My view is that radical monetary policy is pretty much here to stay.
Sometime ago, I penned a post entitled Apocalypse Now that looks rather absurd since the time I wrote it. It isn't that my opinions about central banking and bubbles has changed. They haven't. But my expectations have changed. I am in the position of Jim Grant who I respect greatly who frankly admits that the inevitability of the economic collapse is taking its sweet time getting here. It is taking so long that one wonders if it will ever get here. And those who predict the collapse look more and more like Chicken Little with each passing day.
I think it would be helpful to actually read the story of Chicken Little again.
Chicken Little likes to walk in the woods. She likes to look at the trees. She likes to smell the flowers. She likes to listen to the birds singing.One day while she is walking an acorn falls from a tree, and hits the top of her little head."My, oh, my, the sky is falling. I must run and tell the lion about it," says Chicken Little and begins to run.She runs and runs. By and by she meets the hen."Where are you going?" asks the hen."Oh, Henny Penny, the sky is falling and I am going to the lion to tell him about it.""How do you know it?" asks Henny Penny." It hit me on the head, so I know it must be so," says Chicken Little."Let me go with you!" says Henny Penny. "Run, run."So the two run and run until they meet Ducky Lucky."The sky is falling," says Henny Penny. "We are going to the lion to tell him about it.""How do you know that?" asks Ducky Lucky."It hit Chicken Little on the head," says Henny Penny."May I come with you?" asks Ducky Lucky."Come," says Henny Penny.So all three of them run on and on until they meet Foxey Loxey."Where are you going?" asks Foxey Loxey.
"The sky is falling and we are going to the lion to tell him about it," says Ducky Lucky."Do you know where he lives?" asks the fox."I don't," says Chicken Little."I don't," says Henny Penny."I don't," says Ducky Lucky."I do," says Foxey Loxey. "Come with me and I can show you the way."He walks on and on until he comes to his den."Come right in," says Foxey Loxey.They all go in, but they never, never come out again.
This story with the sinister ending basically teaches us about the foolishness of apocalyptic thinking. See, the thing people forget is that the end really did come for Chicken Little and the others. Their paranoia was justified but misdirected. It reminds me of how trends forecaster Gerald Celente who is always warning about the "white shoe boys" ended up getting ripped off in the MF Global scandal. Can you say "Foxey Loxey?" Maybe Celente should have saw that one coming, but he didn't. It reminds me of that joke about the guy who saw the fortune teller who replied that if she could really see the future she wouldn't have taken his check.
I don't wish to mock Celente because his criticisms of the system are basically correct. The system is corrupt from top to bottom. It is a rigged game, and you will lose as a retail investor if you play it. He should know because he lost. The fact is that you can guess right in the market, but your bank or your broker may rip you off by raiding your account directly. This is how messed up things are right now. When they can't steal anymore indirectly through money printing, they will simply take your money directly through theft. This is called a "bail in" which actually exists as a thing in Europe. Here, we have FDIC which is reportedly bankrupt. Basically, we, the American people, get to pay ourselves back for our losses.
It is not news that the world of finance, crony capitalism, and all the rest is crooked. This is the known. The unknown has to do with the end of this sordid mess. When does the Day of Reckoning come? When do these Fed manufactured bubbles pop? When does this house of cards finally collapse? Apparently, the answer is that it never will.
It gets tiring waiting for Doomsday to arrive. I thought the end was last year, but it wasn't. Now, I hear it will be this year. Buy your gold, get your beans, and run for the hills. Yet, another trading day comes and goes. Sometimes, it drops. Other times, it rallies. I expect another collapse like 2007-08, but it just never comes. Why does it not come?
Jim Grant has the answer. The reason the housing bubble collapsed was because the Fed pricked the bubble it created with an adjustment to its interest rates. The lesson the Fed learned was to never raise interest rates. It's like the drunk who discovered the hangover cure was to stay drunk. Jim Grant nails it here,
They’re pushing back failure. We must have failure in capitalism in order to allow new things to come and develop. So, the minimization of failure is paradoxically a problem with the ruling monetary regime.The Federal Reserve has dropped interest rates to zero and will keep them on the floor forever. Do you doubt this? Let me share this chart of the interest rates of the Bank of Japan:
Japan's central bank has kept its discount interest rate below 1% since 1995. This chart only goes to 2011. The only real change today is that Japan now has negative interest rates. Here is another chart showing other banks around the world:
The rest of the central banks around the world have adopted the same central banking policies as Japan. China is doing much the same thing. The reason Japan matters is because Japan shows just how long central bank lunacy can last. So far, they have been riding low interest rates for 20+ years. It stands to reason that the other central banks can and will do the same thing.
The result of this central banking policy gone mad is malinvestment to extreme levels. There is no point to saving money in a bank because inflation and even negative interest rates will erode those savings to nothing. The markets are bubbles that may collapse at any time. Hedge funds, investment banks, and the like are all crooked. Much of this madness could be fixed if things were allowed to fail. The central banks will not allow failure. And as Japan has shown, the result is a stagnating economy. Japan's economy has had virtually no growth and even shrank during the last 20+ years. Their debt is over twice their GDP. Japan is the poster child of bad policy, yet they still continue with the madness. If they haven't learned anything, it is doubtful that other central banks will learn either.
There is not going to be a collapse because the Federal Reserve won't allow it. The result will be an economy in perpetual stagnation for the foreseeable future. As for the numbers, they are rigged and no longer represent reality. The thieves are allowed to keep their own books. Amazing. The economy we live in today is best represented by the economies of the Antebellum South or feudal serfdom. The majority live in perpetual debt bondage while a minority live in cushy opulence. It doesn't matter if the economy is hell for the masses as long as that moneyed minority can continue being on top. This is the Servile State that Hilaire Belloc predicted. As Belloc wrote, "If we do not restore the Institution of Property we cannot escape restoring the Institution of Slavery; there is no third course." Belloc was right. We are there. We are in the Servile State, and it can last indefinitely.