Making Sense Of The Sudden Market Plunge
Are you prepared for further turmoil?
By Chris Martenson
The global deflationary wave we have been tracking since last fall is picking up steam. This is the natural and unavoidable aftereffect of a global liquidity bubble brought to you courtesy of the world’s main central banks. What goes up must come down — and that’s especially true for the world’s many poorly-constructed financial bubbles, built out of nothing more than gauzy narratives and inflated with hopium.
What this means is that the traditional summer lull in financial markets has turned August into an unusually active and interesting month. August, it appears, is the new October.
Markets are quite possibly in crash mode right now, although events are unfolding so quickly – currency spikes, equity sell offs, emerging market routs and dislocations, and commodity declines – that it’s hard to tell for sure. However, that’s usually the case right before and during big market declines.
Before you read any further, you probably should be made aware that, at Peak Prosperity, our market outlook has been one of extreme caution for several years. We never bought into so-called “recovery” because much of it was purely statistical in nature, and had to rely on heavily distorted and tortured ‘statistics’ to be believed. Okay, lies is probably a more accurate term in many cases.
Further, most of the gains in financial assets engineered by the central banks were false and destined to burstbecause they were based on bubble psychology, not actual returns.
Which bubbles you ask? There are almost too many to track. But here are the main ones:
Corporate bond bubble
Corporate earnings bubble
Junk bond bubble
Sovereign debt bubble
Equity bubbles in various markets (US, China) and sectors (Tech, Biotech, Energy)
Real estate bubbles, especially in the commodity exporting countries
Central bank credibility bubble (perhaps the largest and most dangerous of them all)
What’s the one thing that binds all of these bubbles together? Central bank money printing.
Passing The Baton
Operating in collusion, the world’s major central banks passed the liquidity baton back and forth between them, first from the US to Japan, then from Japan to Europe, then back to the US, then over to Europe again where it now resides. Seemingly endless rounds of QE that didn’t always do what they were supposed to do, and plenty of things they were not intended to do.
The purpose of printing up trillions and trillions of dollars (supposedly) was to create economic growth, drive down unemployment, and stoke moderate inflation. On those fronts, the results have been dismal, horrible, and ineffective, respectively.
However, the results weren’t all dismal. Big banks reaped windfall profits while heaping record bonuses on themselves for being at the front of the Fed’s feeding trough. The über-wealthy enjoyed the largest increase in wealth gains in recorded history, and governments were able to borrow more and more money at cheaper and cheaper rates allowing them to deficit spend at extreme levels.
But all of that partying at the top is going to have huge costs for ‘the little people’ when the bill comes due. And it always comes due. Money printing is fake wealth; it causes bubbles, and when bubbles burst there’s only one question that has to be answered: Who’s going to eat the losses?
The poor populace of Greece is just now discovering that it collectively is responsible for paying for the mistakes of a small number of French and German banks, aided by the collusion of Goldman Sachs, in hiding the true state of Greek debt-to-GDP using sophisticated off-balance sheet derivative shenanigans. As a direct result, the people of Greece are in the process of losing their airports, ports, and electrical distribution and phone networks to ‘private investors’ — mainly foreigners harvesting the last cash-generating assets the Greeks have left to their names...
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