Dear Friends,
It seems to me, everything has a rhythm, the Sun rises crosses the sky and sets, the Moon waxes full then wanes new, people wake in morning, work then sleep at night, everything has a rhythm… even and especially an economy. Central banks have been trying, unsuccessfully, since Adam Smith wrote Wealth of Nations, to stop the cycles of the economy. The attempts by central banks have grown ever more extreme over the years, culminating today with quantitative easing (QE), zero interest rate policy (ZIRP), price controls, manipulating the stock markets with naked interventions, manipulating the price of gold and silver, etc… They have so upset the normal rhythm or cycle of our economy they have created a dead man walking scenario. The economy, barred from it’s normal sleep wake cycle, is now suffering ailments and a general decline from the lack of a sleep cycle. Now with the economy melting down again, another attempt by the economy to get a bit of sleep, central banks around the world have nothing left to fall back on, interest rates are already zero, they have printed huge gobs of money and fed it into the system, their ability to manipulate stock prices, gold and silver, is being swamped by market forces, so now some are devaluing their currencies to get a larger portion of a smaller pie. Your standard of living is directly effected by their foolishness.
Imagine if someone wanted to stay awake forever. They could take methedrine. That would keep them awake, but the side effects are terrible, performance drops and if the regimen is kept up long enough… death. QE, ZIRP, monetizing the debt, price controls, etc… these are all exactly like economic methedrine. They interrupt the normal economic rhythm, forcing an economy to stay growing when what it really needs, is to shrink for the next leg up. The side effects are well known and have been proven historically. Monetizing debt leads to hyper inflation ruining the currency, and price controls lead to empty shelves. ZIRP and QE are new attempts, the crack cocaine of economics, who’s side effects we are just about to learn of. It would seem however that ZIRP creates incentives for the misallocation of money and QE will probably result in inflation. In economics as in life there are no free rides, but that doesn’t prevent economists from holding out their thumbs.
In this last “recovery” every quarter has seen negative wage growth in the US! Some recovery eh? While the Federal reserve has claimed inflation is under control, all anyone need do is go to the shopping center to buy food, pay rent or buy a car, to see inflation first hand. Moreover, the Federal Reserve has just lowered the actual GDP growth for the last 3 years… lower! That means they have been counting inflation as growth. With wages getting lower and prices getting higher, by the standard measurement, our standard of living goes down. All while the Federal reserve has been printing billions of dollars and feeding it into the system, keeping interest rates artificially low and manipulating stock prices to fabricate a “Wealth Effect.”
Now the economy is going into recession again. Stock prices in the Dow Jones Industrial Average have made a “death cross.” What that means is the 200 day average has risen above the 50 day moving average. This presages a bear market in stocks, which is a strong signal of a recession. Commodity prices have cratered which is another sign of impending recession. The worker participation rate is at a decades low and layoffs are increasing. The U6 unemployment rate is near where it was during the great depression with soup lines hidden by EBT cards. The transportation index is crumbling, with container shipping dropping precipitously, which is a measure of international trade and demand, railroad shipping is dropping and FED EX as well as UPS are showing weak demand as well. All these signs and others are pointing to a recession. Moreover, a recession is overdue, economic recoveries don’t last almost a decade, they usually run for 58 months or just under 5 years. All signs point to the economy of the world about to pass out.
Central banks are terrified that their shenanigans will come to light and they will be blamed. They are out of methedrine to keep the economy awake, and the negative side effects of all their tinkering is about to be visited on the people of the world. The results of their actions will be impossible to hide, as history shows they must eventually be. No amount of active intervention will be able to keep the economy awake, an economic crash must happen, and it will be ruinous. Think of it this way, if someone stays awake for weeks using methedrine and crack cocaine, when they do fall asleep, they will crash hard, that is where our economy is headed. Yes, everything has a rhythm, the sun, Moon, people, bacteria… and even an economy. Will they learn this time? History shows they haven’t in the past, so probably not, this cycle will be revisited on our great grandchildren sometime in the future as well.
Sincerely,
John Pepin
