"Unforeseen shock" is Fed Speak because the Fed loves the terminology like "economic shock" or "foreign economic shock." You can see how often they employ that verbiage.
So what does "unforeseen shock" really mean? Is it a euphemism for a "correction"? When they speak about shock they mean foreign shock that then has some sort of domino effect throughout the markets.
There have been increasing comments out of the Fed governors about the deteriorating situation in the Euro Zone. There's the fact that none of the European banks have signed on to the Basel III accord which is like the pot calling the kettle black because none of the US banks have done so either. Now the Fed is going to delay the Volcker Rule for another 2 years which means that US banks can continue to meet their supposed 10% Tier One capital ratios without counting anything as liabilities.
There is among financial and economic leaders a growing sense of desperation because the much-vaunted "recovery" from the last speculative bubble, the unwinding of which began in the 1st Quarter of 2008 and proceeded apace until the 4th Quarter of 2009, the subsequent so-called "recovery" has not been a recovery at all. Equity markets and real estate prices and all asset prices recovering through the application of "cheap money," i.e. monetary stimulus being pumped by the global central banks into the Hopium Cloud that now envelops the planet. In fact there has not been any real economic growth at all.
Meanwhile GloomBoomDoom.com newsletter editor Marc Faber says in a recent interview with Germany's Finanzen100, that "we already live in a financial economy in which the debt and capital markets exceed the value of the real economy by far," he said "and that's before the current formation of bubbles."
Faber also says, "The numbers speak for themselves: In 1980, the market capitalization of the U.S. stock market was less than 40 percent of gross domestic product (GDP). The debt, measured in credit markets, was about 130 percent of GDP. Today these figures are higher, according to Marc Faber many times: The market capitalization has reached over 100 percent of GDP, the debt about 300 percent..."
And he's right when measured by those statistics, but the problem with the Doom & Gloom people is that they've got egg on their face in the last two or three years because of rising asset prices that have been caused by this incessant printing of money. Consequently they've got themselves discredited to some extent because although what they say is correct -- what Faber said about equity capitalization vs. total GDP and debt vs. total GDP is right -- but as we've said before these Doom & Gloomers are not by and large "sophisticated" market traders with long established track records.
Marc Faber is like all of the newsletter writers, except he was able to garner a larger reputation for longer because he had more one-hit wonders. Like all the Gloom and Doomers, he's had to do a lot of flip-flops in the last couple of years. They say -- so hereâs all the problems, but asset prices can still rise because of cheap money, which confuses their audience because their audience is not a "sophisticated" audience. What their audience can't get their minds around is how the enormous expansion of money supply on the planet has not led to inflation while inflation keeps falling, and in fact deflation is a growing problem.
The problem started as it always does as a political problem -- not an economic problem -- in the collapse of the 2006 Bushonian Bubble. The governments that came into power including the Obama Regime did not allow -- and the old-time Republicans are right about this -- the bubble to unwind and squeeze out the so-called "excesses" of the speculative bubble. That's done by allowing asset prices to fall to what is a "naturally sustainable" level, i.e. a level that can be sustained without incessant monetary stimulus. This was not done. Instead what was done in the post 2008 regime globally is that the central banks conspired to create secondary bubbles because it was the only way they could prevent asset prices from falling to naturally sustainable levels which was politically unacceptable.
In the German Finance100, Faberâs article is called "The End of Capitalism" but that's just nonsense. There have been many attacks on capitalism but capitalism isn't the problem. The problem is the political management. Faber also says the "next time a bubble bursts, then the capitalist economic system as we know will falter."
Capitalism has become politically corrupted and has become crony capitalism. The proponent of capitalism Adam Smith like the Founding Fathers in the United States always existed in the utopian â or utopiate -- fantasy of what they thought the future was going to be.
What capitalism has been turned into, particularly in the post 1980 regime, is a "Trickle-Up Wealth Mechanism."...
The scenario from now to the end of the decade becomes--â can global central banks and governments act to gradually bleed air from the secondary speculative bubbles that they have created?
And that's what the economic future of the planet depends on.
If the governments and central banks can't even do that -- then the bubbles break -- and the post-war economic regime of debt-financed economic growth, which was designed to fail, unravels.
It only needed to last long enough to consolidate sufficient wealth and power into the hands of the "few," so the said "few" would have the power to control in a post-economically collapsed environment.
That step has now been reached.
If it comes to that, what the people rioting in the streets don't realize is that the 10%, who are in control and who will continue to be in control, now have the power to shoot them all.
For the rest of this column by Independent Political, Economic & Market Analyst Al Martin, please click here -- 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 experienced traders.
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