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Professor Bernanke’s Bogus Contra-factual, Part 2: Why The Friedman/Bernanke Thesis About The Great Depression Was Dead Wrong

October 29, 2015

Professor Bernanke’s Bogus Contra-factual, Part 2: Why The Friedman/Bernanke Thesis About The Great Depression Was Dead Wrong

In explaining to the FT’s Martin Wolf why he bailed out the Wall Street gamblers at Goldman Sachs and Morgan Stanley while crushing millions of ordinary American savers and retirees, Bernanke typically repaired to his go to argument. It had nothing to do with the mild excesses of inventories and labor that had built up in the main street economy owing to the Greenspan housing and credit boom, as explained in Part 1.

That’s because Bernanke was not aiming to ameliorate the mild economic liquidation that ensued after the Lehman event; and which, as previously demonstrated, would have runs its course and self-corrected without any help from the Fed in any event.

No, Ben S. Bernanke will be someday remembered as the world’s most destructive battleship admiral. Not only was he fighting the last war, but his whole multi-trillion money printing campaign after September 15, 2008 was aimed at avoiding an historical Fed mistake that had never even happened!

As Bernanke explained it:

I should have done more (to mitigate anti-Fed sentiments). But I was very much engaged in trying to put out the fire. So I don’t know what to say. It was kind of predictable. The Federal Reserved failed in the 1930s. I think we did much better than in the 1930s.

The claim that the Fed resorted to “extraordinary policies” of ZIRP and QE because it was fighting a recurrence of Great Depression 2.0 is completely, profoundly, unequivocally and destructively wrong.

It is the giant fig leaf that obscures what really happened during and after the crisis. Namely, that the main street economy recovered on its own, and that the flood of money generated by Bernanke never left the canyons of Wall Street, thereby causing the destruction of honest price discovery in the financial markets once and for all.

So doing, the Fed and other central banks have turned financial markets into dangerous, unstable casinos. In the name of precluding the contra-factual——that is, Great Depression 2.0—-they have generated the mother of all financial bubbles.

…click on the above link to read the rest of the article…

 

Only The Date Is Unknown

August 18, 2015

Only The Date Is Unknown

apocalypses-begin

economy09-29-10outlookRGB20100929043641The US and world economies are frauds that are coming unraveled. The Greek bailout is the most recent example of “kick the can down the road” solutions. The US housing bubble was an attempt to cover up/recover from the dot-com bust. Now the US is in a financial bubble engineered to recover from the housing bubble debacle. Soon this bubble will burst. Only the date is unknown.

Two predictions can be made with reasonable confidence:

  • The stock market is likely to be halved and that might be optimistic. Only the date is unknown.
  • The economy will eventually resemble the Great Depression. Only the date is unknown.

Nothing is ever certain. An experienced CFO told me at the beginning of my career that “even the impossible has a 20% probability.” In deference to him and years of empirical evidence, I put the the above two events as virtually certain, i.e., an 80% probability.

The Current Problem

Phoenix Capital provided reasons to expect horrible outcomes:dow death cross

  • The REAL problem for the financial system is the bond bubble. In 2008 when the crisis hit it was $80 trillion. It has since grown to over $100 trillion.
  • The derivatives market that uses this bond bubble as collateral is over $555 trillion in size.

 

  • Many of the large multinational corporations, sovereign governments, and even municipalities have used derivatives to fake earnings and hide debt. NO ONE knows to what degree this has been the case, but given that 20% of corporate CFOs have admitted to faking earnings in the past, it’s likely a significant amount.
  • Corporations today are more leveraged than they were in 2007. As Stanley Druckenmiller noted recently, in 2007 corporate bonds were $3.5 trillion… today they are $7 trillion: an amount equal to nearly 50% of US GDP.

…click on the above link to read the rest of the article…

China And The New World Disorder

August 3, 2015

China And The New World Disorder

Nicole Foss: Our consistent theme here at the Automatic Earth since its inception has been that we are facing a very powerful deflationary depression, following on from the bursting of an epic financial bubble. What we have witnessed in our three decades of expansion and inflation is nothing short of a monetary supernova, and that period has been the just culmination of a much larger upward trend going back many decades at least. We have lived through a credit hyper-expansion for the record books, with an unprecedented generation of excess claims to underlying real wealth. In doing so we have created the largest financial departure from reality in human history.

Bubbles are not new – humanity has experienced them periodically going all the way back to antiquity – but the novel aspect of this one, apart from its scale, is its occurrence at a point when we have reached or are reaching so many limits on a global scale. The retrenchment we are about to experience as this bubble bursts is also set to be unprecedented, given that the scale of a bust is predictably proportionate to the scale of the excesses during the boom that precedes it. We have built an incredibly complex economic system, but despite its robust appearance it is over-extended, brittle and fragile after decades of fuelling its continued expansion by feeding on its own substance.

The Automatic Earth, December 2011: The lessons of the past are sadly never learned. Each time the optimism is highly contagious. In the larger episodes, it crescendos into euphoria, leading societies into a period of collective madness where risk is embraced and caution is thrown to the wind. Sky-high valuations are readily rationalized – it’s different here, it’s different this time. 

…click on the above link to read the rest of the article…

The Stock Market Will Start To Fall In July? The Dow Plummeted More Than 500 Points Last Week

July 27, 2015

The Stock Market Will Start To Fall In July? The Dow Plummeted More Than 500 Points Last Week

Falling - Public DomainWas last week a preview of things to come? There are quite a few people out there that believe that the stock market would begin to decline in July, and that appears to be precisely what is happening. Last week, the Dow Jones Industrial Average fell by more than 530 points. It was the biggest one week decline that we have seen so far in 2015, and some are suggesting that this could only be just the beginning. By just about any measurement that you might want to use, the stock market is overvalued. But we have been in this bubble for so long that many people have come to believe that this is “the new normal”. In fact, earlier today someone that I know dropped me a line and suggested that our financial overlords may be able to use the tools at their disposal to get this current bubble to persist indefinitely. Unfortunately, the truth is that no financial bubble ever lasts forever, and right now some very alarming things are starting to happen behind the scenes. Over the past couple of weeks, the smart money has been dumping stocks like crazy, and the lack of liquidity in the bond markets is beginning to become acute.  Could it be possible that another great financial crisis is just around the corner?

Last week took a lot of investors by surprise. The following is how Zero Hedgesummarized the carnage…

-Russell 2000 -3.1% – worst week since Oct 2014 (Bullard)
-Dow -2.8% – worst week since Dec 2014
-S&P -2.1% – worst week since Jan 2015
-Trannies -2.8% – worst week since Mar 2015
-Nasdaq -2.2% – worst week since Mar 2015

The talking heads on television were not quite sure what to make of this sudden downturn. On CNBC, analysts mainly blamed the usual suspects…

…click on the above link to read the rest of the article…

 

 

 

 

11 Signs That We Are Entering The Next Phase Of The Global Economic Crisis

April 24, 2015

11 Signs That We Are Entering The Next Phase Of The Global Economic Crisis

Well, the Nasdaq finally did it.  It has climbed all the way back to where it was at the peak of the dotcom bubble.  Back in March 2000, the Nasdaq set an all-time record high of 5,048.62.  On Thursday, after all these years, that all-time record was finally eclipsed.  The Nasdaq closed at 5056.06, and Wall Street greatly rejoiced.  So if you invested in the Nasdaq at the peak of the dotcom bubble, you are just finally breaking even 15 years later.  Unfortunately, the truth is that stocks have not been soaring because the U.S. economy is fundamentally strong.  Just like the last two times, what we are witnessing is an irrational financial bubble.  Sometimes these irrational bubbles can last for a surprisingly long time, but in the end they always burst.  And even now there are signs of economic trouble bubbling to the surface all around us.  The following are 11 signs that we are entering the next phase of the global economic crisis…

#1 It is being projected that half of all fracking companies in the United States will be “dead or sold” by the end of this year.

#2 The rig count just continues to fall as the U.S. oil industry implodes.  Incredibly, the number of rigs in operation in the United States has fallen for 19 weeks in a row.

#3 McDonald’s has announced that it will be closing 700 “poor performing” restaurants in 2015.  Why would McDonald’s be doing this if the economy was actually getting better?

#4 As I wrote about the other day, we could be right on the verge of a Greek debt default.  In fact, we learned on Thursday that the Greek government has been “running on empty” for months…

 

…click on the above link to read the rest of the article…

A Day In The Life Of A Falling BRIC

March 5, 2015

A Day In The Life Of A Falling BRIC

It’s not that long ago, in 2001, that Jim O’Neill, then still with Goldman Sachs, coined the term BRICs, for the fast emerging markets of Brazil, Russia, India and China. O’Neill saw a global power shift from the west to these four nations happening. Fast forward to today, and we see Russia under multiple attacks, including economic ones, from the west, as India just announced the second rate cut this year and China is attempting controlled demolition of the possibly biggest financial bubble in the history of the world.

And Brazil? If anything, it’s falling even faster off its pedestal than the other three nations. And in Brazil, it’s as much corruption scandals as it is the financial crisis and the plunge in oil revenues that take center stage. The stories have long been simmering, but they all came together in the media yesterday.

First, a seemingly minor one. Eike Batista was once the richest man in Brazil, and one of the 10 richest men on the planet, having made a fortune in gold mining and later oil. Then he went on to become probably the one man to lose the most money in the shortest time, going from $32 billion in early 2013 to minus $5 billion or so a little over a year later, impossible to pin down exactly for numerous reasons, but spectacular for sure.

 

…click on the above link to read the rest of the article…

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