The stock market had a very poor closing last hour on Friday as it was up early in the morning and lost over 200 points in the last hour. Some say that weakness in Japan’s Nikkei futures was to blame, others including Zero Hedge speculate that the release of the minutes from the Federal Reserve Advisory Committee is what actually spooked the markets.
This committee consists of a banker from each of the 12 Federal Reserve districts, they “consult with and advise” the Board of the Fed. Their May notes included the phrases “unmanageable inflation” and “unsustainable bubbles”. Wow, they took the words right out of our (Austrians) mouths! Fed Chairman Greenspan told us that “bubbles” can’t be discerned until they actually pop and his successor Ben Bernanke…well, he doesn’t, or can’t bring himself to admit that gold is money so how could he be expected to “foresee” a bubble…even in the rearview mirror?
This is where we are folks, monetary and fiscal policy has gone wild. It has gone wild for years upon years and the statements that “deficits don’t matter” and that “gold is not money” are going to truly come home to roost. “It can never happen here in the U.S.” and “The government will never let it happen” are mainstays of the delusion. These statements are merely propaganda to kick the can down the road. “Kicking the can” used to work. It used to work because we, the U.S., had the power to do it…
…We had the gold. We had the manufacturing base. We had the laws and protections of The Constitution. We had the ingenuity and the incentives to succeed. We had the raw resources and the “can do” spirit of the greatest people on Earth. We had (still have) the military. Then, we got fat. We got lazy. We looked for “something for nothing” at every turn. The people put their hands out and the government obliged because “there is (and can be) no poverty in the U.S” and “no person should be left behind.” The doors of the Treasury were thrown wide open. There is just one little problem. The numbers don’t add up and we were living beyond our means. No problem…we will “outgrow” the problem, we will out borrow, out print and reflate the system …well…here we are and guess what? IT DIDN”T HAPPEN!
What did happen is that we broke the Treasury. We also broke the Federal Reserve. They “lost” $115 billion last month, yes, last MONTH on their bond portfolio. Their “net worth” or actual capital base WAS $65 billion so they lost nearly double that in 30 days because…interest rates went up about 1/2%. If they were not the “buyers of only resort,” where do you think that interest rates would be right now…left to free markets (I know, it is hard to even remember what free markets are)?
So, back to Friday’s drop, and I want you to really think about this. The Federal Reserve Advisory Committee asked the same questions and used the “terms” (unmanageable inflation and unsustainable bubbles) as the “lunatic” Austrian economists. These people are not “crazies.” Sociopathic maybe, but not crazy. These are cream of the crop bankers, top of the top, the elite. And they are worried about unmanageable inflation? Unsustainable bubbles? Now? Finally? Really?
Do these words sound like they might be a little worried? Should you be worried? Like I wrote last week, “But… why now?” Why all of a sudden are these things happening in the banking system? Why did Europe and then the BIS come out and talk about cracking down on the collateral daisy chains in the shadow banking system? Why would the Fed’s advisory council “worry” about unmanageable inflation and bubbles? Has the “can” gotten too heavy to kick any further? Have the numbers and conditions gotten so bad and so obvious that spin and outright lies can’t cover it anymore?
I don’t know exactly what is happening behind the scenes (though I could make a pretty good educated guess) but it is apparent that it is something very big and very bad and is right now coming to a head. This coming week should be quite telling as both stocks and bonds, globally, have reversed. Interest rates have moved up about 1/2%, maybe this is setting off some derivative time bombs? As a side note, the biggest hedge fund in the world lost about $115 billion for the month. Their equity capital was some $65 billion to start the month out…so they are in the hole for $50 billion. But not to worry as this isn’t any “run of the mill” hedge fund. No, this is the Federal Reserve I am speaking of. You see, there is no problem here because they can just print more…and presto, no insolvency. I read a post late last week (and unfortunately cannot find it now to give credit for the quote) that summed it all up in a one liner. “The Fed is like a casino that prints (mints) their own chips and has the ability to go all in on every single hand”. Maybe they’ve gone “all in” to many times?
I know, it is hard, very hard as an American to think like this or even about this but… the result of all of this means that our standard of living is about to crater. Unfortunately, it will need to “go under” where it actually should be…BECAUSE we need to pay back for all of the years where we over spent, over borrowed, over printed and OVER LIVED!