Unfortunately, you cannot understand economics without understanding what central banks and fiat money do to an economy. From Michael Maharrey at schiffgold.com:
When people talk about the economy, they generally focus on government policies such as taxation and regulation. For instance, Republicans credit President Trump’s tax cuts for the seemingly booming economy and surging stock markets. Meanwhile, Democrats blame “deregulation” for the 2008 financial crisis. While government policies do have an impact on the direction of the economy, this analysis completely ignores the biggest player on the stage – the Federal Reserve.
You simply cannot grasp the economic big-picture without understanding how Federal Reserve monetary policy drives the boom-bust cycle. The effects of all other government policies work within the Fed’s monetary framework. Money-printing and interest rate manipulations fuel booms and the inevitable attempt to return to “normalcy” precipitates busts.
In simplest terms, easy money blows up bubbles. Bubbles pop and set off a crisis. Rinse. Wash. Repeat.
In practice, when the economy slows or enters into a recession, central banks like the Federal Reserve drive interest rates down and launch quantitative easing (QE) programs to “stimulate” the economy.
Low interest rates encourage borrowing and spending. The flood of cheap money suddenly available allows consumers to consume more – thus the stimulus. It also incentivizes corporations and government entities to borrow and spend. Coupled with quantitative easing, the central bank can pump billions of dollars of new money into the economy through this loose monetary policy.
Central banking is killing the global economy. From Raúl Ilargi Meijer at theautomaticearth.com:
I intentionally start writing this mere minutes away from Fed chair Jay Powell’s latest comments. Intentionally, because the importance ascribed to those comments only means we have gotten so far removed from what capitalism and free markets are supposed to be about, that it’s pathetic. The comments mean something for rich socialists, but nothing for the man in the street. Or, rather, they mean that the man in the street will get screwed worse for longer.
And it’s not just the Fed, all central banks have it and do it. They play around with rates and definitions and semantics until the cows can never come home again. And they have such levels of control over their respective societies and economies that the mere use of the word “markets” should result in loud and unending ridicule. There are no markets, because there is no price discovery, the Fed and ECB and BOJ got it all covered. Any downside risks, that is.
But it doesn’t, because the people who pretend they’re in those markets hang on central banks’ every word for their meal tickets. These are the same people we once knew as traders and investors, but who today function only as rich socialists sucking the Fed’s teats for ever more mother’s milk.
Entities that keep taking on more debt eventually can’t repay it and go broke, regardless of whether or not that entity is a government. From David Stockman at lewrockwell.com:
Well, that was timely. The US Treasury just posted a record $207 billion deficit for May and record monthly spending of $440 billion. That brought the rolling 12 month deficit to just shy of the trillion dollar mark at $986 billion.
The timely part is two-old. First, it just so happens that May marked month #119 of the current expansion, making it tied for the duration record with the 1990s cycle. But even JM Keynes himself would be rolling in his grave in light of the chart below.
To wit, even by the lights of hardcore Keynesians of yore, fiscal deficits were supposed to be falling sharply at the end of a business cycle or even moving into surplus as they did in 1999-2000, not erupting toward 5% of GDP as has now happened.
The second timely note, of sorts, is that the Wall Street Journal was Johnny on the Spot this AM with a front page story entitled, “How Washington Learned to Love Debt and Deficits”.
The globalists are cooking up all sorts of mischief for us, including central bank digital currencies. From Steven Guinness at stevenguinness2.wordpress.com:
The behaviour of central bankers is rarely (if ever) given sustained coverage in the national press. Outside of prominent economic channels, developments from within institutions such as the International Monetary Fund and the Bank for International Settlements are seldom remarked upon. Instead, attention is restricted to the latest round of political theatrics which serve to disguise the actions and intentions of globalist planners.
As the furore of Brexit gained in intensity last month, BIS General Manager Agustin Carstens gave a speech at the Central Bank of Ireland 2019 Whitaker Lecture. Under the heading, ‘The future of money and payments‘, Carstens mapped out what has been a long standing vision of globalists – namely, to acquire full spectrum control of the international financial system through the gradual abolition of what Bank of England governor Mark Carney has called ‘tangible assets‘ i.e. physical money.
The ‘future of money‘ narrative is one that both the BIS and the IMF have been actively promoting since the advent of Brexit and Donald Trump’s presidency. Here are some links to speeches made by both Christine Lagarde and Agustin Carstens:
Central Banking and Fintech—A Brave New World?
Winds of Change: The Case for New Digital Currency
Money and payment systems in the digital age
Money in the digital age: what role for central banks?
Who, if anyone, is pulling the strings is subject to debate, but it’s becoming increasingly clear that the world economy is faltering. If it is, can equity market crashes be far behind? From Brandon Smith at alt-market.com:
For a few years now, since at least 2014, the phrase “global economic reset” has been circulating in the financial world. This phrase is used primarily by globalist institutions like the International Monetary Fund (IMF) to describe an event in which the current system as we know it will either die out or evolve into a new system where “multilateralism” will become the norm. The reset is often described in an ambiguous way. IMF banking elites will usually mention the end results of the shift, but they say little about the process to get there.
What we do know is that the intent of the globalists is to use this reset to create a more centralized monetary system and micro-managed global economy. At the core of this new structure would be the IMF along with perhaps the BIS and World Bank. It is a plan that has been supported openly by both western and eastern governments, including Russia and China.
As noted, the details are few and far between, but the IMF describes the use of open borders and human migrations during the reset as a means to transfer capital from various parts of the world. It is a novel if not utterly insane way to transfer wealth that only makes sense if you understand that the globalist goal is to deliberately conjure a geopolitical catastrophe.
The IMF also asserts that blockchain technology will make capital transfer easier and more efficient in this future environment, which explains the enthusiastic globalist support for developments in blockchain technology and cryptocurrencies despite the notion in cryptocurrency circles that blockchain would somehow make the bankers “obsolete”.
Because history is mostly a series of disasters punctuated by occasional progress, it’s a good bet that we’re in for a replay of prior disasters. From Christ Marenson at peakprosperity.com:
It’s said that truth mirrors fiction. I’m finding this to be the case more and more these days.
Take the 1993 comedy Groundhog Day. Bill Murray wakes up each day to relieve the exact same daily circumstances and interpersonal interactions. He relives the same day, February 2, over and over again.
No matter what he does, the repetitive cycle won’t break. He goes to sleep, wakes up to his alarm, and it’s the morning of Feb 2 again.
Likewise, in The Truman Show, Jim Carrey lives in a simulated environment where everybody’s an actor in a popular TV show except him. For him, it’s his real life. But although he doesn’t realise it, everything around him is completely scripted and fake.
If merge these two movies together, they perfectly describe the world in which we live today. Welcome to Groundhog Day meets The Truman Show. Let’s call this mash-up The Groundhog Show.
In this composite story you, the plucky central character, wake up every day in a world where the same mistakes are made over and over again by our so-called “leaders”.
Take the central banks, for instance. In this show, they continually blow massive credit bubbles over and over again, which then result in widespread, painful losses when they inevitably burst. And the central planners keep doing this without any indication that they’re aware they’re repeating the same mistakes.
This is a far better description of how the economy actually works than anything you’d get out of economics textbooks. From Daniel Lacalle at mises.org:
The recent macroeconomic data of the leading economies point to a widespread slowdown. What is more concerning is not just a logical moderation in the path of growth, but the acceleration in the weakening of economies that were supposed to be stronger and healthier. It is even more concerning that this aggressive worsening of key leading indicators in China, the EU, and most emerging economies happens at the peak of the largest monetary and fiscal stimulus in decades.
It is easy to blame this widespread weakening on political headlines, trade wars, and — of course —Trump, but it would be disingenuous to believe those are the real factors behind the negative economic surprise.
The pace of global recoveries since 1975 has been slower and weaker, consistently, according to the OECD. Recoveries take longer and happen slower. At the same time, periods of crisis are less aggressive albeit more frequent than prior to 1975. Another interesting evidence of the crises and recoveries since 1975 is that almost all economies end the recession period with more debt than before.
These factors are all concerning, but the evidence also shows that economic progress has continued regardless and that the main factors of wellbeing have improved dramatically. I had the opportunity of meeting Johan Norberg, author of “Progress” and we discussed all the positive elements we have seen in the past decades. In the same period, from 1975 to 2018, extreme poverty has been reduced to all-time lows. Hunger, poverty, illiteracy, child mortality… all those terrible problems have been dramatically reduced to the lowest levels in history. That is the positive.
However, recognizing the positive is important, but ignoring the risks is dangerous. Global debt has ballooned to all-time highs, more than three times the world GDP. For those elements of progress to continue improving, we must stop the race of perverse incentives created by the wrong analysis of the origin of crises and the solutions that are often proposed in mainstream economics and politics. I agree with Johan Norberg that the two main factors that have driven the phenomenal progress we have seen are free markets and openness. The freedom to innovate, experiment, create and share must come with the right incentives.