With central banks owning $25 trillion of financial assets and sovereign wealth funds owning countless trillions more, it is time to ask whether capitalism as we know it is a thing of the past.
These non-economic actors have different motivations than traditional investors who buy assets in order to earn a profit over a reasonable period of time.
Central banks are buying stocks and bonds in order to monetize government debt and keep afloat the endless Ponzi schemes required to finance massive entitlement promises to their constituents.
Sovereign wealth funds are looking for places to park their cash for extremely long periods of time and often focus on assets with trophy or strategic value.
But the most important thing these two types of buyers have in common is that they don’t have to sell, which means that their ownership can inflate the value of what they own for prolonged periods of time.
This destroys the price discovery mechanism that markets are supposed to provide. And without price discovery, markets cease to function properly.
Then the destruction starts in earnest…
Here’s Where We See This Effect in Action
Bond markets are ground zero for this phenomenon. Somewhere in the vicinity of $13 trillion dollars of global bonds carry negative interest rates, which produces the absurd and dangerous prospect of lenders paying borrowers for the dubious privilege of lending them money.
While some try to rationalize this monstrous arrangement as a sensible way to provide for the return of their money if not a return on their money, it is nothing more than government confiscation of capital.
It is a catastrophic undertaking destroying savings and eroding the capital bases of banks, insurance companies and pension funds. It speaks to a broken global financial system guided by corrupt and incompetent central bankers and politicians.
Quite a few of them were clustered together this week.
What We Heard from Jackson Hole
Leave A Comment