Thursday, February 26, 2015

Kick-The-Can Has Morphed Into A Blatant Farce

By David Stockman

Kick-the-can has morphed into a blatant farce. Everywhere in the world central banks and financial officialdom are engaging in desperate, juvenile maneuvers to buy time—–amounting to hardly a few weeks at a go. Never before has the debt-saturated, speculation-ridden global casino rested upon such a precarious foundation.

This week, for instance, Janet Yellen will again waste two days of Congressional hearings in forked-tongue equivocations about an absolutely stupid issue. Namely, the exact date when money market interest rates will be permitted to blip upward from the zero bound by even 25 basis points.
But this “lift-off” drama is flat-out surreal. How could it possibly matter whether ZIRP will have been in place by 80 months or 83 months from its inception point way back in December 2008? There is not a single household or business on main street America which will change its behavior in the slightest during the next year regardless of whether the federal funds rate is 5 bps, 30 bps or 130 bps.

The whole Kabuki dance in the Eccles Building is about
hand signals to Wall Street carry traders; its a reflection of the desperate fear of our monetary politburo that having inflated for the third time this century the mother of all financial bubbles, they must now keep it going literally one meeting at a time—lest it splatter again and destroy the illusion that an egregious spree of money printing has saved the main street economy.

Likewise, it now transpires that the bruising political war of words between the Germans and the “radical” Greek government has been suspended for another few weeks. And the reason is a pathetic fear that unites the parties despite their irreconcilable substantive policy differences. Namely, that the markets will crater upon even a hint that a real solution is on the table, and that the way to keep the beast at bay is to cover their eyes, kick-the-can and hope something turns up to avert the next crisis a few weeks down the road.

Still, this is getting beyond juvenile. If there were any adults in the room they would focus on quickly shaping a workable Greek default and exist—-not on perpetuating the lie that Greece can ever recover from its debt servitude to the EU superstate and IMF.

Ironically, the fire breathing leftists who have taken over in Athens have compliantly strapped on the poodle collar left behind by the Samaras government. It seems that their game-theory spouting Keynesian financial spokesman, Yanis Varoufakis, also fears a thundering upset in the casino. So the Syriza government stumbles forward——now visibly toting the massive debt imposed on them by the Eurozone and IMF in order to bailout the German, French and Italian banks.

Indeed, in a new variation of the Stockholm syndrome, Syriza has not only embraced the views of its debtor’s prison jailors, but has actually invited them to secretly author their own attestations of subordination.  As Zero Hedge noted about today’s shocking revelations regarding the so-called Varoufakis letter to the Troika, aka “institutions”:
As it turns out, the reason why not only the Troika received an agreed to version of the Greek reform proposals “before midnight on Monday”, but rushed these through with a favorable agreement today, is that, drumroll, the European Commission drafted the entire letter!
And, no, this isn’t tin foil hat stuff. Here’s the smoking email which reveals that the “first list of comprehensive reform measures” submitted by Greece, which is actually a six-page air ball completely devoid of numbers and specifics, was actually written by one Declan Costello, an apparatchik at the European Commission.

This is all truly pathetic, but it should be a reminder that there is no escaping the global regime of central bank financial repression and state manipulation of debt saturated economies and gambling-infested financial markets.  It took Syriza all of four weeks to hoist the white flag. As on astute Greek worker commented,

 “We went through two months of agony, emptied the banks, to realize we are still a debt colony,” 54-year-old electrician Dimitris Kanakis told Reuters. “The paymasters call the shots.”
It is no different on the East Asian side of the world. Japan has reported another quarter of sputtering economic performance.  Notwithstanding the small rebound reported for Q4 based on highly implausible export deflators, real GDP is barely higher than it was in December 2012 before Abenomics launched its truly monstrous money printing spree—–a wave of QE so massive that it is literally draining the Japanese government bond market of any and all securities available for sale.

Yet, the Abe government and BOJ does not hesitate to threaten even more monetary carnage—even as the abysmal failures of current policies are reported month after month.

Historical Data Chart
In China the scene is even more tortured. As McKinsey’s charts so dramatically document, the overseers of red capitalism in Beijing have driven China into a monumental debt trap. Its massive spree of construction and fixed asset investment has created an utterly deformed economy that will literally implode unless its keeps building empty luxury apartments, phantom cities, silent shopping malls and hideously redundant roads, bridges, subways and airports. Yet whenever the short-term indicators stumble, the government finds some new, convoluted way to release more credit into the system.

This too is reaching the farcical stage. During the six-short years since the financial crisis, China has boosted it credit market debt outstanding by the staggering sum of $20 trillion or by 4X the growth of GDP during the same period. How in the world could anyway believe that China’s tottering house of cards can be rescued by piling on even more debt financed construction and fixed asset acquisition?

Source: McKinsey

Needless to say, as China veers ever closer to a crash landing, the China-dependent EM economies are rapidly faltering. It now appears that Brazil will suffer back-to-back years of GDP decline for the first time since 1930-1931.  Indeed, the China- led global commodities and industrial production boom is cooling so fast that global CapEx in mining and energy, materials processing, manufacturing and shipping is on the verge of a huge downward correction. And that will hit the high end machinery and engineering exporters like Germany and the US, creating a further negative loop in the gathering deflationary crisis.

Nevertheless, during the past week the robo-traders and gamblers have painted the tape on no volume—-and for no reason except that central banks and government officials are still lamely kicking the can. Yet in so doing, they are driving massive debt burdens and speculative manias to the verge of collapse everywhere.

Accordingly, today’s S&P index ended-up at 3.21X its March 2009 bottom. At more than 20X reported LTM earnings for the period ended in Q1, the stock market is now an accident waiting to happen—-a super bubble searching for a pin.

^SPX Chart
^SPX data by YCharts

But surely today’s news that the Greeks outsourced their so-called rebellion to the very EU apparatchiks who have put them into permanent, debilitating debt bondage is a wake-up call. As we learned in March 2000 and September 2008—–even the Wall Street gamblers eventually get the joke.


  1. Typical Stockman nonsense. His chosen start date is when the market was depressed due to a liquidity crisis. The market is up 42% from the pre-recession peak in Dec 2007. That comes out to 5.1%/year for 7 years.

    Also, we've had deflation for 5 of the past 7 months with prices plunging .7% last month. Ridiculous to pine for an interest rate hike now. If prices rose .7% in January, Stockman would spin that as an annualized rate of inflation of 8.7%/year. So we can call that an annualized rate of deflation of 8%.

    1. "The market"? Really?

      I always thought a market involved buyers and sellers engaged in price discovery based on supply and demand. If the "markets" are rigged, bond yields suppressed with six years of ZIRP, stock prices levitated, housing goosed with cheap money, and banks gambling in derivatives to the tune of hundreds of trillions with implicit taxpayer bailouts…we don't have markets. This is a casino.

      Yes, there is a good deal of nonsense, and you're clearly peddling it. Are you a troll or just delusional?

  2. "...monetary politburo ..."

    That made me smile.