We live in a world now which may be described as, "Nothing Matters"
"Nothing matters until the day that it does and then everyone asks why it didn't matter before."
-The Wizard
By Mark Grant
The money pours in each month from
America, Europe and Japan and overrides anything and everything else. With
pre-payments and calls the estimated amount of money provided by the Fed for
the world's monetary supply is approximately $100 billion every month. It is
not just the American banks that are the recipients of the hand-out but the
foreign ones who ship it back to Europe or buy European sovereign debt courtesy
of Mr. Bernanke. I suspect that if the American taxpayers were aware of the
scheme that the citizens would not be pleased but then what the Fed is doing is
not generally part of polite conversation in America and so it is not
discussed.
Yields on European sovereign debt are at incredibly low levels given the
underlying economies. Europe trumpets the cause as renewed faith in the
European Union but that is a highly unlikely conclusion. Again, it is the
"Central Banks Effect" that feeds that stove of consumption and
lowers yields, raises the stock markets and has created a world-wide bubble in
every asset class on earth. The economies in Cyprus, Greece, Spain, Slovenia,
Portugal, Ireland and Italy are all in serious decline but; "Nothing
Matters."
The "Stalin Axiom" has taken over the world. It is not the
data but how the data is counted!
The unemployment rate in America is not 7.7% but 11.6% if all you do is
add in the people that have supposedly left the workforce. Did you think these
people had retired? Gotten rich in the stock market and were making plans for
St. Tropez this summer? Moved to Costa Rico for the winter? No, they have left
the workforce because they are now on the public dole and those that are
working are picking up their tab.
In Europe sovereign debt ratios do not include guaranteed liabilities,
contingent liabilities and every asset under the sun is marked, "Risk
Free." The problem, of course, is that many of these liabilities, oft
times called "investments" by the Europeans, are now coming around
for payment and the "not counted" does not change the "not
paid," I can assure you.
Still, "Nothing Matters!"
The financial crisis of 2008/2009 was caused by Easy Money. Too much
credit, too many undocumented loans, too much cash available that could be used
for stupid schemes; this was the root of it. Sub-prime mortgages were the
trigger but the core of the problem was copious amounts of cash that had to be
utilized somewhere. The machine ran and ran and kept running right up until the
day when it broke and then the good intentions were the pavers for Hell.
Now the world will not wake up. You may be assured of this. That is not
how it works or will work. What will happen is that the world will be woken up.
It will be a Wham-Bam type of moment that will spin the markets around on a
dime. The frightening thing is that there is more Easy Money around now than
before the 2008/2009 fiscal crisis. Way, way more capital available now than
then. In the first fiasco the money was provided by the banks and now it has
been provided by the Central Banks who have created it out of pulp and water
but by any measure that you would like to use; we have more credit now than
then in the system.
The most likely "moment" will not happen in the United States
but in Europe. It may be a bank or a sovereign nation that can just no longer
afford to pay its bills. The lure of Easy Money undoubtedly has a very strong
appeal but there are always consequences for its use. Just because a great many
liabilities are not counted in Europe does not mean that they do not have to
get paid. There is the rub and it always takes some time to boil to the
surface.
The pot is on the stove, the water is boiling. Soon the top will get
blown off and people will pay attention. In the meantime enjoy the ride but be
smarter than the mob and remain prepared for when the ride comes to its
startling conclusion!
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