Squishy Fact Finding Mission

Today we begin with the facts.  But not just the facts; the facts of the facts.  We want to better understand just what it is that is provoking today’s ludicrous world. To clarify, we are not after the cold hard facts; those with no opinions, like the commutative property of addition. Rather, we are after the warm squishy facts; the type of facts that depend on what the meaning of ‘is’ is.

 

Fact-related pleas… [PT]

 

The facts, as far as we can tell, are that we are presently living in a land of extreme confusion.  The genesis of this extreme confusion is today’s fake money system.  And the destructive effects of this fake money system have spread out like a virus into nearly all aspects of daily life.

Plain and simple, central bank fiat money creation, multiplied by commercial banks through fractional-reserve banking, propagates financial and economic chaos.  The experience of long periods of money supply expansion punctuated by abrupt, episodic contractions, has the effect of whipsawing the working stiff’s efforts to get ahead. This trifecta of offenses has debased the rewards of hard work, saving money, and paying one’s way.

Quite frankly, these facts are insulting. In particular, they are insulting for those running in the rat race for their family’s daily bread. These facts are also insulting for retirees, who worked for four decades only to have their life savings extracted by the depredations of the fake money system.

 

Early rat race conditioning [PT]

 

Short-Sighted Decisions

The facts are that on August 15, 1971, Tricky Dick Nixon stiffed the world unconditionally.  He defaulted on the Bretton Woods system, and terminated the agreement that allowed member nations to redeem their paper dollars, acquired through trade, for gold.  But that’s not the half of it…

The facts are that the seeds of Nixon’s default were sown years before with LBJ’s program of guns and butter.  Nixon merely brought the default to harvest.  Moreover, since Nixon’s default there has been near unrestricted growth of debt based money.

The facts are that over the last half-century the world has constructed a magnificent edifice of debt.  In fact, according to the Institute for International Finance, global debt in the first quarter of 2018 reached $247 trillion.  Moreover, the global debt-to-GDP ratio has exceeded 318 percent. These are facts.

 

Global debt is going bonkers. The vast growth in corporate debt since 2008 looks suspiciously like a replay of the Japanese credit expansion of the 1980s. Even the rationalization forwarded for buying into one of the most overvalued stock markets of all time by invoking the unstoppable power of financial engineering in the form of stock buybacks sounds oddly similar to the zaibatsu/keiretsu rationalization for buying Japanese stocks in the late 1980s. There was no happy end for those who believed it. [PT]

 

What’s more, the facts are that debt – public, corporate, and consumer – has exploded higher over the last decade during an era of extreme monetary intervention.  This extreme monetary intervention artificially suppressed interest rates and compelled many short-sighted decisions.

One popular short-sighted decision manifests in the corporate financial engineering craze. This is the crude maneuver where corporations borrow money at low interest rates only to pump it into shares of their stock.  This effectively inflates share prices and the stock option compensations of corporate executives.

But what happens next year when the payment on the debt increases and share prices are cut in half?  Who loses their job?  The scheming executives?  Or the rank and file technician who is downsized into redundancy?

Another collection of short-sighted decisions that has piled up like a wreck on the 405 Freeway through west Los Angeles, is the $1.5 trillion student loan debt crisis. At $1.5 trillion, student loan debt, much of which is backed by the government, is the second highest consumer debt category – behind only mortgage debt and higher than both credit cards and auto loans.

Now what would happen to all these overpaid university professors and fancy country club style college campuses without all this government sponsored debt?

 

Growing like weeds: outstanding student debt has crossed the USD 1.5 trillion mark in Q1 2018, which makes it the second largest consumer debt category after mortgages. The collateral for mortgages seems slightly safer. [PT]

 

The Degrading Facts of a Fake Money Hole in the Head

The facts are that the Federal Reserve is currently shrinking its balance sheet and raising the federal funds rate in tandem.  All the while, the stock market washes upward as if the liquidity tide were coming in rather than going out. This present convergence of facts, without question, offers a sensation of concentrated suspense.

“After all,” as Warren Buffet noted in his 2001 letter to shareholders of Berkshire Hathaway, “you only find out who is swimming naked when the tide goes out.”

The point is, we are currently facing an abundance of disagreeable facts. Yet, there are no quick fix, wave the magic wand, solutions.  These aren’t the sorts of facts that President Trump can correct with a 280 character early morning tweet.  But we are not without hope.  Remember, the facts are occasionally subject to change.

 

Disagreeable factoid: the shrinkage in Fed assets indicates that the liquidity tide is going out. [PT]

 

For example, doctors in the Middle Ages all knew that trepanning was the best way to cure epilepsy or migraines.  Trepanning, if you’re unfamiliar with this barbaric surgical procedure, consists of drilling a hole into the human skull.  Somehow, a hole in the head was supposed to cure a bad headache.

By the early 16th century the facts had changed.  A hole in the head lost favor as a generally accepted medical procedure for curing a migraine, among other ailments.

 

Medieval trepanation instructions from Germany – holes in the head were once held to be highly beneficial. We are happy to report that opinions on this topic have evolved since then. [PT]

 

These days we like to flatter ourselves with our modernity.  What could be more civilized than having up to the second stock quotes, the weather from major cities across the globe, and pop culture trivia questions, all simultaneously streamed at you from flat screen monitors while rapidly blasting up to the 50th floor of a glass faced skyscraper?  This, you see, is real progress.

Yet we drink coffee out of paper cups.  We treat cancer with radiation and chemotherapy.  And we accept the depredations of a fake money system like an epileptic circa 1400 accepted a hole in the head.

These are the facts. Perhaps several centuries from now they will be aptly corrected.

 

Charts by: IIF, St. Louis Fed

 

Chart and image captions by PT

 

MN Gordon is President and Founder of Direct Expressions LLC, an independent publishing company. He is the Editorial Director and Publisher of the Economic Prism – an E-Newsletter that tries to bring clarity to the muddy waters of economic policy and discusses interesting investment opportunities.

 

 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

5 Responses to “The Degrading Facts of a Fake Money Hole in the Head”

  • Hans:

    “The US dollar is surging and it looks like it is going to destroy both emerging market currencies as well as precious metals.”

    LOL, cowboy! https://finviz.com/futures_charts.ashx?t=DX&p=m1

    The PM and EM have nothing to fear from a stronger dollar. There are simply more fundamentals
    which effect both of these markets than a strengthening US Dollar.

    “We shall soon see the biggest US trade deficits in history!”

    I doubt it, as the largest portion of the trade deficit, goo, is declining
    rapidly.

  • utopiacowboy:

    You and I may think it’s fake money but no one else seems to think so. The US dollar is surging and it looks like it is going to destroy both emerging market currencies as well as precious metals. Trump is not going to be happy but there’s nothing he can do about the Fed raising interest rates and dooming US export hopes. We shall soon see the biggest US trade deficits in history!

  • therooster:

    The USD is like a segment of string with two very distinct ends for its application and its utility in trading it into the real economy. Only one end of that segment is the currency, meaning the debt based medium of exchange. It’s at the other end that we find the floating price tool that now supports debt-free trades in e-commerce transactions, through simple real-time price comparisons.

    Can you create a string segment that features one end , only ? There are some necessary evils in God’s script, likely for very good reason.

    USD hegemony has had a purpose that slowly reveals itself like an elephant in the room that very few could see just 10 years ago.

    https://media.makeameme.org/created/when-does-a-5924ae.jpg

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • Is the Canary in the Gold Mine Coming to Life Again?
      A Chirp from the Deep Level Mines Back in late 2015 and early 2016, we wrote about a leading indicator for gold stocks, namely the sub-sector of marginal - and hence highly leveraged to the gold price - South African gold stocks. Our example du jour at the time was Harmony Gold (HMY) (see “Marginal Producer Takes Off” and “The Canary in the Gold Mine” for the details).   Mining engineer equipped with bio-sensor Photo credit: Hulton Archive   As we write these...
  • Fed Credit and the US Money Supply – The Liquidity Drain Accelerates
      Federal Reserve Credit Contracts Further We last wrote in July about the beginning contraction in outstanding Fed credit, repatriation inflows, reverse repos, and commercial and industrial lending growth, and how the interplay between these drivers has affected the growth rate of the true broad US money supply TMS-2 (the details can be seen here: “The Liquidity Drain Becomes Serious” and “A Scramble for Capital”).   The Fed has clearly changed course under Jerome Powell...
  • Are Credit Spreads Still a Leading Indicator for the Stock Market?
      A Well-Established Tradition Seemingly out of the blue, equities suffered a few bad hair days recently. As regular readers know, we have long argued that one should expect corrections in the form of mini-crashes to strike with very little advance warning, due to issues related to market structure and the unique post “QE” environment. Credit spreads are traditionally a fairly reliable early warning indicator for stocks and the economy (and incidentally for gold as well). Here is a...
  • The Gold Standard: Protector of Individual Liberty and Economic Prosperity
      A Piece of Paper Alone Cannot Secure Liberty The idea of a constitution and/or written legislation to secure individual rights so beloved by conservatives and among many libertarians has proven to be a myth. The US Constitution and all those that have been written and ratified in its wake throughout the world have done little to protect individual liberties or keep a check on State largesse.   Sound money vs. a piece of paper – which is the better guarantor of liberty?...
  • Fed President Kashkari Hears Voices – Are They Lying?
      Orchestrated Larceny The government continues its approach towards full meltdown. The stock market does too. But when it comes down to it, these are mere distractions from the bigger breakdown that is bearing down upon us.   Prosperity imbalance illustrated. The hoi-polloi may be getting restless. [PT]   Average working stiffs have little time or inclination to contemplate gibberish from the Fed. They are too worn out from running in place all day to make much...
  • US Stocks and Bonds Get Clocked in Tandem
      A Surprise Rout in the Bond Market At the time of writing, the stock market is recovering from a fairly steep (by recent standards) intraday sell-off. We have no idea where it will close, but we would argue that even a recovery into the close won't alter the status of today's action – it is a typical warning shot. Here is what makes the sell-off unique:   30 year bond and 10-year note yields have broken out from a lengthy consolidation pattern. This has actually surprised us, as...
  • Switzerland, Model of Freedom & Wealth Moving East – Interviews with Claudio Grass
      Sarah Westall Interviews Claudio Grass Last month our friend Claudio Grass, roving Mises Institute Ambassador and a Switzerland-based investment advisor specializing in precious metals, was interviewed by Sarah Westall for her Business Game Changers channel.   Sarah Westall and Claudio Grass   There are two interviews, both of which are probably of interest to our readers. The first one focuses on Switzerland with its unique, well-developed system of  direct...
  • Exaggerated Economic Growth of the Third World
      Exciting Visions of a Bright Future Fund Managers, economists and politicians agree on the exciting future they see in the Third World. According to them, the engine of the world’s economic growth has moved from the West to what were once the poverty-stricken societies of the Third World. They feel mushy about the rapid increase in the size of the Middle Class in the Third World, and how poverty is becoming history.   GDP of India vs. UK in 2016 – crossing...
  • Choking On the Salt of Debt
      Life After ZIRP Roughly three years ago, after traversing between Los Angeles and San Francisco via the expansive San Joaquin Valley, we penned the article, Salting the Economy to Death.  At the time, the monetary order was approach peak ZIRP.   Our boy ZIRP has passed away. Mr. 2.2% effective has taken his place in the meantime. [PT]   We found the absurdity of zero bound interest rates to have parallels to the absurdity of hundreds upon hundreds of miles of...
  • Why You Should Expect the Unexpected
      End of the Road The confluence of factors that influence market prices are vast and variable.  One moment patterns and relationships are so pronounced you can set a cornerstone by them.  The next moment they vanish like smoke in the wind. One thing that makes trading stocks so confounding is that the buy and sell points appear so obvious in hindsight.  When examining a stock’s price chart over a multi-year duration the wave movements appear to be almost predictable.   The...
  • How Dangerous is the Month of October?
      A Month with a Bad Reputation A certain degree of nervousness tends to suffuse global financial markets when the month of October approaches. The memories of sharp slumps that happened in this month in the past – often wiping out the profits of an entire year in a single day – are apt to induce fear. However, if one disregards outliers such as 1987 or 2008, October generally delivers an acceptable performance.   The road to October... not much happens at first - until it...
  • Yield Curve Compression - Precious Metals Supply and Demand
      Hammering the Spread The price of gold fell nine bucks last week. However, the price of silver shot up 33 cents. Our central planners of credit (i.e., the Fed) raised short-term interest rates, and threatened to do it again in December. Meanwhile, the stock market continues to act as if investors do not understand the concepts of marginal debtor, zombie corporation, and net present value.   The Federal Reserve – carefully inching forward to Bustville   People...

Support Acting Man

Item Guides

Austrian Theory and Investment

j9TJzzN

The Review Insider

Archive

Dog Blow

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com