'..With U.S. stocks at or near record highs, my warning that free market Capitalism is today at great risk surely sounds ridiculous.''Here at home, it's difficult to envisage a more divided electorate or a more hostile political environment. Record securities and asset prices and such a sour social mood appear quite the extraordinary dichotomy. Yet I would argue that speculative financial market Bubbles, heightened global tensions and domestic social and political angst all have at their root cause decades of unsound "money" and Credit (an archaic notion, I fully appreciate).
"Inflation is always and everywhere a monetary phenomenon…", Milton Friedman explained some 50 years ago. At the time, Dr. Friedman was contemplating goods and services inflation. Financial, monetary management and technological developments over recent decades ensured that asset inflation evolved into the much more destabilizing form of inflation. A Bubble collapse presented Dr. Bernanke the opportunity to test his academic theories, unleashing unprecedented monetary inflation specifically targeting securities markets. His policies spurred similar monetary inflation around the world that has continued for almost a full decade.
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A decade of unprecedented global monetary stimulus has stoked speculative assets Bubbles, replete with history's greatest redistribution of wealth. Central bankers now face acute market fragility, while governments face electorate enmity (along with other shaky governments). With U.S. stocks at or near record highs, my warning that free market Capitalism is today at great risk surely sounds ridiculous.
At this point, the key market issue goes far beyond securities valuation. Too many years of too much "money" chasing too few financial assets have imparted deep structural impairment. Or phrased differently, there has been too much "money" playing the game; too much liquidity and leverage aggressively playing a historic speculative Bubble has wrecked the game. Financial markets have become maladjusted and dysfunctional, although much remains unrecognizable to the naked eye.
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Global contagion and tightening financial conditions are making steady headway toward "Core" U.S. securities markets. The Trump administration is bluffing, aren't they? Or is the era of Trump Tariffs and trade war retaliation soon upon us? It's got to be the President playing hardball dealmaker with Beijing - right? Or could a momentous Washington crackdown on China be in the offing? Appearing increasingly vulnerable, China may emerge the cornered pit bull. It was another ominous week. China and Asian Contagion. Widening Italian spreads. But, then again, with a short squeeze in play and only a week or so until the end of a big performance quarter, why be bothered with global market instability or unfolding trade wars… These are deviant markets.'
- Doug Noland,
Performance Chase, June 23, 2018
Context'..to not be an endless source of easy credit and bail-outs..'Hallmark of an Economic Ponzi SchemeConceived in Disgrace: The 350th Anniversary of the Creation of the Bank of SwedenHistory is Clear, Central Banks Fail to Assure Economic StabilityHow Business Owners Take Cues From Interest Rates - By Frank Shostak