monsterptnetYOU CAN RUN THE NEWS, BUT YOU CAN’T HIDE THE REALITY

The News

Australian leaders labouring under the invisible brain of Tony ‘Trappist’ Abbott have at last woken up to the alarming reality of Sydney property prices, a fantasy I earmarked six years ago as the most inflated house-price City on the planet.

The markets are also getting wise to Australia’s one-trick-pony mining economy, and its dependence upon a dramatically slowing China…so that the Aussies are leading the field when it comes to inflation, while the Aussie is losing its value. Deutsche Bank now rates the country one of the most overpriced and risky debt bond destinations in the world.

And yes, you’re right, this is a bit like the captain of the Poseidon warning that the towering inferno is unsafe.

On DB’s home continent, the euro too is sliding in the light of last chance Greek talks having failed. This followed the failure of the time running out talks, preceded in turn by the IMF pre-walkout talks, Greece isn’t being serious talks, the there’s no talking going on talks, and the we must have real reform talks. Given the Troika’s starting point was we press hard and then say no, the failure of the talks that everyone knew were a sham before they started talks is hardly surprising.

Anyway, having masterfully painted both sides into a corner, the Dieselboomers now find themselves wearing the dunce cap. If nothing else, it hides Dijesslbleom’s ridiculous hair.

Who’s worried now, eh? The FTSE fell last week, as did Wall St. Some observers are reporting that Janet Yellen’s planned quarter percent rise is now off the table for June. And she herself has commanded that rates will not get back to “a more normal” 3-5% range for may years” because if they do the US is broke, the Fed chair didn’t add.

But does she, any longer, have such magical powers?
 
The reality behind the news

I have an eccentric and often derided view about yields, interest rates, maxed credit cards and secured loans: they all merely different faces on the same paste diamond called unaffordable debt. Without debt, neoliberal economics can’t function, because the falling or static real salaries of consumers can’t afford the repeat purchase cycles demanded by the inflated stock markets created by QE in the first place.

Taper off QE, and everyone gets nervous. Raise interest rates and the nerves become acute anxiety, accompanied by South America going bang, the Sydney property market correcting by 30+%, and consumer spending levels dipping. Run Greece round the humiliation track a few times until it falls over, and ClubMed bond prices spike. Add a few BSDs suggesting that near-zero and negative yields are insane, and bond prices everywhere rise.

So the cost of borrowing rises....and that’s when the Friedmanightmare globalist construct starts to wobble.

Now some of this has taken place….and other bits are getting closer. But the Fed has ‘done’, as it were, nothing. There are two points I’m trying to extract here:

1. The Fed has done nothing partly because the tool box is empty – not just because it is adopting a wait and see, kindly old Yellen Owl approach to the mess out there. That’s a little concerning.

2. I doubt very much if the Fed doing something now is going to make any substantive change to the situation, other than worsening it. And that’s very concerning indeed.

I realise that this is a simplification of the situation the world is in, but I don’t think it simplistic; Ms Yellen has options, but most have failed to date – and all have massive downsides to them. We have become addicted to the US Fed doing something. But the globalists have created an economic planet upon which, by definition, any and every infection is contagious… and has a capacity for pandemic.

Resistance to odious debt and bullying technocrats produces defiance contagion. It also exacerbates bond rise contagion with regional spikes. These destroy the consuming and importing value of currencies, which in turn send net exporters to those regions into reverse. Overdependent economies supplying raw materials to the exporters slump into meltdown. Borrowing costs rise further, and hyperinflation beckons as the ‘stimulation’ required becomes akin to mediaeval tulip madness.

And in the entirety of this process, the Fed has done nothing other than wait. What else can it do? As the AIIB and other as yet half-baked alternatives to Dollar hegemony take shape, gather speed and mix every metaphor imaginable, the US needs to face an unpleasant fact: what the Fed says is important, but it’s becoming irrelevant to the bigger picture.