers won’t tolerate market dislocation, recession or crisis.


In Powell’s testimony, there was mention of the long-accepted view that central banks should not be in the business of Credit allocation. Yet contemporary central bankers have gone so far as to conspicuously favor the securities markets. This is fundamental as to why financial stability risks now reign supreme. Central bankers should take a broad view of monetary stability and begin extricating themselves from the business of incentivizing financial flows and speculation into the markets. I know others disagree, but I believe the majority of central bankers would prefer to return back to traditional monetary management. After almost a decade, they’ve grown weary of the experiment; rationalizing the experiment; justifying the experiment.'

- Doug Noland, Cracks, March 3, 2018

'..Bubble risk has inflated to the point of risking peril for China as well as the world – financially and economically.'

'..few analysts these days even bother to mention the Chinese housing Bubble, despite its historic inflation. The problem didn’t go away; it instead got much bigger than anyone could have imagined. Indeed, Bubble risk has inflated to the point of risking peril for China as well as the world – financially and economically. And while January’s lending data evidenced a boom replete with momentum, I would caution that there may be more near-term risk than is generally perceived.

The shadow banking crackdown will likely have a significant impact on higher-risk lending generally, including mortgage Credit. Moreover, regulators are demanding bankers slow loan growth, this after household lending expanded to a significant proportion of overall system Credit expansion. Total system Credit has already slowed. There are indications of tighter lending conditions and even an incipient slowdown in housing transactions. And let’s not forget rising global yields, one more factor to weigh on inflated Chinese apartment prices. Anbang, HNA and their ilk make for interesting reading, full of nuance and intrigue as Beijing plots a financial crackdown. The real story, however, might be unfolding in Chinese household and mortgage finance.'

- Doug Noland, Anbang and China's Mortgage Bubble, February 24, 2018

Context (Banking Reform - Monetary Reform) - '..The Theory of Money and Credit .. an invaluable guide for ending the business cycles of our own time.'

'..it looks like the next credit and liquidity crisis could occur during the second half of 2018..'

'With another $2.7 TN of QE in 2017, central bankers pushed the envelope too far .. There will be a very steep price to pay.'

'..the phenomenon of wave after wave of economic ups and downs is ideological in character..'

'..the West’s 25-year bet on China has failed.' - How the West got China wrong - '..China uses business to confront its enemies. It seeks to punish firms directly, as when Mercedes-Benz..'

'..leaders to respect international law, human rights and act with compassion and empathy.'

'..credit policies to ease credit..' - '..1844 .. the issuance of banknotes .. They could thrive as deposit currency.'

'..dismantle the Marxist myth..' - 'Karl Marx, False consciousness'

'..It is hard to be sure the massive bank bail-outs of 2008 were such a great idea..'

'..economic growth cannot be conjured into being by top-down interventionism in the form of monetary pumping and deficit spending..'

'..subjective knowledge treats knowledge as being tacit, private, subjective, and decentralized..'

(Praxeology) - '..his or her subjective values .. to explain all economic phenomena as the results of what people do..'

In The Electric Universe a Future of Peace and Love