A couple of weeks ago I wrote an article about the Chinese plunge protection team that staved off- for a short period of time- a “market” collapse caused by rapidly falling prices of Chinese stocks. In it I mentioned that while they managed to prop the prices up it produced NO VALUE. I think this deserves a MUCH closer look so we can see how truly delusional the prices of virtually all assets are.
First of all, I think it is imperative to note that these interventions are not new. They have been occurring for decades but have gone so far that even a casual observer can see what is happening. What this tells me is that when this situation unwinds it is going to be a MAJOR shock to almost all “market” participants. It is not just the last few years of manipulation that has to be accounted for- but decades of it.
In the Chinese example the market was trying to do its only job- to determine an accurate price for the value of a stock or stock index. The very act of a third party (central banks and their accomplices) conjuring up cash out of nowhere and buying the stocks renders the market useless at doing its one job.
The sad part is that this has gone on for so long that the majority of people see this as natural when it is totally unnatural. Many think this can go on forever. While it has proven to be able to go on far longer than I would have anticipated it cannot, and will not, go on forever.
How many times in the past 15 years or so have prices been manipulated? My guess is EVERY TRADING DAY. Whenever the headlines can’t get the public or algorithms to buy to keep prices artificially high a magic hand sweeps in and BUYS. The amounts that are needed to move the “markets” suggest that this has to be a MAJOR player- like a central bank or one of their owners- the major banks.
So why is this important?
If we go WAY back to the 1970s spending by the government (of course they have no money, so it is either raised in taxes or conjured up by the central bank) the act of stimulating the economy with debt and spending programs actually worked. I have seen it reported that every $1.00 spent added $3.00 to our economic output. Part of the reason was that because our debts were low and our productivity was high. The added debt didn’t impact the economy the way it does today. At that time, in 1975, our total outstanding national debt was $533 BILLION. Just to compare- it took 199 years and 2 world wars to run up $533 Billion. It has been reported by the US Treasury that they will borrow over $750 BILLION in the next 3 months!
With interest rates rising and most foreign buyers shunning our debt this is becoming a national nightmare. It appears that many are waking up even as the financial game shows and propaganda networks try to convince people that things are GREAT!
Because we produce little but consume much our “money printers” have gone totally off the rails. In contrast to when we were actually a prosperous and solvent nation today it takes $1.55 in budget deficits (new debt issued to feign solvency) to get $1.00 of “growth”. Of course, it is only “growth” if you count DEBT as growth. In addition, according to the Bureau of Economic Analysis it takes $2.50 in new debt to get $1.00 of GDP “growth”.
I am not going to go deeply into the fake GDP numbers but I will say that without defense spending and out of control federal government spending the GDP would be collapsing.
I am sure that many may be wondering WHY this has to end. It is called INFLATION. As the “printers” conjure up cash out of nowhere it produces NOTHING but since there is more cash and no goods or collateral to back it up- prices rise. In the case of stocks- just as in the Chinese example a false demand is created for an asset and the price rises. Of course, there was no value added so when the manipulation stops the true VALUE will be exposed. Because of the MASSIVE- and I mean almost incomprehensible amount of manipulation I expect that when this thing breaks it will have NO HISTORICAL precedent.
The same is true for bonds- and specifically sovereign bonds where most bond “investors” are not being adequately compensated for the risk they are taking because of indiscriminate buying by central banks to keep funding costs below what would normally be deemed fair for the issuing government. This leads to FAR higher prices that we pay and FAR lower yields than should be fair.
A good question here would be “WHAT IS THE VALUE OF A PROMISE THAT CANNOT OR WILL NOT BE KEPT?
Keep in mind that just like they conjure up cash out of nowhere the banks also conjure up paper contracts masquerading as physical gold and silver and SELL assets that they don’t actually own to trick the “market” into believing someone “in the know” is selling. There have been many instances where an entire year’s mine supply of silver has been magically sold in less than an hour- usually when prices are rising.
I have spoken many times about WHY they do this but the level of manipulation here is similar to what we see with stocks and bonds- JUST THE OPPOSITE- to keep the prices DOWN while central banks and major banks buy in record amounts. This gives the illusion of US dollar strength and also- as Andy Schectman says- it allows those “in charge” to use PRICE as a distraction. This keeps retail buyers away and allows those “in charge” to get grossly undervalued assets on sale.
I have another question. Does it make more sense to do what the novices are doing and hope that a greater fool comes along and pays an even higher price than you are paying- while hoping the bottom doesn’t fall out before? Or does it make more sense to look at what the central banks are doing- BUYING HARD ASSETS and replacing the promissory notes issued by governments with ASSETS rather than someone else’s promise to repay?
Food for thought!
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