Past the Point of No Return

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di Finanza Operativa 5 Aprile 2016 | 13:00

a cura di di Walter Snyder, Swiss Financial Consulting

NIRP and ZIRP in various stages along with QE are currently the policies being implemented by the Fed, ECB and BoJ. The courageous step of the Fed to raise rates by 0.25 bsp in December and the promise of four more rises in 2016 have now been tempered by appeals to “international developments” on the part of the Fed Chairwoman. Wall Street has recovered from the New Year`s hangover and is now poised to reach new historic highs while US unemployment, according to BLS statistics, is under 5%.

Euphoria in the stock market is not justified by any rational reason as US company profits are down, international trade has slackened with the Baltic Dry Index down, down, down, Japan stagnating, China in a violent downturn, the EU struggling with high unemployment, Russia hampered by sanctions, Brazil in recession and conflict raging in the Middle East. One would have expected that low oil prices would have resulted in higher consumer spending, but the sorry plight of energy companies, with numerous bankruptcy filings already submitted, together with the above-mentioned problematic situations, makes one wonder why there is hardly any hyperinflation in the US, EU and Japan, given the huge amounts of liquidity pumped into the global economy.

As numerous commentators have noted, the central banks cannot lower interest rates much more and have already injected huge amounts of liquidity into the economy without having achieved the goal of substantially stimulating growth. It might be thought that a major depression has been averted thanks to central bank intervention in the markets, which would be flattering to the well-paid Keynesian apparatchiks. It is now, however, the case that the cyclic nature of the economy seems to be pointing in the direction of another slowdown, which appears to be maturing into a recession if one can give credence to the admonitions of the Doom and Gloom Club.

The basic question remains as to what the central bankers can do now to stem the receding tide and thwart the looming threat of Chinese folly that went on for over a decade, characterized by overinvestment, malinvestment and sheer megalomania, in what is now the world`s second largest economy. It can hardly be expected that the Fed can put an end to Chinese woes when the US is facing sovereign debt that is now over $19 trillion, an annual trade deficit of $500 billion, low workforce participation that is covered up by “seasonally adjusted” unemployment figures (see above), not to mention the threat to the petrodollar that is slowly rising over the horizon.

So far NIRP and ZIRP have resulted in higher equity prices, hardly any stimulus to growth and the end of the market function of pricing securities besides offering no end to extremely low interest rates that promote deflation rather than inflation. Given that deflation means that debtors will be even harder pressed to service excessive debt, let alone reduce the debt load, the outlook is indeed dim and growing darker. The high-flying stock market is unsustainable. Passengers are advised to fasten their seatbelts and pray for deliverance. The point of no return has long since been passed.

A symptom of the malaise affecting the global economy is the concerted effort of the BIS to depress the gold price with the purpose of eliminating gold as a currency so that only fiat currencies would remain. It would thus be easier to wipe out sovereign debt, shower the plebs with money dropped from helicopters and usher in the New World Order. The problem is that the best laid plans of mice and men go oft awry. Consult your survival booklet before it is too late. Seriously, no joke.

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