In 2009, I wrote that the stimulus, TARP and zero interest rates were going to result in a rally in the stock market, but that the fundamental causes of the 2008 financial crisis, of which the housing bubble collapse was only one outcome, were still present, and that the financial stimulus, which is effectively a tax on future generations, would compound those symptoms.
As our markets slowly melt down again, and we head back towards the 2008 lows in market values, there is no consolation in being correct. Portfolio values continue to degrade, and disinvestment en masse is incrementally moving the world economy back into the state paralysis it entered in September 2008. The TSX Venture market—in my opinion, the purest indication of risk sentiment there is on the planet—is now within 500 points of its 2008 record collapse, and the only question is: "How fast will we blow through that record?"
The fuse that will ignite the hyperinflation of G20 currencies is smoldering, still damped by the suffocating effect of mass disinformation replicated and broadcast from the centrally owned mainstream financial media. But ignition is approaching, and that is the event that will catalyze the coordinated collapse of all currencies currently laboring under the duress of excess.
Some people think that the idea of the mainstream financial media being a mouthpiece for illegal activities by government and banking is ridiculous. Harry Markopolous, the gentleman who tirelessly pursued the truth behind Bernard Madoff, knows very well how willfully ignorant we can choose to remain in the face of overwhelming evidence. I'm not going to try to change any minds in that regard here. The thing about willful ignorance is its resolve hardens in direct proportion to the evidence with which it is confronted.
As predicted, Greece has led to Spain just as certainly as Spain will lead to Italy, and the half-baked bailouts that are insufficient because the sums they seek to alleviate are themselves wishful thinking on the parts of government.
Billionaire investor George Soros on June 24 called for the creation of a European-backed bond fund that would stand as lender of last resort against any and all union debt crises. He suggested that the yield would be 1% because the entire region stood behind them.
"[Soros] called on Europe to start a fund to buy Italian and Spanish bonds, warning that a failure by leaders meeting this week to produce drastic measures could spell the demise of the currency.
Policy makers should create a European Fiscal Authority to purchase sovereign debt in return for Italy and Spain implementing achievable budget cuts, Soros said in an interview in London yesterday. Funding for the purchases would come from the sale of European treasuries, which would have low yields because they would be backed by each Euro member, he said.
This would essentially be the equivalent of the Fed buying its own treasuries, which it does as a self-awarded license to print money ad infinitum. That's why the U.S., despite its unsustainable debt and anemic economy, can still hold yields well below 2%. All the banks they bailed out are obliged to hold treasuries as Tier 1 capital to some degree, while the sovereign buyers are forced to participate in the ruse just to keep the value of their sovereign reserves buoyant."—Bloomberg Businessweek, June 24, 2012.
With the United States approaching another debt ceiling in the last quarter of this year, and with Spain and Italy pointing the way firmly to France, Germany, the UK and the United States, its time to stop pussyfooting around and make a big statement. The only options at this point are either 1) A massive global stimulus package and bailout fund that will unequivocally mitigate any sovereign debt crisis (even the U.S.), or 2) An orderly "restructuring" of the entire global financial system.
Since the immediate past demonstrates a predilection toward the easiest path regardless of long-term negatives, mightn't one of these summits conclude with a $10 trillion IMF-BIS administered Global Credit Facility that will put the markets back into the gleeful end of their natural bipolarism? That way, we meaningfully defer the burden of repayment until a distant future date, instead the perpetual near-term date. Then at least, all that fresh capital can stimulate a market rally that will broadcast the perception that everything is OK again. . .for a while.
There is a high potential for congress and/or the president elect (assuming it's Mitt Romney) to cancel the automatic spending cuts that were the solution to last year's debt ceiling date, as a measure to soften the blow and likelihood of default after the election in November. But we have observed that the debate on whether or not to raise any such limit is really just political theater, and when it comes right down to it, there is never any doubt that it will be raised. It's this pattern, both in the U.S. and in Europe, that needs to be decisively ended, to bring a measure of confidence back to markets.
If Obama prevails, he can't really cancel the automatic cuts without appearing a waffler. But in the current climate, nothing is impossible. We permanently entered the fairy tale realm with the issuance of trillions in new capital by global central banks to perpetuate that feel-good delusion.
The fact that the only option is to fabricate money in one way shape or form is fundamentally positive for gold, but unfortunately, due to the high degree of government-sponsored manipulation in precious metals markets, a rising gold price cannot be expected until the apparatus that supports such market interference is somehow defeated.
Let's be clear: the mainstream financial media has failed to accurately portray the level of desperation that characterizes each country's successive bailout requirement, whether they are Euro zone countries or not. Starting with the United States who tops the list of unsustainably indebted countries, and including Iceland, Ireland, Portugal, Greece, Spain, Italy, France and, through the process of financial osmosis, Germany—all these nations turn out to have been in far more desperate circumstances than have been reported in mainstream financial media. As a result, we can deduce that even now, the level of reporting should be discounted.
The result is value destruction as disinvestment, deleveraging, and flight to cash, since all of the real asset markets are so thoroughly compromised. There is no longer a sense that the markets operate in anything remotely close to freely, and their regulation is so tremendously partisan that unless you're in with the "Too Big To Fail" institutional or sovereign club, you can't possibly use technical or fundamental analytics to invest safely or successfully.
The very coincidental confluence of the Mayan end-of-days misinterpretation that according to some versions will see the world come to an end on Dec. 12, 2012 and the next moment when the United States will once again confront a debt ceiling is eerie. The world is coming to some kind of inflection point, to be sure, but it is unlikely that an aligning of celestial bodies is going to be our undoing.
More likely, the synchronized collapse of our financial system will catalyze a new era. What exactly that entails is unknown. It's not going to be dull though.