The Implied Threat of a Thoroughly Overstimulated Financial System

Traders and investors who are watching their portfolios increase in value by 20%+ every quarter will have no sympathy for this prediction. Being flat by the end of each trading day has become the default mode for millions of day traders around the world, thanks to the incredible consistency of a small set of stocks best known as FAANG.

[stock_chart width=100% symbol=FB:US,AMZN:US,AAPL:US,NFLX:US,GOOG:US]

Nobody cares why the stocks are inflating so fast and so far who is reaping the monstrous rewards. But this is a fantasy. And it will come with a monstrous cost.

And the traders raking it in hand over fist will not be paying the cost when the day of reckoning comes.

The Defrauding of America by America

Quantitative Easing began again in earnest back in September last year under the guise of a “temporary liquidity injection for repo market stability” according to the Fed’s Open Market Committee. The overnight repo market is where enterprise and financial players borrow overnight cash to cover obligations.

As of yesterday, the total amount of liquidity injected in this “temporary” injection is $187.2 billion. Recall that official quantitative easing reached a peak of $85 billion a month. By the time QE tapered off to zero again in  October 2014, the Fed had injected $4.5 trillion into the US banking system.

Quantitative Easing was first attempted after the Great Depression, which is where the idea came from. Japan experimented with QE throughout the 2000’s before abandoning it as “ineffective”.

This, however, is historic and unprecedented Quantitative Easing because of the massive scale on which it is being conducted.

Quantitative Easing basically fabricates money from thin air related to absolutely nothing, and has resulted in the persistently low interest rates that have powered the explosion in performance as companies used the cheap capital to buy back shares, effectively driving the prices higher by squeezing the supply downward.

But it wasn’t just the United States who flooded the world system with such imaginary money beginning in 2010. Because the US did it, Japan, China, and Europe all piled onto the Massive Quantitative Easing bandwagon, and saturated the world’s supply of Tier 1 capital, which forms the reserve against which banks then fractionally bank out an exponentially greater multiple of the total Tier One global inventory to financial institutions and borrowers all the way down the pyramid.

The result is the world’s total debt load – just sovereign debt – stands at $235 trillion.

The derivatives market is now worth $1.2 quadrillion. 

The excess of capitalization resulting from the QE monstrosity has caused an acceleration in the rate at which natural resources are extracted from the earth and transformed into products.

It has caused an acceleration in the pace at which we hurtle toward extinction.

It has shortened the lifespan of humanity on earth by an indeterminate quantity of time.

And it has cause the rate of acceleration to increase at a rate that is itself increasing.

This is why I bought a farm. At some point in the not too distant future, I am going to retire to that farm and grow vegetables and fruits and cannabis and meat, and wait.

James West

Editor and Publisher

James West founded Midas Letter in 2008 and has since been covering the best of Canadian and US small cap companies. He covers global economics, monetary policy, geopolitical evolution, political corruption, commodities, cannabis and cryptocurrencies. As an active market participant, James is not a journalist and is invariably discussing markets...
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