As world stock markets have continued to climb to cyclical – if not all-time – highs, it has become almost the norm for industry Talking Heads to season their smatterings of media insight with a brief, talismanic expression of scepticism, uttered partly to appease the ever-jealous God of the Markets but mainly so as to be on record as ‘having foreseen the crash’ as and when one eventually occurs.
In an earlier Monitor, we alluded to a possible monetary reason for suspecting that the past year’s spectacular (and inflationary) bounce in Chinese revenues and earnings might have reached its high-water mark.
Here we take a more detailed look at the situation in the Middle Kingdom:-
[This article appeared in slightly abridged form in the Epoch Times under the title, ‘The Fed’s Quantitative Tightening‘]
The older a bull market gets, those who are paid to comment on it become more and more desperate for new things to say about it – a professionally pressing need which tends to split the pundits into two distinct camps, each equally one-eyed about whether prospects are good or bad.
Falling returns in the US. Tight money in China. An upswing in Japan. Deflation in India. Gold goes cold. Fretting the Fed on falling CPI and a flattening curve? No need to panic, just yet.
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Please click the link for my latest thoughts, including a look at equity margin debt, the broad symmetry between today’s richest-ever & the 1980s’ cheapest bonds, the new natgas bulls, China, and gold. 17-05-29 M4 No 2
Reuters’ story that SAFE told its banks they should be as obstructive as possible in meeting customer demands for foreign currency, but should absolute not divulge the reason why, certainly succeeded in causing a stir in markets. Continue reading
For those who will not take my word for it that banks do create deposits by lending money, let me quote you a little Roepke from a footnote (p113) to his 1936 work, ‘Crises & Cycles’:
“The process [of credit creation] is now clearly explained in any text-book on economics, banking or money (especially recommendable is Hartley Withers’ Meaning of Money). A fuller treatment may be found in the following books: R. G. Hawtrey, op. cit.; J. M. Keynes, A Treatise on Money, pp. 23-49 : C. A. Philips, Bank Credit, New York, 1920; W. F. Crick, “The Genesis of Bank Deposits,” Economica, June 1927, and F. A. von Hayek, Monetary Theory and the Trade Cycle, London,1933.”
I was recently flattered to be asked how I envisaged the dreaded ‘helicopter money’ working if it were not to simply add further to commercial banks’ already crippling mass of deadweight liabilities and assets, given that not only would printing it up in physical form be tortuous but that cash itself is only one conveniently heinous crime away from being proscribed altogether. Continue reading
As we have laid out in some detail in our professional work, it is clear that Chinese banks have entirely lost their inhibitions about creating money these past twelve months. It is equally clear that once such money is called into existence, someone must be caught in the act of holding it when a balance sheet snapshot is taken, however eager their desire to ‘pass the bad or depreciating half-crown to the other fellow’ may be and thus regardless of what the fate of that money will be an instant after the shutter has closed on the statistical camera. Continue reading
TOMORROW, AND TOMORROW, AND TOMORROW
So, one last time, let us lay out the argument developed above in the hope of eliminating all obscurity, for it is a pivotal one and therefore one which must be well understood if we are to challenge the very substance of the perilous theorizing of our Lords and Masters.
With positive real rates – which, we must again emphasize, simply imply that the instantaneous price ratio between goods today and goods tomorrow is greater than unity – the primal temptation is for the consumer to eat as much as he can, even including his seed corn, and so to yield to the pleasures of the moment in disregard of the needs of the morrow.