Saturday, September 8, 2012

The touted economic cure may be what crashes us

Significant and dangerous events and signals in the financial markets took place in the financial markets this week. European Central Banker Martin Draghi got the ball rolling, and apparently Ben Bernanke's not one to be out-done.

Doug Noland writes about what's happening in this week's Credit Bubble Bulletin. Here's an excerpt:

Amazingly, in the face of exceptionally buoyant securities markets and an expanding economy, the Federal Reserve is apparently about to embark on yet another round of quantitative easing (“money printing”).  Few expect this to have much impact on the real economy, but it is clearly having a major impact on already speculative financial markets. 
I’ve always feared such a scenario:  Severely maladjusted Bubble Economies responding poorly to aggressive monetary stimulus, spurring policymakers into only more aggressive stimulus measures.  Meanwhile, financial fragility mounts, as Credit systems continue to rapidly expand non-productive debt.  Securities markets become dangerously speculative and detached from underlying fundamentals.  
Students of the late-1920s appreciate how late-cycle policy-induced market and economic distortions laid the groundwork for financial collapse and depression.  Especially in 1928 and early-1929, highly speculative financial markets diverged from faltering global economic fundamentals.  Our nation’s business came to be precariously dominated by “money changers,” financial leveraging and market speculation.
All last week, Democrats kept bragging how Barack Obama saved us from a Second Great Depression. I'd counter that, rather than saving us, what's been done through government and Federal Reserve policy the last four years has only expanded the latest economic bubble. When it pops, it's going to be plenty ugly.

Put your own financial house in order the best you can. And be ready to assume a crash position on short notice.

Update: Let me add cite one more source with a similar warning. Mike Larson at Money and Markets writes of a central banker fantasy land versus real world nightmare.

1 comment:

  1. And there is not even a hint of a good solution being out there.

    Because, we are already over the cliff.