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One of the most frustrating aspects of today’s financial system is the
fact that the Fed is being lead by lifelong academics with no real world
banking or business experience.
Consider the cases of Ben Bernanke and Janet Yellen.
Neither of these individuals has ever created a job based on generating sales
of any kind. Neither of them has ever had to make payroll. Neither of them
has ever run a business. What are economic realities for business owners
(e.g. operating costs, capital and profits) are just abstract concepts for
Bernanke and Yellen.
Moreover, there is a particular problem with academic economists.
That problem is that a major percentage of their “research” is total bunk
made up in order to make tenure.
This is not our opinion… it is fact based on research published by the
Fed itself.
According to a paper published by researchers from THE FEDERAL RESERVE
BOARD, it was not possible to replicate even HALF of the results found in
economics papers EVEN WITH THE ASSISTANCE OF THE INDIVIDUALS WHO
WROTE THE PAPER.
Let’s repeat that: even with the help of those who claimed to
have found the results, the results were not replicable.
There is a word for a result that is not replicable. It’s imaginary.
This might go a long ways towards explaining how individuals like Ben
Bernanke and Janet Yellen can continue to say with a straight face that they
have a grip on the economy, when the results show that they are either
completely lost or being dishonest.
Consider the Fed’s unemployment target for raising rates.
Back in 2012, the Fed claimed it would start to raise rates when
unemployment fell to 6.5%. We hit that target in April 2014.
The Fed didn’t raise rates for another 20 months.
One wonders, just what was the legitimacy of the Fed’s “target” for
raising rates. How on earth can you make a target, then move the target for
nearly two more years and claim the target was even
remotely accurate?
More importantly, if the Fed’s economic models suggested raising rates
when unemployment was 6.5% and the Fed didn’t raise rates until unemployment
was at 5% (a full 20 months later)… just how accurate are these
models?
We might be nitpicking here, but if the models in question are
being used to steer the US economy, there is an awful lot at stake here.
Let’s take a look at what happens when the Fed’s theories connect with the
real world.
The Fed claims it cut rates to ZERO to boost the economy. The theory here
is that if capital becomes cheaper, corporates and consumers will spend more,
creating more jobs.
Unfortunately this is not how the real world works. For consumers,
excessive debt is deflationary in nature in that at some point you are so in
debt that making your debt load more serviceable accomplishes next to nothing
in terms of solvency/ spending power.
Moreover, ZIRP is deflationary in nature for savers and those who rely on
interest income because it makes them concerned about future returns on their
capital. As a result of this, they tend to hoard their cash, not spend it.
The only individuals who benefit from ZIRP are the very wealthy and
corporates, because both can use their assets to leverage up. And this is
precisely what has happened.
We are currently on track for our FOURTH straight RECORD year for
corporate bond issuance.
Why is this bad?
Because A) it means corporations are going massively in debt and B)
they are doing this NOT to expand operations (economic growth doesn’t warrant
this) but to issue buybacks and dividends.
With rates at zero, executives are leveraging up to generate shareholder
returns. This works great in the short-term, but there is hell to pay down
the road. And unfortunately we’re there.
Today US corporates are more leveraged than at any other point in
history, including the Tech Bubble.
H/T Societe General
This is what happens when the Fed’s academic-based nonsense
collides with economic realities: perversions of capital that lead to massive
bubbles and eventually even more massive crises.
The Fed fueled the Tech Bubble, which lead to the Tech Crash.
It then fueled the Housing Bubble, which lead to the Housing Crash and
2008.
And now it’s created an ever bigger bubble that that.
Which means...
We are heading for a crisis that will be exponentially worse than 2008.
The global Central Banks have literally bet the financial system that their
theories will work. They haven’t. All they’ve done is set the stage for
an even worse crisis in which entire countries will go bankrupt.
The situation is clear: the 2008 Crisis was the warm up. The next Crisis
will be THE REAL Crisis. The Crisis in which Central Banking itself will
fail.
Smart investors are preparing now.
We just published a 21-page investment report titled Stock Market
Crash Survival Guide.
In it, we outline precisely how the crash will unfold as well as which
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