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Diminishing Returns on Central-Planning Policy Extremes = 2016 Crash

July 14, 2015

Diminishing Returns on Central-Planning Policy Extremes = 2016 Crash

The problem with these policy extremes is that they are so painfully visibly acts of central-planning desperation.

It is perhaps fitting that I am posting a call for a financial crisis that fails to respond to the usual central-planning manipulations on Bastille Day. There are two main lessons for the present era we can draw from the storming of the much-hated Bastille fortress-prison by a revolutionary mob in 1789 Paris:

1. The authorities can only keep a lid on a simmering stew of injustice, inequality and structural imbalances for so long before the pot boils over.

2. Last-minute baby-step reforms designed to placate the masses (i.e. simulacra reforms that are all show and no substance) cannot resolve the crisis; rather, they only reveal the full depth of the injustices, inequalities and imbalances.

We are in the endgame of central planners’ attempts to keep the lid on the simmering stew of profound imbalances that characterize the status quo. As I have described many times, Maintaining the Illusion of Stability Now Requires Ever-Greater Extremes of central-planning policies.

Mortgage/housing market melting down due to systemic fraud? Nationalize the mortgage market. This is what the federal/Federal Reserve central planners did post-2008, as 97% of all mortgages were guaranteed by federal agencies and the Fed bought $2 trillion of the $10 trillion outstanding mortgages in the U.S.–fully 20% of the entire mortgage market.

Stock market bubble popping? Ban short-selling, criminalize negative comments in the media, and withdraw half the companies on the stock exchange from trading. This is partial list of the extremes China’s central planners recently imposed in an panic-driven orgy of central-planning.

Another way to understand the increasing reliance on central-planning extremes and their declining effectiveness is diminishing returns: more treasure, capital, time, energy and labor must be expended to keep the status quo from falling off a cliff.

 

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