When Things Fall Apart: Disorientation, Desperation, Chaos
by Charles Hugh Smith
The global “shadow” banking system is unraveling, with dire consequences for financial assets and failed policies.
We’re not used to things falling apart, and so our first reaction is disorientation. What we’ve been trained to expect by constant intervention in #404040;”> supposedly “open” markets is that Central States and central banks will “save the day” with a new intervention: an interest rate cut, a new round of money-printing, emergency loans, new bailout funds, the list has been almost endless since the initial evidence of the Great Unraveling appeared in 2007.
So when official interventions are announced to great fanfare and then fail to goose the market, we’re disoriented. John Hussman neatly summarized the insanity of a market propped up only by constant official manipulation: We represent the Lollipop Guild:
Frankly, I am concerned that Wall Street is becoming little more than a glorified crack house. Day after day, the sole focus of Wall Street is on more sugar, stronger sugar, Big Bazookas of sugar, unlimited sugar, and anything that will get somebody to deliver the sugar faster. This is like offering a lollipop to quiet down a 2-year old throwing a tantrum, and expecting that the result will be fewer tantrums.
What we have increasingly observed over the past decade is nothing but the gradual destruction of the ability of the financial markets to allocate capital for the benefit of future growth. By preventing the natural discipline of the markets to impose losses on poor stewards of capital, and to impose interest rates high enough to force debtors to allocate the capital usefully, the world’s policy makers are increasingly wrecking the prospects for long-term economic growth.