Nearly 3,000 years ago, Solomon reflected, “What has been will be again, what has been done will be done again; there is nothing new under the sun.” While his wisdom resonates, the emergence of negative-yielding debt might have prompted him to reconsider that statement.
Today’s economic landscape is certainly fascinating, yet it bears similarities to the past. We still find ourselves gazing up at the night sky, and like early humans, we instinctively howl at the full moon. Our daily routines remain unchanged—donning our clothes leg by leg. However, our perceptions and contexts have evolved. To illustrate, Fred Sheehan wrote in his December 2006 essay, War of the Nerds:
“Each generation falls prey to its own set of fantasies. A century ago, investors demonstrated such detachment from the repercussions of war that bond markets in London and Vienna remained unshaken following the assassination that triggered World War I.”
“Three weeks later, in the summer of 1914, the fear premium was reduced to just one basis point. Subsequently, European markets froze. Notably, no significant change had occurred—war was not yet declared, yet public sentiment was in a frenzy.”
Perils on the Horizon
The prevailing fantasies of our time are extensive and relentless. Much like those from a century ago, they will likely appear absurd in hindsight. One particularly striking notion today is that increased balance sheets from global central banks correlate with lower inflation expectations.
It seems that simple logic has been disregarded in the global approach to money supply management. How much longer can this trend endure? Clearly, this unfounded belief will eventually face reality.
The continuous expansion of central bank balance sheets, despite not causing rampant inflation yet, is not devoid of danger. Correlation does not equal causation—it may instead lead to confusion.
For instance, even the temporary acceptance of an inverse relationship between central bank actions and inflation expectations can result in significant miscalculations, misleading millions of financial transactions.
Earlier this year, bond markets transitioned from unusual to illogical. According to Bank of America Merrill Lynch, there is now $13 trillion in global bonds that yield negative returns, a stark contrast to just two years ago when this phenomenon was nearly nonexistent.
Further Indicators of an Impending Collapse
The ongoing inflation of central bank balance sheets is likely to culminate in a total breakdown of the currency system. This grim outlook seems inevitable. The potential for direct cash infusions, often referred to as helicopter drops, may only expedite this dismal fate.
Regrettably, reversing course at this juncture without triggering a crisis appears impossible. Our recommendation is to acquire physical gold if you haven’t done so already and mentally prepare for the final phase of this economic upheaval. Extraordinary developments are on the horizon.
Many stock market investors may mistakenly believe they are amassing wealth. The combination of persistently low interest rates and unthinking central bankers could ignite unpredictable market enthusiasm—who knows how much debt monetization could inflate the DOW?
There exists a real chance that the stock market will serve as a blunt indicator of central banks’ effectiveness in depleting global wealth and capital. Indicators of this trend might include: soaring stock prices amid stagnant economic growth, rising stock values alongside dwindling earnings, and increasing stock prices coinciding with falling currency values.
All these indicators are already evident. Their intensification will likely signal the final collapse.
In this twilight phase of our 45-year fiat-centric currency system, surging stock prices should not spark celebration; rather, they are a harbinger of impending doom. Keep this in mind in the upcoming months when you encounter hats celebrating DOW 20,000 on the trading floor of the NYSE.
Sincerely,
MN Gordon
for Economic Prism
