<blockquote>'Nevertheless, free-market-environmentalism theorists have overlooked another major cause of the poor use of natural resources: the credit expansion that central banks orchestrate and cyclically inject into the economic process through the private banking system, which operates with the privilege of using a fractional reserve. In fact, the artificial expansion of fiduciary media triggers a speculative-bubble phase in which there is an "irrational exuberance." This phase ends up placing an unwarranted strain on the real economy by making many unprofitable projects appear profitable (
Huerta de Soto 2009). The result is unnecessary pressure on the entire natural environment: trees that should not be cut down are cut down; the atmosphere is polluted; rivers are contaminated; mountains are drilled; cement is produced; and minerals, gas, oil, etc., are extracted in an attempt to complete overly ambitious projects that in reality consumers are not willing to demand, etc.'
- Jesús Huerta de Soto,
1. The Relationship between Credit Expansion and Environmental Damage</blockquote>
'Market Bubbles turn unwieldy near their conclusions. I fully expect unwieldy global markets throughout 2014: Bubbles inflating, deflating and vacillating. Greed and Fear and speculation run wild. Policy confusion and acute market uncertainty. At this point, conventional analysis seems particularly oblivious, which increases the risk of the proverbial “black swan.” And when it comes to Bubbles and “black swans,” I tend to see bursting Bubbles (i.e. “black swans”) as high probability outcomes. What tends to make them so-called low probability events is only the uncertainty of their timing.'<blockquote>'The basic analytical premise is one of extraordinarily protracted Credit and speculative cycles (unlike anything since the Twenties). These interrelated Bubbles, repeatedly bolstered by aggressive monetary stimulus, foment latent financial and economic fragilities. Financial and economic Bubbles have evolved over years to encompass the world. Unprecedented financial excess has cultivated epic global imbalances and economic maladjustment.
Historic monetary inflation again sustained global Bubbles in 2013. But this came with major associated costs: these included an increasingly unwieldy Bubble in China and powerful Bubble Dynamics taking hold in U.S. equities and corporate debt (not to mention Japan or European debt and equities). Conventional analysis holds that global central banks have largely succeeded in spurring post-crisis system recovery. From my analytical framework, they have clearly made things much worse.
..
Conventional analysis holds that the financial markets respond to economic fundamentals. The economy drives the process, with most seeing higher stock prices as confirmation of an economy now largely rehabilitated and operating normally. My Macro Credit and Bubble framework takes a differing approach: The “financial sphere” chiefly dictates the behavior of the “economic sphere.” Considering the Fed’s prolonged rate and QE measures - and resulting inflating asset markets (perceived wealth) - the performance of the underlying economy has been notably unimpressive. And while the bullish view sees an economy with mounting momentum, for 2014 I would suggest focusing first and foremost on latent financial fragilities (global and domestic).
..
As a rough proxy for total outstanding marketable debt, I tally outstanding Treasuries, MBS, Corporate bonds and muni debt. I then add the market value of equities for a proxy of “Total U.S. Marketable Securities.” According to the Federal Reserve data (Z.1), 2007 ended with total marketable debt securities of $27.5 TN and equities of $25.6 TN, for combined Marketable Securities of $53.1 TN. As a percentage of GDP, Marketable Securities ended 2007 at a then record 378% of GDP. This compares to $6.2 TN of Marketable Securities back in 1985 at 148% of GDP; $18.8 TN of Marketable Securities at 254% of GDP in 1995; and $43.35 TN of Marketable Securities at 343% of GDP to end 2005.
I estimate that “Marketable Securities” ended 2013 at approximately $68.15 TN – fully $15 TN, or 28%, greater than the record level heading into the 2008 crisis. As a percentage of GDP, total Marketable Securities have almost reached 410% of GDP. I estimate that Marketable Securities inflated an unprecedented $6.65 TN in 2013 (waiting for Q4 data).
..
My analytical framework views the world from an altogether different perspective. Inflating securities markets mask that central bankers are actually losing their war. Experimental monetary policies have fomented dangerous asset Bubbles, while exacerbating financial imbalances and economic maladjustment. Disinflationary pressures globally are an increasing risk to corporate profits and Credit quality more generally. This is especially pertinent today in China, Asia and the emerging markets (EM). There, Credit continues its rapid expansion, while global overcapacity builds for too many things. Equities generally should trade at a significant discount to traditional valuations, while Credit spreads would reasonably reflect an increasingly risky financial and economic backdrop.
Last year saw cracks in EM Bubbles and the initial phase of revaluing EM securities. In a world of central bank-induced over-liquefied and highly speculative markets, trouble at the “periphery” only worked to spur excess at the “core.” U.S. (and “developed”) securities markets Bubbles, in particular, fatefully diverged from the global trend of heightened instability and mounting disinflationary forces.
The Chinese Credit system and economy are major Issues 2014. After years of runaway Credit and capital investment, the Chinese economy suffers from excess capacity across various industries. This is particularly problematic for what has become a highly leveraged economy. Corporate borrowing costs have begun to reflect this backdrop, with rising risk premiums a serious issue for highly indebted corporations. Their highly fragmented and opaque local government sector is an accident in the making. The same is true for China’s ballooning “shadow bank” and its tinderbox of Trillions of risky Credits bound with the (“moneyness”) perception that Chinese authorities will ensure safety and liquidity. Especially after again failing to confront its escalating problems 2013, I believe China will be a major global concern throughout 2014. I see all the necessary elements for a major financial crisis.
Over the past year, it appears Credit continued to grow in excess of 20% in China, Brazil, India and elsewhere throughout EM. This supports my view that the unfolding EM Credit crisis is in an early phase with the more significant economic effects yet to manifest..
..
Generally, leverage would be a focal point of attempts to assess systemic fragility. But I’ll return to my rough estimate of $68 Trillion of U.S. “Marketable Securities.” I believe misguided Fed (and fellow global central bank) monetary inflation has inflated financial asset prices generally. Indeed, the key Issue 2014 may be the almost across-the-board mispricing of U.S. securities markets. And we saw a glimpse back in May/June of how destabilizing flows can quickly unfold when market participants suddenly realize their perceived low-risk funds and strategies are at risk of significant losses.
Market Bubbles turn unwieldy near their conclusions. I fully expect unwieldy global markets throughout 2014: Bubbles inflating, deflating and vacillating. Greed and Fear and speculation run wild. Policy confusion and acute market uncertainty. At this point, conventional analysis seems particularly oblivious, which increases the risk of the proverbial “black swan.” And when it comes to Bubbles and “black swans,” I tend to see bursting Bubbles (i.e. “black swans”) as high probability outcomes. What tends to make them so-called low probability events is only the uncertainty of their timing.'
- Doug Noland,
Issues 2014, January 3, 2014</blockquote>
[b[Context
<blockquote>
Economic Recessions, Banking Reform, and the Future of Capitalism - By Jesús Huerta de Soto'..ethics in particular .. absolute principle of ethics..' - '..deze fundamentele ethiek..''Let us only hope that when the inevitable crash comes the free-market road is taken..' - Martin Hutchinson8 Million Acres of China's Farmland is Too Polluted to Farm; All Farm Products From China Suspect; Iceberg Principle, January 03, 2014
France in Review: Perfect Track Record of Economic Ineptitude, December 31, 2013
America's First Marijuana Stores Open in Colorado; Record Opium Crop in Afghanistan; Six Beneficiaries of "War on Drugs", January 01, 2014</blockquote>