Today, stock market investors are hoping desperately for Weimar-style hyperinflation to boost equities prices to dizzying heights in what some call a “crack-up boom”. In terms of money creation, we are not there yet, but such levels of fiat printing could happen within the next year. Unfortunately for investors, this “boom” in stocks may not happen again. In fact, it already happened over the course of the past several years, and now the party is over.
In the past few months, the U.S. dollar has entered a massive liquidity crisis, and despite all expectations, the Fed’s attempts to compensate with stimulus measures have done little to boost markets back to their previous glory.
In Weimar Germany, stocks did get an epic rally, until it all came crashing down in 1924 and then again in 1927. The notion of the endless fiat-driven bull market is a lie perpetuated by central bankers and their cheerleaders.
[ZH: And then there's the more recent example of Venezuela... just think how well their economy must be doing for stocks to be soaring so high...]
As I warned in past articles, when the Fed finally decided to step in to “stall the crash”, it was after it was far too late.The Fed has no intention of stopping the crash, they WANT a crash; they created all the conditions necessary for the collapse of the Everything Bubble to happen. Their goal now is only to make it appear as though they “did everything they could” to save the economy while staging the collapse of the final bubble: the U.S. dollar and its global reserve currency status.
The problem for markets is not just the coronavirus pandemic, but I’ll get to that. The real issue is that the primary support pillar for equities has disappeared; namely corporate stock buybacks. The new bailouts might actually create a ban on the practice in the future, which guarantees declining market values unless the central banks step in to purchase stocks directly. Even then, asset values will probably still fall over time, but at a slower pace.
Keep in mind that the trillions of dollars in loans that have been feeding corporate share prices through buybacks over the past few years just went up in smoke due to the downturn. Companies have been using central bank repo loans to juice stocks beyond all reason. In the past three years, the valuations have been ridiculous compared to the dismal earnings of the same businesses. All that cash was wasted, and these corporations remain in debt up to their eyeballs.
But perhaps they don’t care anymore. I’m sure many CEOs understand that while their companies might flounder in the midst of a pandemic crisis and economic crash, they as individuals will be well taken care of. No banker, no CEO, no high-level politician is going to be punished for the financial calamity that is on our doorstep. Just as in the 2008 crash, they will all be given a seat at the table and their sabotage of the economy will be ignored. The only consequences they might face will be if the public becomes enraged enough that the torches and pitchforks are finally brought out.
For now, the populace is absorbed in the drama of the viral outbreak, and I don’t think economic concerns have quite struck the majority yet. They will soon, though, as people begin to realize this event is going to last a lot longer than they have been told. Even if the infection numbers diminish over the course of this month, as many assume, the greater threat at hand is that governments will assert that this is because the “lockdowns work”. If the lockdowns “work”, then the lockdowns will continue.
With the amount of fiat creation that is necessary to support almost the entirety of the U.S. economy for the next several months, I suspect the dollar’s global reserve status will come under question before the end of the year. In the meantime, the establishment will attempt to force the idea of a digital currency system into daily public discussion.
With a dollar collapse, the populace will have little choice but to either bow down to the new digital system or go rogue and start building their own systems using their own production, barter, local scrip, and gold and silver. This is the world we are heading into, make no mistake. Be ready for it.
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