What goes up must come down…that’s what it means.
I read certain financial commentators most days…and many have been asking why, or rather how, so many of the markets across the planet are at all time highs. The Australian market has been close to all time highs. This week Central Banks have been extracting support for certain markets across the world – google it yourself and you will see – and the result is loss of confidence in some places and a sell-off. That is what happened in Australia. However, that lead the commentator to make a much more important point:
The end of capitalism…this is by Nick Hubble…
Can central bankers paper over any problem in just the right way? If a bank goes broke, they finance the bailout. If a government goes broke, they buy the bonds. If the stock market falls, they buy the stocks. If unemployment rises, they print more money. If the currency rises, they announce more QE. If inflation rises, they taper.
In such a world, more central bank action is a remedy for all symptoms. But it also destroys the patient.
If central banks own, or stand ready to own, just about all financial assets, then prices no longer reflect anything meaningful. The stock market doesn’t reflect shareholder value, corporate finance or anything else used to signal rational economic behaviour. Governments no longer have to worry about fiscal accountability whatsoever. At least the ones who can issue their own money.
In such a world, prices are meaningless and there is no accountability. The two functions of capitalism are to allow prices to direct economic behaviour and to provide accountability for those who waste resources – make a loss.
Not that many people will notice the change. The stock market was only ever a casino to them. Governments and central banks exist for bailouts. Debt was a way to pay for something un-affordable. Prices were unfair.
In an economy reliant on central bankers to the point where capitalism is dead and its basic accountability functions are gone, two things will happen. Crises and a reset. You see, governments don’t let crises get out of hand. At some point they change the rules and create a new system.
Bretton Woods, the dollar reserve system and many other such “resets” have happened in history. They usually have dangerous consequences for people with accumulated wealth. You need to opt out a chunk of your wealth from the current system.
That might seem rather difficult. How do you definancialise your life? How do you hide from the government’s grasp?
Gold is the go to option. But there’s another obvious solution that’s already working well for the Chinese, Venezuelans and Japanese.
What is that OTHER obvious solution…?
You are going to have to wait until next time! This is about to get interesting…!
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