The Bloomberg Commodity Index plunges to 13-year low, led by a drop in gold. http://bloom.bg/1I4NjGH
#2 Oil Is Crashing
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Fraud, Fools, and Financial Markets
Fraud, Fools, and Financial Markets
Adam Smith famously wrote of the “invisible hand,” by which individuals’ pursuit of self-interest in free, competitive markets advances the interest of society as a whole. And Smith was right: Free markets have generated unprecedented prosperity for individuals and societies alike. But, because we can be manipulated or deceived or even just passively tempted, free markets also persuade us to buy things that are good neither for us nor for society.
This observation represents an important codicil to Smith’s vision. And it is one that George Akerlof and I explore in our new book, Phishing for Phools: The Economics of Manipulation and Deception.
Most of us have suffered “phishing”: unwanted emails and phone calls designed to defraud us. A “phool” is anyone who does not fully comprehend the ubiquity of phishing. A phool sees isolated examples of phishing, but does not appreciate the extent of professionalism devoted to it, nor how deeply this professionalism affects lives. Sadly, a lot of us have been phools – including Akerlof and me, which is why we wrote this book.
Routine phishing can affect any market, but our most important observations concern financial markets – timely enough, given the massive boom in the equity and real-estate markets since 2009, and the turmoil in global asset markets since last month.
As too many optimists have learned to their detriment, asset prices are highly volatile, and a whole ocean of phishes is involved. Borrowers are lured into unsuitable mortgages; firms are stripped of their assets; accountants mislead investors; financial advisers spin narratives of riches from nowhere; and the media promote extravagant claims.
Read more at https://www.project-syndicate.org/commentary/government-intervention-financial-crises-by-robert-j–shiller-2015-09#1pbaxOEsUVWLuRvm.99
4 Things That Are Happening Today That Indicate That A Deflationary Financial Collapse Is Imminent
4 Things That Are Happening Today That Indicate That A Deflationary Financial Collapse Is Imminent
When financial markets crash, they do not do so in a vacuum. There are always patterns, signs and indicators that tell us that something is about to happen. In this article, I am going to share with you four patterns that are happening right now that also happened just prior to the great financial crisis of 2008. These four signs are very strong evidence that a deflationary financial collapse is right around the corner. Instead of the hyperinflationary crisis that so many have warned about, what we are about to experience is a collapse in asset prices, a massive credit crunch and a brief period of absolutely crippling deflation. The response by national governments and global central banks to this horrific financial crisis will cause tremendous inflation down the road, but that comes later. What comes first is a crisis that will initially look a lot like 2008, but will ultimately prove to be much worse. The following are 4 things that are happening right now that indicate that a deflationary financial collapse is imminent…
#1 Commodities Are Crashing
In mid-2008, just before the U.S. stock market crashed in the fall, commodities started crashing hard. Well, now it is happening again. In fact, the Bloomberg Commodity Index just hit a 13 year low, which means that it is already lower than it was at any point during the last financial crisis…
On Monday, the price of oil dipped back below $50 a barrel. This has surprised many analysts, because a lot of them thought that the price of oil would start to rebound by now.
…click on the above link to read the rest of the article…
The Central Problem with Central Banks: They Become the Greater Fools/Bag-Holders
The Central Problem with Central Banks: They Become the Greater Fools/Bag-Holders
Those who are confident the central banks can print unlimited money may find there are political and financial consequences to such extremes that cannot be foreseen.
The central problem with central banks is their mandate now includes propping up all asset markets globally. Back in the good old days before the Global Financial Meltdown of 2008-09, central bankers reckoned they could control the “animal spirits” released when the risk-on herd destabilized into a chaotic risk-off stampede.
As former Federal Reserve chairman Alan Greenspan noted in his 2014 Foreign Affairsarticle Why I Didn’t See the Crisis Coming, the models used by central banks and private economists alike presumed the demand for risk-on assets would remain robust even in a downturn:
Almost all market participants were aware of the growing risks, but they also knew that a bubble could keep expanding for years. Financial firms thus feared that should they retrench too soon, they would almost surely lose market share, perhaps irretrievably. In July 2007, the chair and CEO of Citigroup, Charles Prince, expressed that fear in a now-famous remark: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”
Financial firms accepted the risk that they would be unable to anticipate the onset of a crisis in time to retrench. However, they thought the risk was limited, believing that even if a crisis developed, the seemingly insatiable demand for exotic financial products would dissipate only slowly, allowing them to sell almost all their portfolios without loss.
…click on the above link to read the rest of the article…
We Live In An Era Of Dangerous Imbalances
We Live In An Era Of Dangerous Imbalances
And history shows they correct painfully
The intervention by the world’s central banks has resulted in today’s bizarro financial markets, where “bad news is good” because it may lead to more (sorry, moar) thin-air stimulus to goose assets prices even higher.
The result is a world addicted to debt and the phony stimulus now essential to sustaining it. In the process, a tremendous wealth gap has been created, one still expanding at an exponential rate.
History is very clear what happens with dangerous imbalances like this. They correct painfully. Through class warfare. Through currency crises. Through wealth destruction.
Is that really the path we want? Because we’re for sure headed for it.
…click on the above link to view the video…
Jim Grant Sums It All Up In 2 Stunning Paragraphs | Zero Hedge
Jim Grant Sums It All Up In 2 Stunning Paragraphs | Zero Hedge.
What will futurity make of the [so-called] Ph.D. standard [that runs our world]?
Likely it will be even more baffled than we are. Imagine trying to explain the present-day arrangements to your 20-something grandchild a couple of decades hence – after the crash of, say, 2016, that wiped out the youngster’s inheritance and provoked a cenral bank response so heavy-handed as to shatter the confidence even of Wall Street in the Federal reserve’s methods…
I expect you’ll wind up saying something like this:
“My generation gave former tenured economics professors discretionary authority to fabricate money and to fix interest rates.
We put the cart of asset prices before the horse of enterprise.
We entertained the fantasy that high asset prices made for prosperity, rather than the other way around.
We actually worked to foster inflation, which we called ‘price stability’ (this was on the eve of the hyperinflation of 2017).
We seem to have miscalculated.”
* * *
Source: Jim Grant’s November 2014 speech at the Cato Institute
Full keynote address below: (Grant begins at 10:00)
