Saturday, April 21, 2018

YOU DANCED WITH THE DEVIL

What happened in late 2008 when all the late night meetings were going on to determine the course of a world mired in debt and facing the realities of their 30 year spending binge? They decided that facing these realities and taking the malinvestments out of the system was not going to be the best policy. Instead they embarked on a fairly complex set of decisions to "reinflate" a broken debt-laden economy with MORE debt. Simply put they were going to look into every crack and crevice to add money and therefore DEBT into a deflated bubble economy. They were going to blow a new bubble to keep us from facing a system collapse.

Imagine telling the state and municipal pensioners they are not going to receive even half of what their pensions are promised to be. It wasn't going to happen. Instead they made the deal with the devil. The deal was to kick the "reset" down the road at least for "one more cycle". In the meantime maybe a fix could be found. For now they needed to find a home for Trillions of newly minted Federal reserve notes.




They knew the big banks needed to be propped up and their liabilities served as an easy sponge for the majority of the debt. The Federal Reserve actually directly bought a lot of the toxic debt from the banks and put it on their balance sheet. Much of the printed notes sopped up bonds from every sector of the economy and drove down interest rates to levels unheard of. Junk bonds carried rates of 3 and 4 %. It made no sense, except in an insane world, but they needed more debt. Their appetite was insatiable. They needed to get the real economy going, but with Trillions sloshing in the publicly traded stock market, malinvestments were going to explode. 


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Explode they did.  Money is fungible. It will move. When you increase the liquidity, guess what happens? The liquid flows. It flows into holes EVERYWHERE. The more you pour in. The more it moves. They needed bigger holes. They needed more holes. So they dug and they dug. They made Netflix holes. They made Amazon holes bigger. They made Tesla holes. They made Uber holes. They didn't care what was in making the hole as long as it was going to get bigger. THEY WANTED BIGGER AND BIGGER DEBT HOLES. So what if the business model could NEVER be profitable? So what if it destroyed competing companies with sound profitable business models?  They could call it "disruptive". 


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They just kept pouring the liquid fuel into the holes hoping that somehow they could create a spark to get the free market system engine going. They knew there was a limit and therefore a major risk. You pour enough liquid fuel into enough holes and eventually there's going to be a spark. The danger is the spark doesn't get the engine just running but ignites an explosion. For instance, you now have companies like Tesla with billions of dollars in debt that are sucking up losses in the billions EVERY year with no hope of profit. And you're going to take away the punch bowl? You're going to "normalize" interest rates? Hell, virtually every mortgage holder out there is holding on by their finger nails at 3% mortgages. Just imagine what happens to the home market at even a historically low rate of 6% much less 8 or 9%. 

So here's what is our future (provided we don't get an external "missile").....we get low inflation this year and the Fed keeps on track with rate hikes and liquidity withdrawal. The "market" isn't going to like it. Another possibility is inflation begins to heat up to the level they have to INCREASE rate hike projections. This is the scenario I predicted last year. The market REALLY doesn't like this one. Its going to sell hard at some point and the Fed will have to back track, and then CONfidence is shaken. 

The smart money knows all of this. The smart money will move ahead of all of these scenarios and into sectors of the market that will benefit from these Fed moves. The fuel is there already. A lot of it will burn but a lot of it is going to flow out of the Fed created fuel bombs and into other "containers".  Those containers are already starting to fill. They're the resource and energy sectors. 

The sad part of all of this is the damage done to good, solid profitable companies and small businesses by this idiotic attempt to play with free markets by the Fed. They didn't get the "free money". They were extracted. Many were taken out and shot. We have lost a lot of strong hands over the last ten years for the likes of Elon Musk and Jeff Bezos. We're screwed, but over time nature will reassert itself and in a couple of generations we can overcome this insanity. Maybe we learned something.  There will be a reset at some point and there will be strong hands. I hope they're benevolent hands and I hope they're "just" hands. We could use some justice. gl








20 comments:

  1. New York Times:

    You know it's serious when the newspaper of record finally reports it: A $76,000 Monthly Pension.....

    Promises were made and there is no way those promises can be kept. The larger communities made the largest promises and they will burn.

    They cut Social Security and raised taxes to support what was left. It is happening NOW in Latin America. There are protests and buildings burning.

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    1. comin' to a theater near you..........gl brotha

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  2. https://www.yahoo.com/news/least-3-dead-violent-clashes-031732622.html

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  3. http://news.goldseek.com/Zealllc/1524239414.php

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  4. Last count 10 deaths in Nicaragua because of cuts in pensions and their version of Social Security. Retired upset about benefit reductions while young people protesting tax increases. All ages are upset.

    Preview of public pensions and Social Security in US (grossly under funded) - and the Devil will demand payment.

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    1. gonna get worse there........they don't have a "reserve currency" to print to fill in the holes with......when our reserve currency status is lost.....our pensions will collapse with the dollar collapse

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  5. https://stockcharts.com/h-sc/ui?s=EXK&p=W&yr=5&mn=4&dy=0&id=p24671081382&a=572918195&listNum=1

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  6. Paul Craig Roberts, Once you get past the indroduction one of best summation, of how things work that I’ve heard him give.

    https://youtu.be/ihCVPVw2cm0

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  7. http://www.pbs.org/video/frontline-the-warning/

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  8. its on........inflation/stagflation....the ultimate slow pain for us this year will worsen in the inflation quotient with devaluation of the dollar

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    1. Inflation? 1950's built Crap shacks are still going for 1/2 a MILLION and up, remember when a million dollars was a lot of money??? New Shit boxes are going for 25k and up, for a Shit box so you can in traffic to get to your yob and compete with H1B visa workers who can take all their savings back to their shithole countries and live like a king, citizens don't have that option.

      Anyway, when the canary in the coal mine dies from asphyxiation, you just don't use the canary in the coal mine anymore, problem solved hehehe. Off course we have anonymous treasury buyers, how convenient when you can just print money and be anonymous. What happens when printing no longer works and there are no buyers?

      Answer: Amerikans have more than 20 trillion locked up in retirement accounts just ripe for the taking.

      It never ends.

      Here's another good one of PCR, he got tired of explaining the chicken and the egg to the idealist:

      https://www.youtube.com/watch?v=vjOAO9bu_eQ

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    2. very simply put its about the dollar .....not too complicated really.......just a matter of time until critical mass is exceeded and this entire dollar charade implodes......its gonna hurt and hurt bad....we really don't have any idea how low we could go .....

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    3. Be careful what we wish for I know but what are we hanging on to now? Feels like something has to give but from my understanding it's about assets and liabilities and when push comes to shove watch your assets get socialized for the "common good".

      Is an economic shock what we need to restore some type of balance then again that won't be pretty, but history has shown the owners come out on top ready to swoop in and save the day, that's when the real fear/dehumanization begins.

      Everything has become so out of whack, too big to fail indeed.

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  9. I saw the interview but it was for two hours, it just seemed too long. But I just listened to it because of your recommendation LS and it is one of his best.

    ‘Very simply put it’s about the dollar” that helps a lot Kli.

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    1. I think it was only an hour because it repeats in the second hour but yeah PCR is always fun to listen to. As a reformed Democrat and then a reformed libetarian he hits the mark. Libetarians are great but seems like they are content to let private interests who own all the money run "the free market" whatever that is.

      The whole eCONomy has become such a joke, price fixing and all.

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  10. Dancing with the devil sucks, pigmen rewards even more so.....hoping all is good with you folks....

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  11. Kliguy,

    I think you have some very smart people commenting here on your blog and it's been interesting following the train wreck called reality as sometimes it feels like a Giant Twilight Zone Episode in the flesh and I don't mean to trivialize the vast amount of information and analysis and input but I think I can some it up in one over simplistic sentence.

    ITS ALL ONE BIG MONEY LAUNDERING SCHEME.

    That and "they" and everyone buying into it wants you to think its real but none of it is real and Rowdey Rodney Piper had it right when he said it figures it would be something like this.

    Like that Iron Maiden poster says, Stranger in a Strange Land.

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    1. Whoops. Another FOMC meeting whatever that means, time to whack gold down, even though we add 4 trillion of toxic whatever to our "balance sheet" and lend money all over Europe put it on my tab its all good!


      Print, Launder That Money, just as long as I don't get any! ITS ALL GOOD! Well, time to go to work and compete so I can bay bubble rent and taxes!

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