The Long Wave Versus the Printing Press: Central Banks Go All-In

For as long as there have been markets we’ve been passing through the same sequences: anxious conservatism in the aftermath of hard times followed by cautious optimism and finally, financial excess. A horrendous debt-driven crash then resets the cycle.

The most recent cycle began after World War II and lasted until the tech stock crash of 2000. Statistics published by the US and other major governments say we are experiencing an anemic economy, but not a depression.

That’s because, in past cycles, money was mostly gold and silver (real and in limited supply); it couldn’t be created out of thin air. But since the US closed the gold window in 1971, everyone has been running fiat currencies that can be created in infinite quantities and depend for their value on the trust we place in the competence and honesty of our leaders.

Because trust dies slowly, the world’s governments currently have an unlimited credit card that they can max out to keep the debt implosion at bay with ever-lower interest rates and ever-more-creative asset purchase plans. The world is swimming in debt as unfunded liabilities and derivatives continue to pile up, putting more and more pressure on the global financial system. Without central bank life support, the European, American and Japanese economies will implode.

European and US central banks have accepted this reality and recently announced open-ended asset purchase plans, implying that zero interest rates and unrestrained money printing will go on for as long as the markets keep accepting fiat currency. As the system grows in size and complexity, its propensity for catastrophic failure grows exponentially. Double the size of a financial system and the chance of it coming undone rise by ten times or more.

“So here we are,” says Rubino. “The conditions for a global catastrophic failure are in place. Snow (in the form of trillions of new dollars and euros) is falling. There’s no way to know which dollar (or which external event) will start the avalanche, but without doubt something will.”

The nature of the avalanche is still to be determined. We can only watch and wait, and prepare for the most obvious risks

To read John Rubino article: The Long Wave Versus the Printing Press: Central Banks Go All-In

Tagged as: Central Banks, economy, governments