This week, I had the pleasure of being interviewed by Greg Hunter at USA Watchdogregarding my thoughts on the state of the global markets, economies and commodities into 2015.  Here are some key points we covered. For more detail, please check out thevideo of our interview here.
1) On the Market Meltdown: When I spoke with Greg about 9 months ago, I said that based on logic and the political-economic history I had explored for All the Presidents’ Bankers, there should have already been another major implosion following the 2008 financial crisis. However, there is an element of history that is unprecedented and which has acted as a barrier, albeit tenuous and fabricated, to another full-blown, transparent crisis. The scope of the zero-interest-rate policy and QE programs that emanated from the US Federal Reserve and have unfolded throughout the world are artificially bolstering market and financial interests as populations falter. In the US, this has been greeted by proclamations of economic victory from the Obama administration. In Europe, it’s harder to tweak the employment stats enough to declare the same thing, and hence, official QE programs there are ongoing. At any rate, this prolonged policy of injecting cheap money into the banks and markets, funded by the public due to the very nature of debt-creation and the purchasing of government and asset-backed debt securities, now surpasses any past measures of such activities in terms of scope and length.
The fact that these policies lasted for six years has inflated and distorted bond and stock markets, as well as the books of the world’s largest financial institutions to such an extent, that inherent ‘value’ in any of these areas is impossible to determine. We are living with the instability of a system that is supported by central bank maneuvers and the leveraging of them, not by anything organic or independently sustainable. Because rates are so low, any establishment with access to this cheap capital, or that has other people’s money to burn, is creating bubbles by reaching for returns anywhere – in government bonds, stock markets, leveraged loans in debt-intensive firms like oil and gas, and in complex derivative products consisting of currency, commodity and credit elements.
The idea of funding the entire financial system with no exit plan for any non-crisis producing dissolution or resolution for such support boggles the mind. This global QE period is larger and more insane that ever in history. Because SO much cheap money is sloshing around the system at its top echelons, not through the real economy, the false appearance of stability has been perpetuated longer than logic would dictate. But since global QE is not yet over, its benefits will continue to accrue to the same institutions that are already benefitting from it (the ones that leverage capital or sell bonds) until all the QE plans are over – not tapered, but unwound and done. While this transpires, a meltdown will unfold, but slowly. Meanwhile, this next phase of ECB QE will provide markets and banks more temporary solvency. So will the Bank of Japan’s money supply expansion and the People’s Bank of China version.Â
