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Wednesday, November 9, 2011

Middleton: Contraction Interruptus

Reggie Middleton of Boom Bust Blog:

I have always been of the contention that the 2008 market crash was cut short by the global machinations of a cadre of central bankers intent on somehow rewriting the rules of economics, investment physics and global finance. They became the buyers of last resort, then consequently the buyers of only resort while at the same time flooding the world with liquidity and guarantees. These central bankers and the countries they allegedly strive to serve took on the debt and nigh worthless assets of the private sector who threw prudence through the window during the “Peak” phase of the circle of economic life, and engaged in rampant speculation.

Central bankers worldwide have interrupted the cycle here under the apparently mistaken impression that they can override the business cycle and skip past the contraction phase. This is most apparent in equity markets where excess liquidity has pushed all equities straight up, as well as bond markets where yields have been suppressed to artificial (ZIRP) levels. The truth cannot be concealed in real asset markets where properties are still dropping. It was the real asset market that kicked off the bust to begin with, and it will probably be the real asset markets that bring us back to reality.

The extended contraction has only been exacerbated by the folly of central economic planners experimenting on a global basis and in concert to defeat the laws of economic mother nature.

Oh, and for those still under the mistaken impression that contagion has been contained, Barclays is here to disabuse you of that quaint notion: Italy Is Finished: "Mathematically Beyond Point Of No Return".

The era of Europe's heavily unionized, social welfare states is drawing to a close. Misery, war and poverty will follow as certainly as night follows day. Pity that Democrats are too stupid to get the message here at home.

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