A double bubble full of trouble

Dec 10, 2014

New York, New York

Dear Diary,

Dow down 51 points yesterday. Gold up $37.

"Stocks are hideously expensive," says James Montier. He's not wrong about that. But we have a feeling they're going to be even more hideous before this story reaches its end. Of course, when they are so hideous that to look upon them at all sends us retching and running to a public toilet, that is when they will be most loved by everyone.

This is the story of human hubris...a classic in Greek drama...wherein man oversteps his boundaries and brings down upon himself the fury of wrathful gods.

Bernanke, Yellen, Draghi, Kuroda - all the protagonists think they are 'wiser than God' himself. They think they know that people would be better off spending their money rather than saving it... that prices should be rising not falling...and that by manipulating up the price of financial assets -- to make it look as if they were really worth more -- they will cause real growth and real prosperity.

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"This is the first central bank sponsored near-bubble," says Montier. He calls it a 'near bubble.' We don't know if he anticipates another bigger, huge, gigantesque double bubble full of trouble, but we do. That's what we'll have when we get to the climax of this story. But not right away. We'll have to wait for another crisis to spook the feds into a whole new round of reckless and asinine activity. Then, hold onto your hats!

In the meantime, all around the world the financial authorities are using the same duct tape and wads of cheesecloth to keep the crowds quiet. Interest rates are suppressed. Stock and bond prices are distorted. And the planet's whole economy is perverted, with trillions of dollars created out of nowhere to fund unworthy, unnecessary and unaffordable projects all around the globe.

Households , corporations and governments have too much debt already. The natural thing is for the debt to be paid down and written off.

This is the 'crisis' that began in 2008-'09. But the feds interrupted the process and have been fighting man and nature ever since.

And all over the world, they are getting the same results.

From Japan - the Oedipus Rex of this show - comes news that the recession is "worse than first reported."

The Financial Times reports:

"The recession that stuck Japan after a tax increase in April was deeper than first reported, the government said yesterday, casting doubt over its efforts to boost growth in the run-0up to a general election."

Between July and September, the GDP of Japan fell 1.9%, revised upward from the 1.6% previously calculated.

"The bankruptcy of 'Abenomics' is clear to everyone's eyes," said Tetsuro Fkuyama, a policy chief for the opposition party. "Abenomics has brought about excessive yen weakening and bad inflation, hurt households and stalled consumption."

Good work, Abe. The critic might have added that whether you call it Abenomics, Yellenomics or Draghinomics, the 'nomics' are the same. So is the monumental conceit behind them. Finance ministers and central bankers claim they know what is wrong with the economy...and what to do about it. Since an economy is merely the aggregated choices of consumers, businesses and investors, what the authorities are really doing is undermining the desires and decisions of the millions of people - rich and poor. That they do so in the name of prosperity - which they can neither properly define nor measure - is comic as well as absurd.

And yet, they keep at it...and everywhere, they get about the same results. Here's another Financial Times article:

"Wages come to standstill in rich economies."

"Wages have flat-lined in the developed world as workers fail to benefit from the uneven global economic recovery.

"Average real pay in developed economies rose 0.1% in 2012 and 0.2% last year, according to the International Labour Organisation's biennial report on Global wages. Workers in several rich economies, including Italy, Japan and the UK were earning less than in 2007."

Let's see. The feds transfer trillions in unearned wealth to the rich. And they drive up prices for the middle and lower classes. Economic growth slows. Earnings stall. And debt levels get higher and higher.

We think we know how this story ends.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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