- Market participants are trained to think that government officials are smart.
- 4 time in history where this wasn't true.
- China is a vulture.
Everyone seems to think that just because the Federal Reserve and the ECB of the last 8 years have been reactive that every other major country's political figures will do exactly the same. Well to make that assumption would be to ignore a couple things. 1.) that the fact that America and Europe are most aligned with one another's policies, and Japan coming in 3rd, meanwhile China seems to be the vulture looking for its prey but will play along. 2.) that In 2008 China helped lift the world economy out of economic growth slump. But it only did that because of the opportunities in cheap commodities and a depressed economy. USA and Europe will do anything at anytime these days just to save face. But China will only do it if it benefits their economy. It's a mistake to think that China didn't manufacture Covid19 as an excuse to tank the world economy and buy up all commodities on the cheap as a retaliatory measure for what Trump did to China in 2018 with trade tariffs and Huawei. They even tried to do a second wave of coronavirus in 2021 when they pretended to close back up again hoping the world would follow suit. If you don't believe me that China was on a buying spree of commodities during 2020 crash then read this.
Since the 2nd coronavirus scam didn't work they are now going to resort to letting a little contagion go a long way to international financial communities. Remember that China's main concern are its citizen's and will do everything only to protect them. Hence why they are not taking the conventional route of guaranteeing bond holders but instead going direct to its citizens with bail out propositions. This is an attempt to cause panic not only in China but around the world so they can buy everything up on the cheap once again. China is like a masterful chess player controlling its economy with one hand and mind with no approval process, while western countries must go through a series of obstacles and listen to everyone's opinion on when or how to get something done. So is it no coincidence that decisions out of china seem conspiratorial on a single player level without much connecting of the dots.
But now lets move on to all the times that market participants could have guessed that the fed would act in what seems the most obvious way possible but didn't. Was it incompetence or plain deliberate?
Take 1930 stock market crash which was a policy mistake of tightening the money supply at an exact time the market was crashing and never reversing course. Yeah it seemed all obvious that keeping it loose on the way up would cause it to expand but you would think they would understand that the tightening of the money was the reason for the popping of the bubble and that they would reverse course instead of stepping even harder on the brakes as they did for the course of the next 5 years by making it harder for banks to access capital which in turn made them go bankrupt. Was it an immature Fed or deliberate? You would think no one could have been this stupid right? In hindsight it looks obvious right? They stood and did nothing when today's mantra is at-least do something? Amazing the mindset of conservatism of yesterday and liberalism of today. Too much of any one extreme can cause opposite catastrophes.
Take the 1970's, the federal reserve enabled the inflation of that time by keeping interest rates historically low and supporting every war and government program in sight the prior decade. They even showed their hand by severing the gold link to the dollar because of their inept logic of money printing. If it wasn't for the petrodollar link of the 1974 agreement prices would have been hyper inflationary in the back half of that decade. They thought they could raise interest rates in the mid 1970's for 2 years and that would undo the mess of the past 10 years. It took 10 years for the Federal Reserve standing by doing barely anything to finally bring in a new fed chair to bring interest rates to 20% cutting of the inflation of the 70's.
Take the 2000's. The low interest rates of the 1990's and repeal of glass steagal brought about the dot com bubble. It took them 4 years of even lower interest rates, a fake war on terror, and the Jobs growth act to help inflate the next bubble of 2008. They had no clue how to get us out of this one and had to conspire with the European union to indebt their newly formed currency countries to help reignite global growth. Which lead us into the 2008 dumpster fire.
2008 was a major colossal failure of epic proportions. The same guy (Bernanke) who couldn't see the crisis coming and specifically said Sub prime was contained and that home prices never go down led us out of the 2008 recession by forcing savers and long term bond holders to start buying equities by making it nearly worthless to invest in risk free treasuries. It took the bribing of our congress to get them to agree to bail out the banking system and in turn Bernanke still doesn't know who he loaned trillions of our dollars to.
This of course is assuming that the Federal Reserve actually was responsible for doing anything except making money cheaper and more expensive whenever it had the chance while letting the productive free market sort out the rest. QE just made assets get even more expensive than they otherwise should be.
So that leads me to my final question. You think China's communist central leaders are that smart and can figure out how to gently bail out its citizens without disrupting financial markets via Evergrande. Good luck. Without a perfect handling of the news stories that will be coming out in the coming days and weeks then we should expect a big wave of selling between now and year end. A Part of me thinks the Chinese are going to let a little contagion happen for the benefit of bringing global commodity and asset prices down so they can single handedly buy quality assets on the cheap while letting their worthless forgery of an economy settle out on its own. Basically they are trading worthless paper for assets. How revolutionary. I wonder whose playbook they are stealing from. Could it be ours?
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