Thursday, February 4, 2016

Beware The Catastrophic Gap Between Optimism And Reality.........

Beware The Catastrophic Gap Between Optimism And Reality

The current stock market level is disconcertingly below not just the Wall Street forecasts for 2016(made just a couple months ago), but also below those made for 2015... and for 2014!

Systemic fragility doesn't respond to central bank jawboning or Keynesian claptrap; unlike those "policy tools," fragility is real. In the financial realm, fragility builds as the system relies ever more heavily on marginal lenders, borrowers, buyers and investments for its "growth." The current so called "recovery" is completely dependent on marginal lenders (China's shadow banking), borrowers (auto buyers taking subprime 7-year loans), buyers (corrupt Chinese officials buying $3 million homes in Vancouver B.C. with their ill-gotten gains) and investments (empty malls, empty factories, stock buy-backs, etc.).

The problem for "growth" based on the fragile margins is that the entire system becomes fragile as a direct result of this dependence on fragile margins. The current global real estate bubble is predicated on one condition: that the supply of corrupt Chinese officials fleeing China with ill-gotten millions to invest overseas is endless. But no supply of corrupt officials, even in China, is truly endless, and markets based on this thin edge of corrupt capital will collapse once the corrupt capital dries up.

The same can be said of marginal oil production, marginal auto/truck buyers, marginal cafes, marginal malls, etc. When fragile (i.e. highly risky) shadow banking becomes a dominant force in credit, the system itself becomes fragile.

Conventional economists are entirely blind to system fragility. There is no ready Keynesian Cargo Cult econometric formula that measures systemic fragility, so it simply doesn't exist within conventional economics.

This is why financial panics and collapses always appear (like fatal heart attacks) to be "out of the blue" to conventional economics.

The global "recovery" 2009 - 2015 was entirely based on the expansion of debt taken on by marginal borrowers.

The coming Global Recession of 2016 will trace the Seneca Cliff:






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