'I am reminded of the sage words from the late German economist Dr. Kurt Richebacher: “The only cure for a Bubble is to not let it inflate.” Over the years, I’ve often fielded the question, “Doug, if you were a policymaker, what would you do?” There are today no easy answers – no solutions that come without tremendous hardship. I know the sooner Bubbles are addressed, the better. But policymakers long ago missed their timing. The first law of holes: If you find yourself in a hole, stop digging. Yet governments and central banks will not slow their feverish excavation efforts until market forces dictate a change of course.
The entire global system is in the throes of late-phase “Terminal Phase” excess for a multi-decade Bubble. There has been unprecedented structural impairment. And the risk of bursting Bubbles is at this point so extreme that officials see no alternative other than to stick with massive and unrelenting monetary inflation.'“If they lose money, that’s on them.” That may be okay for a group of market players. It’s fine for the professional speculator community. But it is definitely not okay when market speculation has grown to become a major societal issue, especially with our social fabric already frayed and frail. I believed at the time it was immoral for Bernanke to have slashed savings rates to zero and forced savers into the securities markets. More than a decade of inflationism – along with the Fed monkeying with the markets - has so distorted incentives and risk perceptions that it is impossible for the public to accurately assess market risk. When they lose serious money, it will be on the Fed.
The thought of the anger, animosity and vengeance that will be unleashed when the Bubble bursts is deeply troubling. The backlash will be momentous. A sweeping regulatory crackdown is inevitable. It will take years – or, more likely, decades – for trust to return. Wall Street and the Fed will be the main villains, while already fragile confidence in our government will be badly shaken. Capitalism will be in jeopardy.
It remains a challenge to communicate the deleterious effects of inflationism and unsound money. We’re in a period of monetary hyperinflation, yet there are no wheelbarrows or spiraling prices for bread and foodstuffs. Savings of lifetimes have not been wiped out.
The contemporary system of digitalized “money” and Credit, where central banks inject monetary inflation directly into the securities markets, has unique inflationary manifestations. It’s virtually miraculous superficially, with surging prices for stocks, bonds, real estate, private businesses and asset prices more generally. Wealth seemingly expands by the week. Yet Monetary Disorder is taking an increasingly heavy toll on financial, economic, social and political stability. Insecurities, inequities, animosities, distrust and anger fester.
I began posting the CBB in 1999 after I had become convinced of fundamental and momentous changes in finance. “Money” and Credit were expanding unchecked outside the traditional mechanism of bank lending and deposit growth. The proliferation of aggressive non-bank financial operators – from the GSEs, to the Wall Street firms, securitizations, derivatives, the leveraged speculating community and the like – was creating a mechanism for unprecedented Credit expansion outside traditional bank reserve and capital requirement constraints.
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I am reminded of the sage words from the late German economist Dr. Kurt Richebacher: “The only cure for a Bubble is to not let it inflate.” Over the years, I’ve often fielded the question, “Doug, if you were a policymaker, what would you do?” There are today no easy answers – no solutions that come without tremendous hardship. I know the sooner Bubbles are addressed, the better. But policymakers long ago missed their timing. The first law of holes: If you find yourself in a hole, stop digging. Yet governments and central banks will not slow their feverish excavation efforts until market forces dictate a change of course.
The entire global system is in the throes of late-phase “Terminal Phase” excess for a multi-decade Bubble. There has been unprecedented structural impairment. And the risk of bursting Bubbles is at this point so extreme that officials see no alternative other than to stick with massive and unrelenting monetary inflation.
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It has the feel of global markets having entered a period of acute instability. Equities have turned wildly volatile, while bonds are increasingly vulnerable. Currencies are unstable as well, as traders try to discern if there’s more to go in the dollar squeeze or if the bear market rally is about to give way. And how crazy could things get in the physical commodities if squeeze dynamics really take hold?
It’s also worth mentioning the semiconductor shortage that has begun to hamper manufacturing for autos and other products. It’s one more manifestation of destabilizing monetary inflation. There is now the clear prospect for massive near-term fiscal stimulus, while the Fed is determined to keep its foot pressed firmly on the accelerator. It’s a combustible mix. It’s not a market backdrop I would be comfortable trading, although millions clearly don’t share this view.'
- Doug Noland,
That's on Them, February 5, 2021
Context'The GDP measure fails to register this loss of wealth .. When debt capital, like any other factor of production, is overused its marginal revenue product declines.''..The crazier things get the more unsustainable Bubble prices become.'2021: The Year of Acute Monetary Disorder and Fragility