European bonds were not a “safe haven” asset last week while equity markets were cratering, which suggests that the world’s creditors are finally rediscovering sovereign risk. From Tom Luongo at tomluongo.me:
“The problem with socialism is eventually you run out of other people’s money.”
— Margaret Thatcher
For months myself and very few others have been warning about the problems in Europe. That the real problem isn’t in the U.S., though it’s certainly a mess, it is in Europe.
It’s why I focused so hard on Brexit. Would the U.K. actually get out of the EU before it all came crashing down around the deaf and now stunned Brussels technocrats?
A U.K. outside of the EU meant localizing a major problem on the backs of those that 1) engineered it and 2) cheered it as they literally stole hundreds of billions of pounds from them.
But while everyone has been focused on the melting equity markets and what the high priests of monetary wizardry at the central banks were going to do, did anyone notice the complete collapse of European bonds last week?
I could go on with this but I think you get the point.
Once the real crisis hit and the world ran out of dollars, this is the result. The ECB cannot do anything other than what it’s done for the past ten years, buy sovereign debt.
But what happens when the rate of selling overwhelms their buying programs?
What happens when they expand those programs, like they did last week, and the selling still overwhelmed them?
More importantly, what happens when short-term spread traders no longer front-run the ECB’s buying chasing nickels in front of a freight train?
For years those momo-monkeys made it easier for the ECB to keep the fiction of a functional bond market alive. This distorted them beyond all recognition.
And now they’ve run out of other people’s money to bid them higher.
COVID-19 is the flint but the tinder was there, dry and warm just waiting for the spark. And with Vladimir Putin’s impeccable sense of timing and strategic acumen we’re in the midst of the worst financial crisis since 1929.
Forget 2008 folks. This is a once-in-a-lifetime event. It will likely be a once-in-five-lifetimes event if Martin Armstrong’s cycle projections are anything close to accurate.
Armstrong from 2015:
There is interaction also between the different fractal levels. The grand or major level at the 309.6 scale shows that the current major trend is a PUBLIC WAVE. since the late 1700s into 2032.95. This has been the age of big government and the shift from Laissez-faire economics in which transactions between private parties are free from government interference such as regulations, privileges, tariffs, and subsidies. This is the primary difference between a PUBLIC and PRIVATE WAVE.
And looking at the events of the past few days it’s pretty clear everyone who is anyone believes that our institutions are there to save us from our own excesses and mistakes.
But they aren’t. The Fed did what it was supposed to do: lower rates, create liquidity, support falling capital markets and buy up government debt so that the Trump administration can spend it.
And it didn’t work. The Dow crashed, and government bonds are hitting their peaks. And still there is an unquenchable need for dollars.
Zero-bound and negative interest rates created this mess, they won’t get us out of it.
The central banks stand naked along the shore as the tide rolls out.
And this morning financial analysts of all stripes are whistling past their own graveyards. They are trying to make sense of it all when it simply comes down to the following…
Government-sponsored (or socialist) banking doesn’t work.
It creates the terrible dynamic we’re in now: hyper-inflation of risks which come through the selling debt to fund social engineering.
The money printing obfuscates the lack of real capital and the rest is credit pulled from a future incapable of supporting it.
It doesn’t matter the form the spending takes. It doesn’t matter what programs it was used to fund. The end will always be the same.
Epic deflation as the Ponzi scheme of your government paying off its Visa with its MasterCard runs out of people to sell the debt to.
Socialized banking of any form has never worked and it never will. To protect the lower and middle classes from future global bankruptcies we need a free market for money.
Money which is free from the avarice of psychopaths with guns extracting unearned wealth or rent from the people they say they serve. Money is supposed to measure the profit of a voluntary exchange between two actors with productive advantages in different goods or services.
The hard truth is that until we embrace that conceit again we will be at the mercy of these terrible people.
Today, the ECB is powerless to stop this. They don’t have the tools nor the expertise. And they won’t even after they get the reforms they believe they need. It is bankrupt now and it will need external help to survive.
Right on cue, The IMF is now talking a $1 trillion loan program. Next month it’ll be $5 trillion.
What will the numbers be in 2021? And who will actually be there to pay for it?