'Powell, Draghi, Kuroda and the like fully appreciate that a decade of ultra-loose monetary policies has fueled dangerous Bubbles. But they’ve thrown in the towel; a fight they are afraid to confront. The Fed has not only abandoned “normalization,” it has deserted its primary responsibility for safeguarding financial stability. We’re witnessing nothing short of a historic failure in the Bernanke inflationary policy doctrine, today masked by precarious Speculative Dynamics throughout the risk markets and a historic melt-up in global sovereign bond prices.
History has never experienced such powerful financial Bubbles on a globalized basis. The scope of international trend-following and performance-chasing finance is unprecedented (many tens of Trillions). And with these Bubbles at risk of bursting, central bankers are resolved to employ “whatever it takes” monetary stimulus to hold dislocation at bay. The upshot is only further emboldened market participants, more intense speculation, a greater accumulation of speculative leverage and even more precarious “Terminal Phase” Bubble excess.
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The world is certainly anything but normal. The critical issue that the world refuses to address is how three decades of progressively “activist” central banking have played a profoundly deleterious role in global financial and economic development. Fed policymaking was fundamental in fueling the “tech” and mortgage finance Bubbles. The bursting of the Bubble in 2008 then incited history’s greatest central banking stimulus. Without this radical stimulus the historic nature of China's Bubble would not have been possible. It was this radical stimulus that also exacerbated inequality within and between nations. It was the backdrop of inequality and general insecurity that contributed to the global rise of the “strongman” leader. And headstrong leadership, extreme economic imbalances and the zero-sum game mentality today create epic economic and geopolitical risks.
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Draghi’s replacement will suffer the same fate as Bernanke’s successors: Once you’ve pulled out the monetary bazooka, there will be no dropping it from the arsenal. Nothing in fact will suffice but a bigger bazooka. Bigger Bubble Demands Bigger Bazooka. And global bond markets are these days priced for a Horde of Jumbo Bazookas. Yet there’s more to this story than central banks held hostage by speculative Bubbles. More than trade wars, weak global manufacturing and even the fragile European banking system, the vulnerable Chinese Bubble is a likely catalyst that could rather abruptly panic global markets and central bankers alike.
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June 5 – Financial Times (Don Weinland and Archie Zhang): “A $647bn blind spot in financial reporting by China’s city and rural commercial banks is fuelling investor concerns that more of the country’s lenders face government intervention or collapse in the wake of the state takeover of Baoshang Bank. Baoshang was one of 19 banks with a combined Rmb4.47tn ($647bn) in assets that have yet to publish 2018 financial results, according to… Barclays. The delays are a potential sign of a build-up in non-performing loans and leave investors blind to how many of those assets may have turned into bad debt, as was the case with Baoshang, analysts said.”
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There’s “tremendous room to adjust monetary policy” – that is, until the renminbi buckles and Beijing faces a run on its currency and financial system. “Everyone, please don’t worry.” Worry. “China’s stock market was hit by the biggest outflow of foreign capital on record…” How about the huge international flows that were enticed into China’s booming bond market? “A $647bn blind spot in financial reporting by China’s city and rural commercial banks…” “Steps to cool the property market.” All the characteristic of an unfolding crisis.'
- Doug Noland,
Horde of Jumbo Bazookas, June 8, 2019
Context'..it’s as if global safe haven bond markets are anticipating a bout of panic in the not too distant future.''Two Interest Rate Theorems' - 'Disinflationary effects of technology, aging demographics and excessive debt' - '..the bursting of China’s historic Bubble..''..Late-stage historic global Bubble..'