Is Our Economy's Cinderella Carriage About To Turn Into A Pumpkin?
The past six years of expansion have been as illusory as Cinderella's magic carriage.
The clock is about to strike midnight, and our Cinderella economy's magic carriage will revert to a pumpkin. The magic of the Federal Reserve's flood-the-fields policies of zero interest rates (ZIRP) and liquidity (via quantitative easing (QE) and other programs) had an expiration date of December 2014, judging by the negative gross domestic product (GDP) in the first quarter and the deep slump in corporate profits:
There are many other indications that the Fed's magic has worn off: new orders are slumping, for example:
In a recent conversation with Chris Martenson of Peak Prosperity, I suggested that the Fed's policies were akin to monoculture agriculture.At first, slamming fields with nitrogen and phosphate fertilizers and herbicides and pesticides yields bumper crops.
In an analogous fashion, the Fed's zero-interest rate policy and massive goosing of credit appeared to work wonders on the U.S. economy: growth exceeded 2% and inflating bubbles in bonds, stocks and real estate have fueled a speculative frenzy, all based on a simplistic faith in the Fed's power to keep assets rising forever.
But the magic of flooding the fields with credit/fertilizer doesn't last forever. The soil is stripped of value and yields plummet; at some point, the returns on flooding the economy with credit diminish: only marginal borrowers and the riskiest speculations are left to exploit.
Just as insects quickly develop resistance to pesticides, the economy develops resistance to cheap credit. Since interest rates cannot fall much below zero, there are no more gains to be had from lowering rates. Since qualified borrowers have already bought a new vehicle or home, the only borrowers that are left are the ones that will default at the first layoff, medical emergency, etc.
Just as flooding a field with fertilizers and pesticides does not restore the soil, flooding the financial system with liquidity and cheap credit does not restore health to a stripmined, financialized economy. Just as monoculture erodes the soil, financialization hollows out the economy and strips away the values that underpin sustainable, healthy expansion. What the Fed has fueled is the predation and pillage of the real economy by Wall Street and financiers.
The Fed insists that Cinderella's carriage is forever golden, ignoring the increasingly obvious reality that the carriage is turning back into a pumpkin before our eyes. The Fed's magic was always a short-term fix, akin to over-fertilizing and over-poisoning our economy to create the illusion of massive growth in profits and stock, bond and home valuations.
The past six years of expansion have been as illusory as Cinderella's magic carriage. Now that the magic is wearing off, the reality is going to hit everyone who believed the fantasy of permanent asset bubbles especially hard.
(15 votes)
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Mon, 06/01/2015 - 09:02 | 6151405Headbanger
Except there ain't no prince charming this time around either
Here's the above charts for those interstsed... or not
http://research.stlouisfed.org/fred2/series/ACOGNO
That's pretty grimm, brothers.
Mon, 06/01/2015 - 09:10 | 6151426Headbanger
Forgot to add to get the YoY % change chart, click on "Edit Data Series..."
Half way down that section click on the "Units" drop box to get "Percent Change form Year Ago"
Yeah, those are some scary mofo charts!
Mon, 06/01/2015 - 09:12 | 6151438VinceFostersGhost
We shall go on to the end. We shall print in France, we shall print on the seas and oceans, we shall print with growing confidence and growing strength in the air, we shall defend our equities, whatever the cost may be. We shall print on the beaches, we shall print on the landing grounds, we shall print in the fields and in the streets, we shall print in the hills; we shall never surrender
Mon, 06/01/2015 - 09:59 | 6151592Oh regional Indian
Articles like this go to show that there is really nothing new under the sun to report regarding the global financial compact.
All the rationale has been spouted before....Fed up, FED, Policies, Wonks, easy money, ZIRP, NIRP, history, herstory, Globalization, bubbles, inflation, deflation....on and on and on ad nauseum.
But the real thing is the UPCOMING MURDER OF FIAT.
To kill FIAT, the blood oozing from the headless petrodollar will ooze right into the SDR.
And as currencies coRRAPSE like dominoes, the good IMF will step up, to the plate and save the world.
That is the pit of vipers to watch out for.
Notice this...Orangeboom Lagrade has not been in the news AT ALL (hardly really) for 2 months now, maybe more.
I can smell an inverse oil crisis brewing...
Notes to myself on six strings...
Mon, 06/01/2015 - 10:01 | 6151597PartysOver
Does that Pumpkinhave a big Ol'BTFD Smily Face carved on it. QE to Infinity. Then she blows.
Mon, 06/01/2015 - 10:08 | 6151619SmallerGovNow2
ORI, that was an awesome clip. Thanks for sharing...
Mon, 06/01/2015 - 10:19 | 6151645Oh regional Indian
Thanks SGN2 and sure thing. :-)
Mon, 06/01/2015 - 10:12 | 6151628ILLILLILLI
"Guess what, Roger. The little red needle is pointing to 'E', and while that's always stood for 'excellence' in my book, I guess it means we're outta gas...!"
Mon, 06/01/2015 - 09:50 | 6151566TheReplacement
Mon, 06/01/2015 - 09:20 | 6151462joseJimenez
Turning into a pumpkin would be something to look forward to. I think is going to turn to crap and that does not even begin to express the nightmare we're about to enter.
Mon, 06/01/2015 - 09:24 | 6151475firstdivision
Mon, 06/01/2015 - 09:38 | 6151532Headbanger
Good job dude!
Thanks!
babylonian money magick is based on fooling people's perceptions. it's quite a shock once the spell is broken. and there is no going back, though one may like to.
I guess the glass slipper was QE
Mon, 06/01/2015 - 09:09 | 6151431Headbanger
And it broke this time
Mon, 06/01/2015 - 09:11 | 6151436marathonman
QE turned the dog into a coachman, mice into horses, a pumpkin into a coach, and rags into a gown. That magic as strong as it was always had an expiration. Ding, Ding, Ding....
Mon, 06/01/2015 - 09:06 | 6151419LawsofPhysics
No. The explanation is simple, there is no true price discovery, period.
Mon, 06/01/2015 - 10:50 | 6151711onewayticket2
relative dollar strength is a driver, too.
"This tiny decline almost destroyed the economy"
Tiny declines have that effect on ponzi schemes.
If the Fed hadn't stepped in to "save" it the decline would have been much more dramatic.
Mon, 06/01/2015 - 09:08 | 6151429This is it
No shit Charles.
Now to much MORE serious stuff again...picking up from where my last sexcapade ended last time round, I'm glad to say I blew up that fat chick (pun intended). It was impossible to do anything with her, practically impossible, physically impussyble! She literally stuffed herself in my car and I never seen that before with anyone. She would have been great like 150lbs smaller...gosh >.<
Should have taken the pickup truck. You might have found out why they call the back of a pickup the 'bed'.
I keep trying to tell you, fat chicks give the best head. Do you think they'd be that fat if they had a gag reflex?
Mon, 06/01/2015 - 09:25 | 6151478This is it
But having a good head is not everything I need. With her, i'm like the moon and she's earth. Planet-like.
Tick tock Cinderyellen.
From a background in agronomy I can say CHS misses the real problem in monoculture, it's not stripping the soil of nutrients as much as the build up of toxins and pathogens in the soil. The ills of malinvestment and crony capitalism would doom their exercise even if it had a sound basis
Mon, 06/01/2015 - 09:34 | 6151513Mike Honcho
Are the issues not intertwined? The mono crop pulls the nutrients which do not get replinished by crop roataion, so the necessity for chems has an increased requirement.
Mon, 06/01/2015 - 09:11 | 6151439Bill of Rights
Hundreds gather in Arizona for armed anti-Muslim protest
Mon, 06/01/2015 - 09:54 | 6151447VinceFostersGhost
armed anti-Muslim protest
Sounds like fun!
We won't behead any little children. We promise.
I find it interesting they're picking on American Muslims, who let's be honest probably aren't going to start anything.
If these people had the courage of their convictions they'd be protesting in KSA.
Mon, 06/01/2015 - 09:26 | 6151483Motasaurus
But didn't you read the declassified pentagon documents? Radical Sunni militia are our friends and allies. That's why Hollywood has been filming their fake beheadings for them.
I'm as well prepped as I'll ever be, but not well enough.
Personally, I always hold out the hope that everything will turn out OK, even as I know in my soul that it won't.
Mon, 06/01/2015 - 09:14 | 6151446RaceToTheBottom
The US economy has a burning bag full of shit on its doorstep. Who is going to stomp out the fire?
Use the fire to burn a Bankster. Its for the children...
Don't blame the banksters, conjuring fiatsos for themselves is God's work.
Blame Putin, it's his fault.
Russia Doctored Photos in Shooting Down of Airliner, Report Finds
#gag
Monday, Monday .... hate that Monday .... SND .... Slow News Day .... need some beheadings .... or burnings !
Time for QE4, banning cash, capital controls, and a slogan or two.
Mon, 06/01/2015 - 09:20 | 6151464LawsofPhysics
The humor is in the fact that QE is in fact creating cash, hence the futility of banning cash at the same time.
All stimulus is fungible...
so many paper claims, so few real assets...
I meant paper and coin currency, but yes, QE creates cash, digital binary "cash" for the banksters - that shifts Billions onto Lloyd Blankfein's and Jamie Dimon's ledger, and Trillions in debt onto the public's.
Necessary to get rid of paper and coin currency before you do capital controls. No bank window to "take your money out", it will be trapped. You will be allowed to pay your mortgage and car loan, and spend $100/week at the grocery store.
2%-5% "stability levy" on all deposits.
Mon, 06/01/2015 - 10:23 | 6151655LawsofPhysics
Sure, in doing so they will kill the only thing that they really control, fiat.
Go ahead, kill fiat, sounds great to me.
My assets, and the assets of my tribe are safe. Fuck em.
Mon, 06/01/2015 - 09:26 | 6151485Shitgum Suicide
Hey look on the bright side. At least the NSA isn't spying on us anymaha ha hahaha ha hahahahaaa. Oh I couldn't finish that sentences without a straight face. Sorry folks.
We lied about spying on some folks.
Mon, 06/01/2015 - 09:39 | 6151531RaceToTheBottom
Direct data feed to Israel based on earlier agreements, then Israel does the analysis and sends results back to NSA.
Your data just got Renditioned...
Mon, 06/01/2015 - 09:51 | 6151571Shitgum Suicide
Is that with or without ball gag?
Supp with you gangstas... Equities will not go down and probably will double in price this year..... We all agree there is a major problem but you are expecting the wrong outcome... Dollar will be worthless and a share of stock will retain at least some unit of value in the new basket of currencies. Holding cash or gold can be restricted and or confiscated. Foos better wake up and buy equities before it doubles this year.
Mon, 06/01/2015 - 09:43 | 6151519muleskinner
You have to understand that the paper money needs to be printed on good paper with good ink, an impeccable engraving format, completely error free, and with meticulous detail. The fiat has to have charm and appeal. Paper money from the US Treasury is the coin of the realm. Righteous, cool fiat. It is what everybody wants. It is imperative to print even more every day of the week. You have to do what is expected of you and the job never ends. Print until the cows come home. The Canadian polymer 20 and 50 dollar notes are cool. One is worth twenty or fifty dollars. The Zimbabwean 100 trillion dollar note just didn't look good, so it was rejected, otherwise, you would have a shitload of money.
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