Get Ready For The Next Great Stock Market Exodus
July 9, 2013 by Brandon Smith
In the years 2006 and 2007, the underlying stability of the global economy and the U.S. credit base in particular was experiencing intense scrutiny by alternative economic analysts. The mortgage-driven Xanadu that was the late 1990s and early 2000s seemed just too good to be true. Many of us pointed out that such a system, based on dubious debt instruments animated by the central banking voodoo of arbitrary fractional reserve lending and fiat cash creation, could not possibly survive for very long. A crash was coming, it was coming soon, and most of our society was either too stupid to recognize the problem or too frightened to accept the reality they knew was just over the horizon.
The Federal Reserve had cheated America out of an economic reset that was desperately needed. The 1980s had brought us utter destruction disguised as “globalization.” Our industrial center, the very heart of the American middle class that generated enormous wealth and decades of opportunity, had been dismantled and shipped overseas to the lowest bidder. It was then that the U.S. economy actually died; we just couldn’t see it. From that point forward, Americans were fully dependent on the charity of central bank money creation and international bank lending standards. The collapse that should have occurred in the 80s was delayed and thus made more volatile as the Fed artificially lowered interest rates and allowed trillions upon trillions of dollars in dubious loans to be generated. Free money abounded, and average citizens were suckered royally. Their greed was used against them, as they collateralized homes they could not afford to buy more crap they didn’t need. Of course, you know the rest of the story.
Today, credit markets remain frozen. Lending is nowhere near the levels reached in 2006. The housing market is showing signs of life; but that’s only because most home purchases are being made by banks, not regular people, for pennies on the dollar, as bankrupt properties are then reissued on the market for rent rather than for sale. If you are lucky, maybe one day you’ll get to borrow the keys to the house you used to own. And millions of higher-paying full-time jobs have been lost and then replaced with lower-paying part-time-wage slavery. The image of American prosperity carries on, but it is nothing but a farce; and anyone with any sense should question how long and false image can be given life before the truth dawns.
The novice will question why it is necessary to re-examine all of this information. Is it not widely known? Am I not simply preaching to the choir a message heard over and over again since the crash of 2008? Maybe, or maybe it is time for us to finally apply some foresight given our knowledge of the recent past.
Why did 2008 creep up on so many people? Weren’t there plenty of economists out there “preaching to the choir” back then? Weren’t there plenty of signals? Weren’t there plenty of practical conclusions being made about the future?
The truth is human beings have a nasty habit of ignoring the cold, hard facts of the present in the hopes of using apathy as a magical elixir for future prosperity. They want to believe that disaster is a mindset, that it is a boogeyman under their bed that can be defeated through blind optimism. They refuse to believe that disaster is a tangible inevitability of life that pays no heed to our naïve, happy-go-lucky attitude. The American people allowed themselves to be caught off guard in 2008, just as they are setting themselves up to be caught off guard again today.
Again, the reality is clear; the Federal Reserve has propped up equities and bonds using money created out of thin air — so much so that both markets have become totally reliant and disturbingly addicted to fiat injections. The distribution of this fiat threatens the continued dominance of the dollar as the world reserve currency and will invaribly lead to currency collapse and hyperstagflation. This process is much more likely to climax in the near term given the accelerated rate of quantitiative easing within our system to date and the accelerated rate at which our primary lenders (namely China) are dumping the dollar in bilateral trade with each other. The endgame is obvious, yet I still fear millions of people within this country and around the world will be shell-shocked once again by a renewed crash.
The argument is always the same: “Yeah, things might get dicey, but it won’t be as bad as all the doom-mongers claim, and probably not for many years.”
Similar statements were made by naysayers before the Great Depression and before the 2008 crash. So why are the skeptics wrong again this time around?
The Stimulus Fantasy
Let’s put this in the simplest terms possible: Stimulus is now the lifeblood of our economy. There is nothing else sustaining our Nation. Period. Stimulus in the form of bailouts and QE are keeping the stock market and bonds afloat. And now, in recent weeks, the Fed is announcing its intentions to shut down the life-support machine and let the patient drown in his own fluids.
Day traders and common investors are not very bright, but they do understand well that no stimulus means no stock market and no bond market. In response, indexes have become erratic, shifting on the slightest rumor that the central bank might continue QE for a little longer. Pathetically, the Dow Jones now rallies upward whenever bad financial news hits the wire, as insane investment groups pour in money in the hopes that dismal economic developments might cause the Fed to extend the bailout bonanza.
This is, of course, horribly backward; and clearly, it cannot last. Stocks are supposed to perform based on the true profitability of individual businesses as well as the political and social health of the overall culture. The wild printing of paper money by private banking magnates is not a catalyst for a successful economy. Whether the Fed actually ends QE is ultimately irrelevant. No fiscal structure can survive when it abandons fundamentals for fantasy. Either QE continues, becoming less and less effective in staving off negative results in equities, leading to a crash, or QE ends, exposing the inevitability of negative results in equities, leading to a crash.
But every crisis has a defining moment, a moment in which the tide turned overwhelmingly sour for a majority of the public. The question now becomes what, exactly, will trigger the avalanche?
Crushing Energy Prices Coming Soon?
While China continues a careful strategy of decoupling from the dollar and the U.S. consumer through bilateral agreements and trading blocks, another issue is arising: the issue of energy. I would like to note that despite globally diminishing oil demand caused by the 2008 credit collapse, gas prices have experienced little to no deflation.
This has not been caused by a lack of supply, as many American-based companies ramp up production. (I am aware of all the arguments behind peak oil. As soon as a peak oil proponent can show me an example of oil demand not being met because of a legitimate lack of supply, then I’ll be happy to consider that peak oil is the main cause of price increases.)
The fact is current regressive global demand and ample supply should have led to lower gas prices, not higher. If speculation was the cause, then price shifts within the oil market should have been far more volatile, with increases lasting weeks or perhaps months, but certainly not years.
I believe the next market exodus may be triggered by the weakening effects of stimulus (or the removal of stimulus altogether) along with extreme energy prices cause by steady inflation and a global political crisis in the near future.
China, being strangely and consistently prophetic when it comes to economic calamity, has recently established an astonishing oil trade deal with Russia, which plans to supply China with an alternative petroleum source for the next 25 years. (This news went almost completely unnoticed by the mainstream media.)
Now, keep in mind that in 2010, China and Russia signed a bilateral trade agreement completely removing the U.S. dollar in bilateral trade. The dollar has been the world reserve and the only currency used to purchase petroleum for decades. The Russia/China oil deal changes everything. It sets a trend toward the end of the petrodollar. This news flies in the face of dollar proponents who consistently claim that the currency’s ties to oil make it invincible. Apparently, there are some weaknesses in the armor.
Ongoing social unrest in Egypt has also made oil markets jumpy, being that the Suez Canal oversees the transfer of a significant portion of the world’s oil shipping.
Meanwhile, the engineered civil war in Syria continues to go exactly as I predicted in my article The Terrible Future Of The Syrian War.
Syria remains an explosive trigger point for regional war which will, in the end, draw in Iran and result in the closure of the Strait of Hormuz, which annually handles the shipping of about 20 percent of the world’s oil. All trends point toward higher gas prices over the horizon, and the U.S. economy is barely able to survive on the cost of energy we have today.
So Close They Can’t See It
Reduced stimulus combined with adversely high oils prices may very well be the tumbling boulders that bring down the mountain. We are very close now. Beyond the undeniable economic factors, the very fabric of American government is crumbling. Corruption is openly rampant. Scandals are exposed daily. The establishment leadership is unapologetic and grows even more despotic with each truth that escapes into the open air. They are becoming more bold, not less bold, and those of us who seek transparency in all things, from politics to economics to surveillance, are being attacked as the source of the problem, rather than the cure. Collapse, from a historical perspective, seems to occur when the searchlights of the individual mind are dimmest, when the threat is the greatest and when we are most comfortable in our ignorance. In 2008, the populace was mostly oblivious to the danger, and they we painfully stung. Today, I hope that the liberty movement, the alternative media and alternative economic analysts have created a window of opportunity by which millions of people can this time see the writing on the wall and prepare accordingly. At this point, there is no question that Americans have been warned. Whether they pay heed, is out of our hands.