MEAN FREE SPIRITED
Where’s the money going? Trillion here, trillion there…….money supply in the US last week surged by USD363BILLION, in one week, out of thin air!
We’re not going to go through the where’s it going story again but make no mistake, the global bureaucracy is the major beneficiary of the Covid crisis.
We’ll get into the numbers in a minute, suffice to say, haven’t see too many government departments shut down, so far, in fact some have had their funding supercharged, whatever it takes, right?
We were not surprised at this month’s commentary from BoomGloomDoom’s Marc Faber, and the fact that he directly points the finger at the cost and the beneficiaries of this Covid fiasco.
The place to start unpacking this little bureaucratic side effect is, in case you haven’t noticed, Central banks are in “whatever it takes mode” to keep asset prices where they are/were.
In simple terms, if asset prices have been sliced by 20 trillion, does that mean 20 more trillion needs to be printed to keep them “high”?
Is the system really so fragile?
So, back to Marc Faber (MF), he estimates whatever is printed globally, the “deep state” intermediaries, including and especially “the Bureaucracies” are in the box seat for a little 10 -20% “commission” on the total money created.
MF: “Now, let us assume that in 2020, the fiscal deficit of the world will be around 10%. In other words, 10% of the world’s GDP of $85 trillion equals about $8.5 trillion, which the central banks will have to finance.
Above, I stated that equity markets have lost approximately $17 trillion from the top. Adding the $17 trillion to the $8.5 trillion global fiscal deficit gives us about $25.5 trillion, which central banks would have to cough up or print for bonds to remain at the present level, and for equity markets to recover to their previous highs.
Copernicus already pointed out that the problem with money printing was that the printed money would not flow into the economy evenly. Therefore, we need to now contemplate as to where these $22.5 trillion will flow to. What I know for sure is that only very little of this huge sum of money will flow to the poor of this world who live in inhuman conditions in refugee camps in Bangladesh and in slums around the world’s largest cities.
Likewise, I also know that global bureaucracy (governments) made out of a viral infection/pandemic with a considerably low mortality rate, a global economic crisis no one could have imagined a year ago. At the same time, the blame game will intensify. Currently, the villain is China.
Even under the assumption that the global bureaucracy is honest (an erroneous assumption) they will take a little “commission” on the $22.5 trillion in the amount of between 10% and 20% – that is between $2 and $4 trillion. The global bureaucracy (deep state) is the primary beneficiary of the crisis.
The deep state will increase its size, scope, its power, and its salaries, and the poor will be the losers”.
Upon reading the above, if you concluded this monetary madness leads to some kind of socialist “utopia”, you were wrong… only about utopia.
The funny thing is, it was the bureaucratic response to the last crisis that got us into this pickle, the pickle that most investors don’t even realise they’re in.
Too much easy money and low interest rates encourage more debt and leverage, same problems of the past but 10x bigger.
Property here in Australia remains our greatest systemic risk, but the leverage taken on by corporate America for the vison of trickle down stability through rising share prices and bonuses completely dwarfs any thing of the last 10 years, but for the spending of the US, Japan, European and Chinese Governments themselves.
See a pattern here:
There will be blowback.
Like, did you know that Oil went to minus USD40 on 20 April and is likely to be worse sometime in May?
Things are a bit full. Check the tankers “waiting” off Singapore. This is the same wherever you look!
Imagine an Oil company paying you to fill up your car? Sounds ludicrous, and it is. But so was “negative” interest rates.
It’s just another result of ultra-lose money, created in order to maintain the illusion of “THE RECOVERY”, Lord Helmet.
We have this to say about that.
More from MF:
“on the day when you will be asked by your kids about the current slump your impromptu answer might be that well, “it was all caused by the Coronavirus.”
But your inquisitive grandchildren might further ask: “how was it possible that such a minor pandemic in terms of mortality rates created such global economic calamity?”
You will then have to explain that the recovery which followed the Great Financial Crisis (GFC) of 2008/2009 was artificial in the sense that it was financed with debts, and involved fiscal deficits and money printing, which created an extremely vulnerable financial system”.
Could really end this note with the illustration above.
But wait! There’s more.
The effort to maintain asset prices in the face of disintegrating income is the ultimate folly of the “now”.
If you think a “restart” of the global economy is so simple after the last 3 months you really need to rethink your thesis and where the information is coming from.
At best, maintenance of asset prices by central banks in the face of dwindling income and global GDP makes a bad situation even worse.
But hey, when Plan Z is to do 28 times more than Plan A, despite the failure, what could go wrong…
It is simply a matter of time.
On a brighter note, for those that got this far and understand why oil can trade in the negatives due to storage constraints bought on by producers forcing speculating bunny’s to take delivery, welcome to gold.
Gold, where the opposite to the current oil situation can happen.
People standing for delivery in the knowledge of there being no supply!!
That should take care of this type of behaviour below.
15,000 contracts pushed through in a few minutes with a 1.15BILLION notional value is not someone looking for “best price”!!!
Enjoy the show.
