There Are No Markets, Only [IMF] Manipulation…”The IMF’s recipe to avoid what former Fed Chairman Ben Bernanke calls “chaotic unwinding” includes bail-ins, higher inflation, negative interest rates, and capital controls.”
by Mark Nestmann
TheBurningPlatform.com
10th September 2015
I can’t help but be reminded of the truism of this week’s article title, watching Chinese stock prices drop, day after day. In response, Chinese securities regulators have banned most short selling. They’ve pressured mutual funds to buy stocks and run advertisements that extol the virtues of buying stocks.
The Chinese central bank has even parceled out cash to brokers to make it easier for investors to buy on margin. As central banks do, it’s creating the cash out of thin air. The central bank also announced a surprise devaluation of the yuan, China’s currency.
So far, the intervention hasn’t worked. Chinese stocks continue to plummet. The latest interventions urge companies to buy back their shares and boost dividends. Perhaps the central bank will create more money to pay for it all.
That might stop the plunge. But then again, it might not.
China is hardly alone in overtly manipulating its markets. This blatant effort to manipulate stock prices is only the most recent desperate gamble by global governments to prop up markets. They’ll do just about anything to prevent a repeat of the 2007-2008 recession.
Their playbook comes from the International Monetary Fund (IMF), which advises governments to engage in “financial repression” to buoy up global markets.
The IMF’s recipe to avoid what former Fed Chairman Ben Bernanke calls “chaotic unwinding” includes bail-ins, higher inflation, negative interest rates, and capital controls. The IMF even proposes a “one-off capital levy” – outright confiscation of private savings – at a rate of 10% or higher.
But as world markets have demonstrated over the last few weeks, it doesn’t always work.
The cause of this chaotic unwinding is excessive debt combined with leveraged bets financed by more debt.
The world economy is floating on a gargantuan mountain of debt; collateralized, re-collateralized, hypothecated, and semi-hypothecated. Total world indebtedness now stands close to $200 trillion. That amounts to 286% of the global GDP of $70 trillion.
What’s more, according to the Bank for International Settlements, the total notional value of derivatives (i.e., bets on the value of something else, like a stock, bond, interest rate, etc.) traded over the counter was $630 trillion for the last six months of 2014. There’s another $600 trillion or so of exchange-traded derivatives, structured notes, and custom-designed derivatives. They include options, futures, and credit default swaps, along with securities backed by assets (many of dubious value, such as high-risk mortgages).
The Rest…HERE
