This article was originally published by Brandon Smith at Alt-Market.com
Much like the laws of physics, there are certain laws of economics that remain constant no matter how much manipulation exists in the markets. Expansion inevitably leads to contraction, and that which goes up must eventually come down. Central banks understand this reality very well; they have spent over a century trying to exploit those laws to their own advantage.
A common misconception among people new to alternative economics is the idea that central banks only seek to keep the economy afloat, or keep it expanding forever. In reality, these institutions and the money elites behind them artificially inflate financial bubbles only to deliberately implode them at opportunistic moments.
As I have outlined in numerous articles, every economic bubble and subsequent crash since 1914 can be linked to the policy actions of central bankers. Sometimes they even admit to culpability (to a point), as Ben Bernanke did on the Great Depression and as Alan Greenspan did on the 2008 credit crisis. You can read more about this in my article ‘The Federal Reserve Is A Saboteur – And The “Experts” Are Oblivious.’
Generally, central bankers and international bankers mislead the public into believing that the crashes they are responsible for were caused “by mistake.” They rarely if ever mention the fact that they often use these crises as a means to consolidate control over assets, resources and governments while the masses are distracted by their own financial survival. Centralization is the name of the game. It is certainly no mistake that after every economic implosion the wealth gap between the top 0.01% and the rest of humanity widens exponentially.
Yet another crash is being weaponized by the banks, and this time I believe the motivations behind it are rather different. Or at least the goals are supercharged.
The next phase of the financial elite’s plans for centralization involve a complete restructuring of the global monetary climate, something Christine Lagarde of the IMF has often referred to as the great “economic reset.” The term “economic reset” is more likely code for “economic collapse,” one epic enough to facilitate a completely new monetary framework with a new global reserve currency. A historically unprecedented economic reset would require a historically unprecedented financial bubble, which is exactly what we have today.
The ‘Everything Bubble’ as many alternative analysts are calling it is built upon multiple crumbling pillars. Here they are in no particular order:
Central Bank Stimulus
Bailouts and QE measures on the part of central banks have been used as a stopgap since the 2008 crash to prevent market reversals whenever they appear. Most of all, central banks have been particularly obsessed with keeping stocks in a perpetual bull run, which Ben Bernanke and Alan Greenspan admitted was part of maintaining a certain positive “psychology” within the public. In other words, the purpose of stimulus measures was to give the masses a false sense of security, not heal the real economy.
The other primary initiative behind stimulus was to prop up debt poisoned governments and corporations around the world. However, the intention was not necessarily to help these institutions climb out of the red. No, instead, the goal was to keep them semi-solvent long enough for them to take on EVEN MORE debt, to the point that when they do collapse the aftermath will be so devastating that recovery would be impossible.
The timing of the central bank tapering of QE should be treated as an alarm on the crash of the everything bubble. With the Federal Reserve cutting off QE measures, the Bank of Japan using “stealth tapering,” and the European Central Bank warning of high inflation and the need for tapering, it is clear that the era of easy money is almost over. When the easy money is gone, the crash is near.
Using steady loans from the Federal Reserve as well as Trump’s tax cut, stock markets have been inflated beyond all reason by corporations implementing the equities manipulation scheme of stock buybacks. By artificially reducing the number of stock shares on the market, companies can increase the “value” of the existing shares and fuel a bull market rally. This rally has nothing to do with actual wealth creation, of course. It is a game of phantom wealth and inflated numbers.
Stocks in particular will require ever more debt on the part of corporations along with never-ending near zero interest rates in order to keep the farce going. The central bankers, though, have other plans.
Near Zero Interest Rates
Low interest rates should be considered a part of the stimulus model, but I’m setting them separately because they represent a special kind of market manipulation. The option for corporate entities to borrow from the Fed at almost no cost has done little to improve the effects of the 2008 credit crisis. In fact, corporate debt levels are now near all-time highs not seen since the last crash. This time, however, dependency on low cost loans has conjured a monstrous addiction within the business cycle. Any increase in interest rates will trigger painful withdrawals.
Central banks around the world are now increasing that pain as they hike rates well beyond what many analysts were expecting a few years ago. Corporate debt in particular is highly vulnerable to this new tightening policy. Without low rates, corporations can no longer afford to hold the debts they have, let alone take on more debt in a futile attempt to keep equities propped up.
Central banks argue that “inflation” is the excuse for hiking interest rates at this time. True inflation has been well above Fed targets for years, and the banking elites showed no care whatsoever. I suspect that the real reason is that the next phase of the reset is near, and a little chaos is needed.
For decades, the Fed has kept the neutral rate of interest well below the rate of inflation. For the first time in at least 30 years, the Fed under Jerome Powell is seeking to increase neutral rates to make them equal to the pace of inflation (official inflation). The Fed has approximately two to three more rate hikes (including the September rate hike) to reach the pace of inflation. I believe this is our window on the next crash; the moment at which the Fed completely reverses its past policy of artificial support for the economy.
Federal Reserve Balance Sheet
I have written at great length about the correlation between the Fed’s balance sheet and equities and I will not go into great detail here. Simply put, with each increase in the balance sheet over the past decade, stocks rallied in tandem. As the Fed cuts assets, stocks enter volatility. A divergence has occurred the past two months between the Fed balance sheet and stocks, but I believe this is temporary.
Corporate buybacks are at all-time highs in 2018, and it’s obvious that this is meant to offset the Fed’s waning support for the markets. As interest rates increase and the Trump tax cut dwindles, though, buybacks will die.
If we consider the possibility that the Fed’s assets also include stock shares as many suspect, then the Fed asset dumps would also INCREASE the number of existing shares on the market and sabotage corporate efforts to reduce shares through stock buybacks. I predict stocks will once again converge with the falling Fed balance sheet by the end of this year and that they will continue to drop precipitously through the last quarter of 2018 and the rest of 2019.
Timing Is Everything
Central banks need cover before they can launch their “global reset,” and what better cover than a massive international trade war? Trump’s trade war is an excellent distraction which can be used as a rationale for every negative consequence of the central banks pulling the plug on stimulus life support. Meaning, the disasters the central bankers cause through tightening into a weak economic environment can be blamed on Trump and the trade conflict.
I don’t think it’s a coincidence that almost every escalation in the trade war happens to take place at the same time as major central bank announcements on rate hikes and balance sheet cuts. The latest trade war salvo of $200 billion in tariffs against China is leading to a Chinese announcement on retaliation — all of this taking place on the exact week of the Fed’s September meeting which is expected to result in yet another rate hike and expanded balance sheet cuts.
The Fed’s tightening policies have resulted in a severe reaction by emerging markets which are already crashing and have diverged greatly from U.S. markets. American stocks will not escape the same fate.
The Fed’s neutral rate efforts suggest a turning point in late 2018 to early 2019. Balance sheet cuts are expected to increase at this time, which would also expedite a crash in existing market assets. The only question is how long can corporations sustain stock buybacks until their own debt burdens crush their efforts? With such companies highly leveraged, interest rates will determine the length of their resolve. I believe two more hikes will be their limit.
If the Fed continues on its current path the next stock crash would begin around December 2018 into the first quarter of 2019. After that, other sectors of the economy, already highly unstable, will break down through 2019 and 2020.
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“If the Fed continues on its current path the next stock crash would begin around December 2018 into the first quarter of 2019. After that, other sectors of the economy, already highly unstable, will break down through 2019 and 2020.”
Way to pinpoint the next downturn Brandon !!! I expect now that you, like so many others will say “I told you so. I called the Crash of _____ ” five years from now.
LMFAO !!! 🙂
DK knows nothing about economics, but like a typical narcissist he play acts like he’s an expert. Smith is a true expert, I’ll take his word over a nobody like DK any day. If Smith is right like he usually is and the crash starts in the next six months then he has every right to say “I told you so”. DK will probably say “I told you so”, too, even though he’s always wrong.
Been hearing this since 2010. It gets old telling family but I haven’t had any leave me yet 🙂
Keep predicting a crash -or any other calamity- long enough and eventually you’ll be right.
Everything goes in cycles and all cycles have constantly recurring booms and busts in them. The difficulty of predicting them is that they are all interrelated and the rate of progression through them is almost impossible to predict since they all are on very complex and different timing, they can’t be individually analyzed by themselves.
when fiat is backed by nukes, it will only come down when the silos are empty
Time for a prepper article.
I’ve read that dried beans should be kept no longer than a year or two. Now I read that they keep indefinitely but just need to soak overnight or cook longer. Kept in food grade buckets in a garage that gets very hot, what’s the prognosis. Are they going to kill me? They must be at least three years old.
Smell em. If they don’t reek or look rotten you’ll be alright.
I live in a tropical environment hot and humid.
My Pinto beans are stored in Food grade unsealed Mylar bags in
Food grade 5 Gal buckets. Just had some the other night and
they are about 4 years old. I harvested two pigs
about two weeks ago, so I had some good pork and beans with
some excellent corn bread, avocado, and cold beer.
You’d think I grew up in the South.
I did but is was So CA.
Old goat and Rellik:
I have pinto beans that have been stored for more than twenty years that I’ve started eating this year, longer to cook as they seem to be a little tougher than new beans but still perfectly good and I’ve had no problems with them.
Nothing special was done to store them in 5 gal buckets other than adding some diatomaceous earth powder to protect from insects (it gets washed off when soaking them).
Likewise, Mung beans from the same period still sprout with no problem.
Good to hear about the mung beans. One of my favorites. What was your storage procedure on the sprouting beans?
I would like to see the crash come as soon as possible because there is a need for a social cleansing in this country.
You can’t bet against governments. Through rigging, manipulating and controlling everything they call the shots.
It was one thing when Kyle Bass shorted the housing industry. That was just the banks. Bass and his company, Hayman Capital, walked away with over $500-million. But when Bass tried shorting governments (Japan and China), he got bit, and bit bad. And when governments bite back that’s called sanctions. Look at the boy genius today. Scared shitless. Gee, I wonder why? [sarcasm]
Everything will go on until it can’t and then it will stop.
Wait until a central bank defaults; that’s when you know the S is Hitting the Fan for sure.
Wait these underfunded public pensions default and make off with trillions in the nest eggs of old-age-pensioners (who paid into the system). The last financial crisis ended up flushing $700-trillion dollars down the drain with the diuretic of trillions of dollars in American taxpayer money.
Wait until the U.S. government defaults on Social Security because its either money for the endless wars and endless war-mongering or paying the interest on the debt. Choose.
One of these Euro governments like Greece, or Italy, or Portugal, or Spain, or Ireland (you can add the England, Germany, and France to the short list), will go bust and then things start getting interesting.
Wait until another U.S. city declares bankruptcy, and then another, and another. Detroit. Flint. Chicago. Hartford. Philadelphia. Buffalo. Rochester. Syracuse. Baltimore.
Wait until a state just stops showing up to pay its bills. Illinois. New York. California.
My personal favorite is a comment from above. “When fiat is backed by nukes, it will only come down when the silos are empty.” Then bursting of the everything bubble comes down to mushroom clouds.
“Wait until a central bank defaults; that’s when you know the S is Hitting the Fan for sure.”
Consider that we effectively defaulted when we left the gold standard, then again when we left the silver standard for the fiat we have today.
We didn’t pay back what we borrowed, i.e. gold then silver, we just switched to paying back with something worth less than we borrowed and called it even (but it wasn’t).
People on the same end of the social foodchain as the krill, plankton, and cockroach, will forever take sucker bets, in the greater scheme of things, forever sacrificing themselves, forever requiring more virtual currency, to inflate the virtual bubble.
Assuming that life in the real world carries on, indefinitely, de-dollar-ization, without a replacement currency, is the only thing that would deflate the speculative, hypothetical bubble.
You will never run out of tally marks, ugly paper, ones and zeros, intended as placeholders, with no inherent value.