Bernanke’s Balderdash
The US and world economies are drifting inexorably into the next recession owing to the deflationary collapse of commodities, capital spending and world trade. These are the inevitable “morning after” consequence of the 20-year global credit binge which has now reached its apogee.
The apparent global boom during that period was actually a central bank driven excursion into the false economics of household borrowing to inflate consumption in the DM economies; and frenzied, uneconomic investing to inflate GDP in China and the EM.
The common denominator was falsification of financial prices. By destroying honest price discovery in the financial markets, the world’s convoy of money-printing central banks led by the Fed elicited a huge excess of financialization relative to economic output.
The central manifestation of that was $185 trillion of debt growth during the past two decades——a stupendous explosion of credit which amounted to 3.7X the expansion of global GDP.
And even that ratio is an understatement. That’s because measured GDP has been artificially bloated by the monumental worldwide malinvestment and excess capacity arising from the credit bubble. That is, phony “growth” which under the laws of economics will be liquidated in due course.
But you wouldn’t have known that the global economy is about to hit the skids from Monday’s action. Bernanke kicked off the day in a Wall Street Journal op ed taking a bow for “saving the world”.
Then the stock market completed a rally from Friday’s post-NFP low, which amounted to 84 points (4.5%) on the S&P 500 during a seven-hour span of trading. That was even less time to “mission accomplished” than last October’s three-day Bullard Rip.
So here we are again circling the 2000 mark on the S&P 500—a level first crossed 440 days ago. Undoubtedly, the casino is knee-jerking upward because Goldman has already made an unsecret audible call, instructing the Fed to substantially defer lift-off well into next year.
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