Those who place their faith in a sustainable economic recovery emanating through government fiat will soon be shocked. Colossal central bank counterfeiting and gargantuan government deficit spending has caused the major averages to climb back towards unchanged on the year. Zero interest rate and negative interest rate policies, along with unprecedented interest rate manipulations, have levitated global stock markets. But still, sustainable and robust GDP growth has been remarkably absent for the past 8 years.
Equity prices have now become massively disconnected from underlying economic activity, and the recession in corporate revenue and earnings growth is exacerbating this overvalued condition. Throw in the fact that earnings have been manipulated higher by Wall Street’s recent prowess in the art of financial engineering, and you get an extremely combustible cocktail.
I have been on record saying this will end in chaos and here is how I think it will unfold:
Global central banks have universally adopted inflation targets, yet claim those goals have yet to be met. This is because of the inaccurate way governments measure consumer price inflation. Nevertheless, most of the new money created has been pushed directly into real estate, equities and bonds by financial institutions; thus primarily inflating the asset prices of the rich and increasing the wealth gap. And since these economic leaders equate growth with inflation, the inability to achieve inflation targets is viewed also as the primary reason why growth has remained so elusive.
To bring inflation sustainably above the stated goals of 2% the private banking system would have to be able to push credit directly onto debt disabled consumers, which is impossible unless real income growth, after decades of falling, suddenly begins to surge; and/or consumer debt levels were dramatically pared down.
Therefore, central banks would need to inject credit directly into consumer’s bank accounts while pushing deposit rates sharply into negative territory. In order for that to be truly effective they would also have to ban physical currency. To date no central bank has dared to use these drastic measures to meet their inflation targets…although if they did, intractable inflation would be guaranteed.
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