James Howard Kunstler: Bull, bonds, and fiscal ballet
How hilarious is the Federal Reserve’s cattle drive of cash money (i.e. liquidity) into the stock markets?
I’ll tell you: if that cash is outflow from bonds that pay ZIRP interest rates, then this attempt to stampede investment into the stock market is only going to succeed in ravaging the bond market and by extension the credibility of the dollar, the US banking cartel, and then the world financial system as a whole.
If bond-dumpers rush into stocks, then who are the next bond buyers at ZIRP? The USA can’t keep going without continuous bond selling. Somebody has to buy the darn things. The Federal Reserve is now buying around 70 percent of US issue — a lot of it via secondary market pass-thru shenanigans involving “Primary dealers” (a.k.a. Too Big To Fail banks, who get to cream off a premium when they flip bonds to the Fed — tidy little racket).
If the other 30 percent of issue can’t find willing buyers at ZIRP then interest rates will have to go up. If interest rates go up, then interest paid out on bonds (that is “debt service”) by the US government will go up catastrophically, because the aggregate debt is so colossal and most of the debt is short term, meaning that in a post-ZIRP world the interest rate ratchets up automatically every 13 weeks as bonds roll over.
The US will then only be able to pretend that it can service the debt at higher interest rates. Everybody in the world will recognize this — surely only increasing the velocity of the stampede away from bonds. The question is: how long can pretending to service debt go on before it is just called by it’s real name: default? Or, if countered with additional furious computer “money” creation: hyperinflation?
Either way, of course, you end up broke.
Over the cliff
This cattle drive into stocks is strictly a political gambit. The cattle are being driven to the slaughterhouse. It is discretionary strategic national financial suicide.
They’re driving up the stock markets for cosmetic purposes, to make it appear that an economic recovery is going on, and with the aim of setting in motion a self-reinforcing financial feeding frenzy in this rush to “equities.”
By the way, in case my manner seems didactic today I am attempting to define my terms as I go along because most other financial bloggers seem to assume that ordinary people understand all their jargon, which I am quite sure they do not.
Returning to my point… the Fed and their auditors on Wall Street and in government, are jacking up the stock markets in the hopes of stirring up “animal spirits,” as the financial psychologists say, to put over the story that it equals a vibrant economy — which is nonsense, of course, to anyone who shoots a casual glance at the economic wreckage all around them.
Anyway, since the stock market action these days is dominated by high frequency trading robots running on algorithms, where exactly would animal spirits even factor in? If anything the absence of real animal spirits in this action also implies the absence of its counterpart, animal survival instinct, of which human intelligence is an order. What can come of stirring up animal spirits among robots? A train wreck is exactly what.
Now, I ask you: at a moment in history when vast interlinked global financial markets have never been so unstable, so primed for unintended consequences courtesy of the diminishing returns of technology, so ripe for a massive, cascading “accident,” is it a prudent thing to fuck around with such crude PsyOps?
Without a parachute
One other factor outside pure financials assures that US economic performance will remain impaired — that is, the kind of economic activity we regard as “normal” (suburban sprawl building, credit card “consumer” spending): the price of oil, which is inching up to the $100-a-barrel hashmark.
Apparently that shale oil bonanza we hear so much about has not left the USA swimming in cheap oil. As a general principle, it’s probably safe to say that an oil price above $80 crushes the US economy. It drives up the cost structure of just about everything we make, do, or sell here, but of course the primary things that go up in price are food and motor fuel.
Hence, it’s tragically ironic that — getting back to official financial PsyOps — that one of the primary motives for the Fed keeping interest rates super-low in the first place (apart from enabling wild fiscal irresponsibility in government) has been to promote the housing sector — because in the reality of our time “housing” translates into building more suburban sprawl.
How smart is it to promote more suburban sprawl at a moment in history when there’s no more cheap oil?
It is this kind of stupendous foolishness that is putting the USA on the path of an epochal systemic collapse.
Did anyone notice how violent and psychotic the Superbowl advertising was this year?
- An Oreo commercial that depicted a mob of nerds destroying a library — huh?
- The Doritos spot where “Daddy” and his male buddies transform themselves into an insane clown posse of cross-dressers.
- The Fast and Furious 6 trailer featuring the destruction of every vehicle known to man and a few office buildings, too.
The third-quarter power failure was a neat harbinger of things-to-come in the Most Exceptional United States of America. Party on, peeps!
The KUNSTLERCAST podcast is back online, y’all!This week: interview with Nicole Foss of THE AUTOMATIC EARTH.COM