Home > Best assets to buy, Best assets to sell, Predictions > Thank God, I’ve found someone equally as disheartened by the world as myself

Thank God, I’ve found someone equally as disheartened by the world as myself

I’ve found someone who knows what’s going on and can’t look away.  He’s been screaming “WRONG WAY, GO BACK!” for 14 years.  No result.  Zero.  Nada.  Zip.  And he keeps yelling, but no one can hear him scream.

Doug Noland knows what’s going on.  Some quotes:

If I can chuckle perhaps it will hold back the tears.  It’s difficult not to be reflective – to ponder how things could ever have come to this.  Thursday was another historic day for policymaking, for markets and for the perpetuation of history’s most spectacular financial mania.  In the past I’ve noted that, in comparable circumstances, I have viewed my 14-year weekly chronicle of history’s greatest Credit Bubble as pretty much a great waste of effort.  I have tried to warn of the dangers of an unanchored global financial “system.”  I’ve done my best to illuminate the dangerous interplay between an unwieldy global pool of speculative finance and aggressive “activist” central bankers.  I have forewarned of the perils of discretionary (as opposed to rules-based) policymaking – in particular highlighting the (long ago appreciated) fear that too much discretion ensures that monetary policy mistakes will only be followed by yet greater mistakes.  I took strong objection to Dr. Bernanke’s doctrine and framework when he arrived at the Fed in 2002 and protested in vein when he was appointed Federal Reserve Chairman in early-2006…

Never at the time could I have imagined the extent to which the Bernanke Fed would be willing to inflate history’s greatest Bubble.  Chairman Bernanke has gone from resorting to radical policies during a period of acute financial crisis to one of imposing only more radical policymaking three years into recovery.  He has gone from trying to stem Credit contraction to aggressively promoting rapid (non-productive) Credit expansion.  Dr. Bernanke has evolved from radical liquidity injections meant to reverse marketplace illiquidity, to pre-committing to years of open-ended money printing in the midst of heightened inflationary pressures and dangerously speculative financial markets.  Of course, justification and rationalization are everywhere.  History will be unkind…

There’s no reasonable justification for Dr. Bernanke taking such extreme risks with financial and economic stability.  And I struggle to understand how he doesn’t see the likely consequences.  After the cult of Greenspan, I thought we had learned a lesson from having one individual exert such power and influence.  Indeed, the Federal Reserve has now grossly overstepped its role.  Never was it anticipated that the Fed would resort to massive purchases of Treasury bonds and mortgage-backed securities in a non-crisis environment.  Never was it contemplated that our central bank would resort to pre-committing to massive ongoing money printing in the name of reducing the unemployment rate.

I’ll state what others hesitate to admit: this week our central bank took a giant leap from radical to virtual rogue central banking.  If Bernanke’s plan was to leapfrog the audacious Draghi ECB, our sinking currency – even against the euro – is confirmation of his success.  If his goal was to provide markets a Benjamin Strong-like “coup de whiskey” – he should instead fear the dangerous instability central bankers have wrought on global markets and economies.   And I am all too familiar to the adversities of being a naysayer in the midst of Bubble mania.  I’ve read about it, I’ve lived it and I’m ok with it – and actually am motivated by it.  I highlighted last week the ominous divergence between world fundamentals and the markets.  And this week, well, global markets enjoyed just a spectacular time of it.  Away from the Bloomberg screen, it sure seemed like a less than comforting week for the world at large.

As an analyst of Bubbles, I often quip that they tend to “go to incredible extremes – and then double.”  Timing the bursting of a Bubble is a very challenging – if not nearly impossible – proposition.  Yet this in no way should cloud the harsh reality that the longer a Bubble is accommodated the more devastating the unavoidable consequences.  It is, as well, the nature of speculative manias for things to turn crazy in the destabilizing terminal-phase.  The past few weeks – with more than ample Bubble accommodation and craziness – really make me fear that eventual day of reckoning.

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