by Chris Martenson
The central planners are in a state of fear and panic. They are trying everything and anything to create market validation for their policies, watching with trepidation as their favored economic metrics fail to respond to all of their frenzied efforts.
They are so far over the tips of their skis right now that there’s nothing they won’t do. They’ve summarily thrown granny under the bus because they have this idea that negative real interest rates are the cure. The cure for what? The massive amounts of debts and imbalances their prior policies caused. So savers are punished in the pursuit of policy. You know, ‘for the greater good’ and all that.
They’ve spurred the greatest wealth gap ever in US history, greater even than at the extremes of the Great Depression, apparently without the slightest concerns for Plutarch’s ancient admonition that “An imbalance between rich and poor is the oldest and most fatal ailment of all republics.”
They’ve even gone so far in Europe as to now force negative nominal interest rates on savers, dispensing with their usual slight-of-hand of letting inflation steal from each unit of currency in their system. When you’re panicking, there’s no time for subtlety.
They look the other way as “someone” dumps huge amounts of gold contracts into the wee hours of the night, seeking one thing and one thing only: lower prices. But that’s okay because the central banks destroyed price discovery a long, long time ago. First by invalidating the price of money itself (by driving interest rates to zero), and then in everything else — most importantly risk.
The Federal Reserve, the Bank of Japan (BOJ), and the ECB have decided that they want you to take your money out of your bank account and place it into the stock market. Apparently they have models that say this is a good thing. Or they just want you to spend it. And to be sure that you follow their wishes, they don’t leave you any better options — and so virtually every hard asset has been targeted for price suppression. Except real estate because, hey, you have to borrow a lot of money from the banks for that, so they encourage and cheer your participation there.
In short, everything the central planners have tried has failed to bring widespread prosperity and has instead concentrated it dangerously at the top. Whether by coincidence or conspiracy, every possible escape hatch for 99.5% of the people has been welded shut. We are all captives in a dysfunctional system of money, run by a few for the few, and it is headed for complete disaster.
To understand why, in all its terrible and fascinating glory, we need look no further than Japan.
A Black Swan Flaps Its Wings
Back in 2012, Japan was my favorite candidate to be the black swan of the year — meaning it could shock everyone and flip our reality to a new state. Of course, this has taken longer to play out than I initially thought.
However, here in November 2014, the world finally seems to be on the verge of waking up to the inevitable financial disaster that stalks Japan.
Japan is really in no better or worse shape than the rest of the developed world. But is a few chapters further along in the story, which means it holds both explanatory and predictive power for most of the developed nations. This is why we should study it closely.
The mystery, as always, is how so many participants are willing to pretend all is normal with Japan; merrily buying and holding Japanese yen and government debt instruments.
In a nutshell, every single monetary, economic, fiscal and demographic trend is working against the very goals that the Bank of Japan, in cahoots with the Japanese government, is trying to attain.
To make this clear, first, we’re going to sketch the outlines of predicament and then, next, examine what will happen when it all finally breaks down.
The Halloween Massacre
On Friday, October 31 2014 the Bank of Japan (BOJ) made a surprise announcement of a major new policy move that was specifically targeted to have maximum impact on the markets.
But it wasn’t a unanimous or popular decision:
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