Happy Economic New Year!
Wild equity market, currency and commodity price swings have become the new abnormal. Since money makes the world go around, follow the money. During the first six weeks of 2016, the global banking system got pounded. Bank shares in Europe fell 24 percent. Japan’s Topix Banks Index lost 21 percent. In the US, the KBW NASDAQ Bank Index was down nearly 20 percent.
From precious metals to copper, oil, grain and corn, will commodity prices, now on average at 1999 levels, begin to rebound? Or will they reach new multi-year lows?
Will the market meltdown that pushed emerging-market stocks down to 2009 levels, and has thrown China and Japan into bear-market territory and much of the West’s markets into correction mode, continue? Or is it just a shaky start of the year and a “buying opportunity?”
What will happen now that the Federal Reserve finally raised interest rates for the first time in nearly 10 years? Will more increases follow? If not, will they deploy negative interest-rate policies?
Once upon a time, not too long ago, when principles of free-market capitalism, price discovery and fiscal discipline determined real economic growth, such questions could be intelligently, rationally and academically discussed, analyzed and answered.
Those days are gone.
FROM ABSURD TO RIDICULOUS
The totally absurd has become the ridiculously accepted. There is no price discovery. Capitalism is dead. Bankism prevails.
As evidenced by the record-breaking stock-market dive that rang in the first two weeks of the year, Wall Street gamblers — fattened up with years of zero interest-rate policy and three rounds of quantitative easing to feed their habit — can’t survive even a 25-basis-point rate hike.
However, according to Trends Research Institute analysis, the great equity-market meltdown — despite calls from the White Shoe Boyz for the Fed for more stimulus, is greater than the availability of cheap money that artificially inflated the markets with record-breaking stock buybacks and merger-and-acquisition activity.
And, despite the business media’s universal agreement, those factors — much more than China’s battered equity markets and weakening economy and the 70 percent slide of oil prices since June 2014 — have the markets in turmoil.
The great new-year market shock is more than signaling the onset of the global recession we are forecasting; it’s the unraveling of the Greatest Ponzi Scheme in the History of the World.
Go back to 2008, at the dawning of the Great Recession. That’s when Henry Paulson, the former Goldman Sachs CEO fronting as US Treasury secretary — with the blessing of Congress and president-to-be Barack Obama — killed capitalism with four little words: Too big to fail.
On the other side of the corruption-of-capitalism coin are the central banks. From the US to Japan and China, from the Bank of England to the European Central Bank, they lowered interest rates to unheard-of levels — zero percent and negative lows. They pumped in trillions of dollars, yen, yuan, sterling and euros to bail out friends’ failing firms and bankrupt bankster buddies under the guise of restoring economic health and prosperity… and of course, to placate the little people… to create jobs and save them from losing their homes.
In America, it worked! Once the land of opportunity, the middle class is dead and dying. According to the Social Security Administration, 51 percent of workers in the US make less than $30,000 a year. As for the middle class, it’s now a minority of the population and they’re earning less. Between 1970 and 2014, the middle’s share of income dropped from 62 percent to 43 percent. The top’s portion went from 29 percent to 49 percent.
Globally, according to a recently released Oxfam report, the richest 1 percent of the world’s population now owns more than the rest of the people on the planet combined. And, “Runaway inequality has created a world where 62 people own as much wealth as the poorest half of the world’s population,” the report concluded.
The global economic game is rigged. It’s no
Look what happens when stocks tank. The US brings in its plunge-protection team to pump them up, the Chinese have their national team and the rest of the world’s equity markets have different names and schemes to boost overvalued equity markets that should have failed long ago.
Who profits? Who are the biggest losers? It’s not the average John or Jane Doe retail investor playing the genetic algorithm stock-market game.
The game is rigged. It’s no conspiracy theory.
Last February, the US Justice Department began investigating some 10 major banks for allegedly rigging precious-metals prices. In March, the Federal Deposit Insurance Corp. sued 16 of the world’s largest banks, accusing them of manipulating Libor (London Interbank Offered Rate) interest rates. In May, five of the world’s largest banks, including JPMorgan Chase and Citigroup, pleaded guilty to felony charges for rigging the $5.3-trillion-a-day foreign-exchange markets. And UBS AG, besides paying a fine for foreign-exchange rigging, also agreed to plead guilty to manipulating the Libor and other benchmark interest rates, paying a paltry $203 million criminal penalty.
HEADS I WIN, TAILS YOU LOSE
Following the International Monetary Fund annual meeting in Lima, Peru this past October, central banksters warned the global economy risked another meltdown if nations restored free-market principles: “In many advanced economies, the main risk remains a decline of already low growth” and must be supported by “continued accommodative monetary policies”… i.e., artificially propping up troubled equity markets with record-low interest rates and artificial monetary stimulus.
As for submerging emerging markets, the IMF warned that increased corporate failures would further destabilize emerging economies and bond markets, and urged the Fed to wait until 2016 to raise rates.
It didn’t. And as soon as interest rates went up a tiny 25 basis points, worldwide equity markets began their slide.
Thus, even when the cards are in play, the game keeps changing, making it more difficult to make an economic trend forecast based on hard facts and fundamentals when central bankers break old rules and create new ones at any time and for any reason: “Draghi signals Eurozone stimulus. ECB chief vows to boost sluggish recovery. Expectations of more QE and possible rate cut.” (Financial Times, 21 November 2015.)
And then, just two months later, with the Dow Jones kicki
ng off its greatest start-of-the-year dive in history, and with equity markets crashing into bear territory, Mario Draghi and the European Central Bank came to the rescue. “We are not surrendering in front of these global factors,” he vowed, promising to “review and possibly reconsider” pumping in more monetary stimulus to inflate failing markets.
Then, just one week later, Bank of Japan Gov. Haruhiko Kuroda, who had just told the Japanese Parliament days earlier that he had no plans to initiate a negative interest-rate policy, introduced negative interest rates. TJ