Thursday, November 5, 2015

Systemic Fragility.....

Systemic Fragility

The previous Bubble was of the Fed's making, and our central bank lost control. It became a Hobson's Choice issue in the eyes of the Fed, and they fully accommodated the Bubble. These days, the Fed and global central bankers face a similar but much more precarious Bubble Dynamic: The Fed specifically targeted higher securities market prices as its prevailing post-mortgage finance Bubble ("helicopter money") reflationary mechanism. This ensured that the Fed would again be unwilling to impose any monetary restraint before it would then become too risky to remove accommodation (Einstein's definition of insanity?). In concert, global central bankers now aggressively accommodate financial Bubbles.

Global markets have the Yellen Fed petrified of even a little 25 bps baby-step nudge up from zero rates.

Tech Bubble 2.0 is raging, fueled by the loosest financial conditions imaginable – spurred along by speculative market dynamics and a global industry arms race arguably on a much grander scale than that of the late-nineties.

It's certainly worth noting that market strength continues to narrow. It's exciting – dangerous late-cycle financial market dynamics.

There is as well a powerful real economy dynamic at work. For the most part, the bull vs. bear argument has the economy either rather robust or on the cusp of recession. Most importantly, the U.S. economy is badly imbalanced.

Yet when it comes monetary stimulus fueling Bubbles and exacerbating structural imbalances, the U.S. is overshadowed by China.

Chinese officials missed their timing for reining in Bubble excess by years. I would think in terms of a Credit and Currency Peg Time Bomb.

By now we should recognize that failed experimental monetary management was the leading culprit in the so-called "worst financial crisis since the Great Depression." So what's at risk today from much more egregious monetary experimentation? With runaway Bubbles at risk or faltering around the globe, central bankers are left with a choice of pushing ever forward with monetary inflation and market manipulation – or coming clean. Clearly they believe they have no choice at all.

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