What springs to mind when I say criminality, is illegal aliens buying $750k McMansions no money down, using subprime loans circa 2007; however, that is chump change as to how cheap money has been abused in this cycle. Today we are witnessing the most fundamentally warped abuses of modern financial theory never before imagined. The entire financial and economic community is now complicit in this fraud.
Once upon a time when banks did most of the lending, economists fretted over the liquidity trap - a scenario in which interest rates reached a level at which no one would be willing to lend. After, all why would anyone lend money at 0%, when the downside from default could range to -100%.
Enter modern day securitized markets wherein interest rates have now fallen below negative territory for trillions of global assets. This unprecedented phenomenon can only be explained by the perversion of modern day finance which now places deflationary economic outcomes ahead of the real economy. And why today's gamblers want lower interest rates so badly. It's a very unhealthy addiction for the real economy.
Cheap money has put this society into a brain dead coma:
"What our fake-businessman president fails to grasp is that doing so would leave the central bank with little way to fight a recession should his trade war and other economic policies tip the economy into a downturn...most people don’t approach the U.S. economy like a failed Atlantic City casino"
Cheap money has put this society into a brain dead coma:
"What our fake-businessman president fails to grasp is that doing so would leave the central bank with little way to fight a recession should his trade war and other economic policies tip the economy into a downturn...most people don’t approach the U.S. economy like a failed Atlantic City casino"
Under the discounted cash flow model, tradeable securities are priced based upon the underlying discount rate. When that rate falls, the "value" of the future cash flows rises. Central Banks are now taking full advantage of this fact by pushing investors further out on the risk curve by collapsing interest rates. Worse yet, these perverse incentives now prioritize investment in secondary securities far above real fixed investment. Because fixed investments do not trade on casino markets, which means there is no opportunity for a capital gain. Take a construction project for example - there is no available liquidity exit for that type of investment. This starvation of the real economy creates a downward death spiral that paradoxically leads to lower interest rates. Essentially, deflation is now cannibalizing the real economy while risk assets remain artificially elevated.
Record negative interest rates should have been viewed as a warning sign that global deflation is totally out of control. Instead, it was subsidizing extreme speculation:
And bidding up bond proxies to ludicrous valuations:
Worse yet, companies are swapping out workers for automation, compliments of free money. Which is a recipe for mass unemployment.
And of course mass corporate bankruptcy:
"Job cuts announced due to [corporate] bankruptcy have hit the highest level since 2009"
Record negative interest rates should have been viewed as a warning sign that global deflation is totally out of control. Instead, it was subsidizing extreme speculation:
And bidding up bond proxies to ludicrous valuations:
Worse yet, companies are swapping out workers for automation, compliments of free money. Which is a recipe for mass unemployment.
And of course mass corporate bankruptcy:
"Job cuts announced due to [corporate] bankruptcy have hit the highest level since 2009"
The obligatory delusion that lower interest rates leads to more "investment", assumes the economy is not going into recession. Despite the collapse in interest rates, it's now a lack of real fixed investment that is exerting downward pressure on the economy.
However, hot money "investors" in secondary markets don't care as long as they get lower interest rates. Which is why they don't fear the trade war.
However, hot money "investors" in secondary markets don't care as long as they get lower interest rates. Which is why they don't fear the trade war.
"The downturn in business spending has been blamed on the Trump administration’s nearly 15-month trade war with China"
This lethal malincentive of death spiraling interest rates continues until the day when the door unexpectedly slams shut on junk IPOs, insolvent fracking stocks and various other Ponzi borrowers dependent upon rollover financing.
And then it's time for everyone to say once again:
"No one saw it coming"
Except for the exact same guy who saw it coming last time.
Except for the exact same guy who saw it coming last time.
July, 2007: Chuck Prince Wants To Keep Dancing. Can You Blame Him?
"The Citigroup chief executive told the Financial Times that the party would end at some point but there was so much liquidity it would not be disrupted by the turmoil in the US subprime mortgage market."
