One Giant Cluster Ponzi

Monday, September 22, 2014
By Paul Martin

By: Dr Jeff Lewis
Market Oracle
Sep 22, 2014

“The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.”
-H. L. Mencken

Recently, The U.S. Treasury ramped up war games via financial sanctions aimed at Russia. The EU is part and parcel to the operation. These interventions are a continuation of the age old warfare referred to as the “currency wars”. Jim Rickards’ recent book on the topic chronicles the use of this tactic.

In many ways, the U.S. Federal Reserve was spawned in the spirit of interference and intervention before and during World War I.

The more things change the more they stay the same.

Technology has made large financial trusts both more efficient and more fragile. However, electronic security infrastructure has never been tested in true world sovereign crisis.

And we know that there is a massive lack of redundancy underlying the systems that fuel our just in time “modern” existence. From basic price discovery in securities of all types to the card machines that run fuel pumps and the credit lines that pay the tankers

We are indeed skating over the thin ice.

Of course, lurking further below the surface is the ability and willingness – from academia across the political spectrum – to print what it takes to keep the banks alive – in the spirit of the domestic popular good.

At a certain point war creates enough anxiety that panic becomes part of the narrative. Many believe that can’t happen because the system has become too adept at protecting the true hidden story, the real interests. Or that the rules can be changed – perpetually.

Think about the events leading up to Lehman…

Pick any bank today, apply true GAAP, or real life accounting standards…and you get another Lehman moment.

The financial elite, the media, and a large portion of the political class truly believe that we can print whatever and whenever we want without consequence. And that we should always do more?

Hence the direct printing trial balloons released last week by “Foreign Affairs”; to wit:

To some extent, low inflation reflects intense competition in an increasingly globalized economy. But it also occurs when people and businesses are too hesitant to spend their money, which keeps unemployment high and wage growth low. In the eurozone, inflation has recently dropped perilously close to zero. And some countries, such as Portugal and Spain, may already be experiencing deflation. At best, the current policies are not working; at worst, they will lead to further instability and prolonged stagnation.

Governments must do better. Rather than trying to spur private-sector spending through asset purchases or interest-rate changes, central banks, such as the Fed, should hand consumers cash directly. In practice, this policy could take the form of giving central banks the ability to hand their countries’ tax-paying households a certain amount of money.

The government could distribute cash equally to all households or, even better, aim for the bottom 80 percent of households in terms of income. Targeting those who earn the least would have two primary benefits. For one thing, lower-income households are more prone to consume, so they would provide a greater boost to spending. For another, the policy would offset rising income inequality.

The powers that be have all the bullets anyway. And our collective intelligence has been dummied down through the years of easy money and free comforts.

We need war to, politically and literally (in terms of Treasury note collateral), justify more printing.

With the real economy on life support, it is just a matter of time.

When the bond market begins to roll over, to the financial mainstream’s shock and horror, institutions will finally begin the desperate hunt and return to non-paper safe haven collateral.

The Rest…HERE

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