{"id":30186,"date":"2018-01-26T07:13:22","date_gmt":"2018-01-26T12:13:22","guid":{"rendered":"http:\/\/olduvai.ca\/?p=30186"},"modified":"2018-01-26T07:13:22","modified_gmt":"2018-01-26T12:13:22","slug":"flying-blind-part-2-the-destruction-of-honest-price-discovery-and-its-consequences","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=30186","title":{"rendered":"Flying Blind, Part 2: The Destruction Of Honest Price Discovery And Its Consequences"},"content":{"rendered":"

Flying Blind, Part 2: The Destruction Of Honest Price Discovery And Its Consequences<\/a><\/h3>\n
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In Part\u00a01 we noted that\u00a0the real evil of Bubble Finance is not merely that it\u00a0leads to bubble crashes,\u00a0of which\u00a0there is surely a doozy just around the bend;\u00a0or that speculators get the painful deserts they fully deserve,\u00a0which is\u00a0coming big time, too; or even that the retail\u00a0homegamers are always drawn into the slaughter at the very end, as is playing out in\u00a0spades once again. Daily.<\/p>\n

Given enough time, in fact, markets do bounce back because capitalism has a inherent urge\u00a0to grow, thereby\u00a0generating higher output, incomes, profits, wealth and\u00a0stock indices.\u00a0That means, in turn, investors eventually do\u00a0recover from bubble crashes—notwithstanding the tendency of homegamers and professional speculators alike to sell at panic lows and jump back in after most of the profits have been made—or even at panic highs like the present.<\/p>\n

Instead, the real economic iniquity of central bank driven\u00a0Bubble Finance is that it\u00a0destroys all the pricing signals that are essential to financial discipline on both ends of the Acela Corridor. And as quaint at it may\u00a0sound, discipline is the sine qua non of long-term stability and sustainable gains in productivity, living standards and real wealth.<\/p>\n

The pols of the Imperial City should be petrified, therefore,\u00a0by the prospect of borrowing $1.2 trillion <\/strong><\/em>during the upcoming fiscal year (FY 2019)\u00a0<\/em>at a rate of 6.o%<\/strong><\/em> of GDP\u00a0during month #111 through month #123 of the business expansion; and doing so at\u00a0the very time the central bank is pivoting to an unprecedented spell of QT (quantitative tightening), involving\u00a0the disgorgement of\u00a0up to $2\u00a0trillion of\u00a0its elephantine balance sheet back into the bond market.<\/p>\n

Even as a matter of economics 101, the forthcoming\u00a0$1.8 trillion<\/strong> of combined bond supply from the sales of the US\u00a0Treasury ($1.2 trillion)\u00a0and the\u00a0QT-disgorgement of the Fed ($600 billion)\u00a0is self-evidently enough to monkey-hammer the existing supply\/demand balances, and thereby\u00a0send yields soaring.<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Flying Blind, Part 2: The Destruction Of Honest Price Discovery And Its Consequences In Part\u00a01 we noted that\u00a0the real evil of Bubble Finance is not merely that it\u00a0leads to bubble crashes,\u00a0of which\u00a0there is surely a doozy just around the bend;\u00a0or that speculators get the painful deserts they fully deserve,\u00a0which is\u00a0coming big time, too; or even […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[10586,1799,111,3598,2120,303,353,2533,4806,3650,2721,865],"class_list":["post-30186","post","type-post","status-publish","format-standard","hentry","category-economics","tag-bubble-finance","tag-bubbles","tag-capitalism","tag-contra-corner","tag-david-stockman","tag-fed","tag-gdp","tag-price-discovery","tag-speculation","tag-us-federal-reserve","tag-us-treasuries","tag-washington"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/30186","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=30186"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/30186\/revisions"}],"predecessor-version":[{"id":30187,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/30186\/revisions\/30187"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=30186"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=30186"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=30186"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}