Therefore you build in what's called the Old Double Debt TimeBomb Whammy, which is shorthand for an expression of the famous Austrian economist Friedrich Hayek and his followers most notably Milton Friedman.
This is a situation where governments are attempting to take advantage of negative interest rates in a low growth high unemployment rate environment and shorten their debt maturity as much as they can to reduce their debt service cost as their budget deficits continue to soar.
What this does is effectively hide the impact of ever increasing national debt burdens because all governments benefit, principally in the United States since we have the largest accrued debt, by a grey skies policy -- the maintenance of negative interest rates where they can continuously shorten the maturity spectrum of their debt.
Thus what has happened since 2008 is that although accrued deficits in all of the G20 nation-states and hence accrued national debt is rising at a dramatic pace yet the cost of servicing that debt has actually fallen over the past 5 years.
Why? Because interest rates have fallen, particularly at the short end, so dramatically.
Interest rates are no different than any other commodity. Money is per se a commodity. Interest rates are the equator of that commodity. Interest rates rise or fall depending on the demand for the commodity, in this case, money. What people don't seem to understand is that money is just another commodity like corn or soybeans and is traded as such.
Every commodity has an equator and interest rates are the equator of the supply/ demand factor of money. As the demand for money rises, interest rates increase. As the demand for money falls, interest rates decrease. The same supply/demand factors that apply to money also dictate the price of any other commodity.
The value of the dollar thus depends on its rate of return. That's what dictates the value of a currency. In other words -- how much can people earn by owning it?
Nevertheless the entire economy of the planet relies upon a belief system. The value of all currency in a fiat economy, which is the entire world, is based on the concept that people believe that something is worth something. If people stop believing that it's worth something -- then everything falls apart.
However "The People" are not going to stop believing in a fiat system because they know they can't. Nobody can stop believing. That's the nature of the fiat system. You cannot stop believing.
Nevertheless everything else works the way it's supposed to. Price is a function of supply and demand. The value of an underlying item depends on its rate of return, or -- how much money can be earned or inured by owning that commodity.
The anomaly in price action comes from so-called "risk on" or "risk off" trade, which you can hear every day on CNBC and Bloomberg. This dictates long term movements in markets.
"Risk on" simply means that when everyone is selling Dollars or Yen and buying something else like equities or commodities.
"Risk off" is when the Dollar rallies and when people are buying Dollars and selling Euros, selling Yen, selling equities and selling commodities.
"Risk on" and "risk off" is a daily phenomenon. What supports a "risk on" trade is cheap money which the central banks are creating.
That's the underlying support of a risk on trade because the cost of owning the money is less than zero.
If interest rates are at a so-called net negative real number interst rates minuis ingflation, then the cost of owning the money is something less than zero.
Therefore you take the money that is costing you something less than zero and invest it in something else.
Then there's the leverage issue which is a double-edged sword. The primary aid in creating a speculative bubble, as was done in 2005-2006, was the relaxation of the regulatory regime.
That's what allowed the last speculative bubble to be created -- the relaxation of the amount of leverage financial institutions and brokerage firms could exert.
It became a problem when leverage at the principal houses – Citi, Merrill Lynch, Goldman Sachs, etc. -- began to go up above 50:1.
Suddenly we had a speculative bubble being created on leverage of 70:1 or 80:1.
What was unprecedented about it was the ability to build such an enormous speculative bubble because it became ever more necessary to do so.
If you are exerting 70:1 leverage, a adverse movement of price of 1.5% would exhaust all your equity. To maintain increasing leverage, you have to ensure that markets never fall.
Therefore it becomes a self-feeding mechanism -- to prevent markets from falling to fall back to their underlying supply/ demand fundamentals.
You have to create even more leverage to create more buying power.
What happened at the end of the 1920s was the same as the unwinding of a speculative bubble that took the entire decade of the 1980s to occur.
That's because in the modern age of electronic trading and the ability to exert leverage through derivative instruments which weren’t even thought of in the 1920s, economic cycles have now been dramatically condensed.
It doesn't take 10 years for a secular market cycle to play out anymore.
This is what confuses the old-timers, who still want to look at markets as being cyclical bull or bear markets within greater secular trends. Everything that existed in the past isn't any good anymore.
So why is this shift in economic climate being created? Because the regulatory regime has been relaxed.
Why are interest rates being maintained at a net negative number? To prevent global economic collapse.
These are all per se stop-gap measures to prevent economic collapse and the old-timers can't get their minds around it.
Why? Because they look to the past and everybody likes to say that history repeats itself and everything happens in classic economic cycles.
The classic 18-year inflationary cycle. Or the classic 20 year secular trend. None of that is any good anymore because it doesn't occur that way anymore.
So what precipitated this change? Electronic trading was the first culprit, since it made it possible for the Unwashed to suddenly come into the markets in a way that they were never able to go into the markets before.
As we have written before it also allowed the New Era of Electro-Non-Knowledge to develop. That's why the new generation of the Unwashed were told you don't have to know anything about markets or economics to make money. It was easy to believe because they wanted to believe.
Because computers and what I call battery-operated hand held electro-contraptions became their new gods.
They were substitutes for real knowledge garnered through experience, which is something that the young always wanted to pooh-pooh.
This is the easiest way to look at it. Beginning in the 1980s, the new generation of Electro Non-Knowledge began to develop, which was at the same time that electro-technology began to advance.
Suddenly computers could do much more and this was in tandem with hand-held electro-contraptions that could do much more. This new technology got promoted to the young with the idea that "you don't have to know anything about anything anymore" other than to know how to work a computer.
What had existed before was essentially thrown out because the young didn’t want to hear it. Nobody wants to hear that the only way to learn something is through experience.
These electro-gadgets then became a short cut which was then able to enhance the trickle-up wealth transfer mechanism which the Bushonian Regime was attempting to push.
It's no coincidence that the seeds of the Electro-Non-Knowledge Generation were sown in the 1980s when the Bushonian Regime was looking to accelerate this mechanism that had always been in place.
In order to do this you have to make it easier for many more of the Unwashed to come into markets. That was done because suddenly you could open an electronic brokerage account. Suddenly a whole gaggle of Electro-Fly-By-Night Brokerages were opened up. It was done by design by the Bushonian Regime.
The technology, including computers and hand held devices, had to be advanced if you wanted the Unwashed to come into the markets in a big way because you wanted to give the Unwashed the ability to get stock and commodity quotes and to enter buy and sell orders when they were at Starbucks. This is something you couldn't do in the 1970s.
This increased the pool dramatically.
In 1975 there were only about 6 million individual brokerage accounts in the United States.
By 1985 there were about 24 million. Now there's about 40 million accounts. Why? Because it was made so easy.
So what's next?
For the rest of this exclusive column by independent political/ economic analyst Al Martin, click on to Al Martin Raw.
* AL MARTIN, author of "The Conspirators: Secrets of an Iran Contra Insider," is an Independent Political-Economic Analyst with 25 years of experience as a trader on NYMEX, CME, CBOT and CFTC. He is also currently trading the commodity futures market day and night and has a teleconferencing service to facilitate transactions in the markets. This is a service for independent market-experienced traders.
For more details on commodity futures trading recommendations and more FREE sample columns, take a look at Al Martin's website "Insider Intelligence" Insider Intelligence for weekly exclusive commodity futures trading recommendations.
Also a Kindle eBook version of "The Conspirators: Secrets of an Iran Contra Insider" by Al Martin is coming soon. And a Kindle eBook version of "One Nation under Fraud: The Collected Writings of Al Martin," a collection of Al Martin columns published on Al Martin Raw.com since 2000, is also in the works. Stay tuned...