Thursday, April 28, 2016

Why Real Reform Is Now Impossible
Charles Hugh Smith* explains why true reform & recovery of the economy is not possible with a status quo determined to hold on to its old ways & not allow reform to take place ..  emphasis in this commentary is on the role of central banks in preventing reform from happening .. "Elevating the market into the oracle of economic health creates a systemic risk: If the market tanks, the status quo is called into question. People start asking, is it truly a wonderful arrangement that benefits us all, or is it really just a skimming machine that funnels money and wealth from the many into the voracious maws of the few? Central banks thwart this existential danger to the status quo by rescuing the market every time it approaches the market clearing event level. (see chart) In a market clearing event, risky loans and bets are liquidated, credit dries up, risk soars and the price of assets falls to levels that once again make fundamental sense. Market clearing events are a necessary part of a healthy credit and asset-allocation system. If the market is never allowed to clear away the dead wood of mal-investments, high leverage, nose-bleed valuations, bad bets and risky loans that should never have been issued, all this dead wood eventually chokes off healthy expansion. The problem for central banks is a market clearing event pushes markets to levels that call the entire travesty of a mockery of a sham status quo into question. That is too dangerous to risk, so central banks quickly defend the fantasy that markets only drift higher, stopping any market clearing event in its tracks.
This leaves the economy increasingly vulnerable to the financial equivalent of an uncontrollable forest fire that burns away all the collected dead wood that has been protected by the central banks.
At some difficult to predict point, a random financial flame ignites the accumulated dead wood and the markets are torched in a conflagration so intense not even massive central bank intervention can extinguish the flames. Structural reform is only possible when markets and sentiment crash far below the market clearing event level. Meaningful reform only becomes politically, economically and socially possible when the status quo has failed so obviously and so painfully that even its most entrenched defenders concedes that the choice has boiled down to either full-blown revolution or meaningful reforms that limit the power of the few at the top of the wealth/power pyramid."
LINK HERE to the essay

1 comment:

Anonymous said...

A Visit from the Economic Underworld Nikolai Kondratieff

Published on Apr 27, 2016

On a lazy late January 2016 afternoon in a little old cemetery at Spanish Point in Osprey Florida renowned adventure capitalist Dean LeBaron was reflecting about how history’s great economists would assess today’s zero interest rate, derivatives laden, stimulus supported, debt ridden world. Who should appear, but none other than the ghost of long deceased Russian economist Nikolai Kondratieff to confer with his sage friend on behalf of John Maynard Keynes and other famous economists in the Economic Underworld. Nikolai and Dean head to nearby Casey Key overlooking the Gulf of Mexico for a fun and enlightening discussion about the current economic state of our world, over Vodka.
At sunset, Nikolai bids Dean farewell and returns to Economic Underworld; vanishing without a trace.