Central Bankers Want You to Hold On to Straws and Sticks

Today I look at one my favourite childhood stories, the Three Little Pigs and the Big Bad Wolf. I note how in some versions of this fable the wolf is made out to be a kind character and how today’s Central Bankers are also made out to be working in the public’s interest but deep down they are Big Bad Wolves too. I look at how the response to the recent turmoil in the markets has been for more monetary and fiscal stimulus and how that means solving a debt problem with more straws and sticks instead of with bricks.

My conclusion is that if one wants to base a solid financial and monetary foundation one needs bricks of gold and silver and not straws and sticks or debt-based paper assets.

See Also: (Maneco64) – Market Mayhem as Oil Drops 30%, Stocks Go Limit Down and Treasury Yields Sink Further

Today I cover the unprecedented action in the overnight markets and how crude oil dropped the most since the first Gulf War. It appears that OPEC’s existence is in questions as the Saudis have decided to go all out and increase oil production. As if the drop in oil prices was not enough we have seen the index futures go limit down or down 5% overnight as the Dow futures dropped as much as 1500 points. We have also seen the 10-year Treasury yield plummet down to 0.318%.

It looks like the bursting of the Everything Bubble is finally at hand and, in my opinion, the Central Bankers’ interventions will be proven to be futile as time goes by.

Also: (Maneco64) – Will We Witness a Financial Collapse or Japanese-Style Muddle Through?

We will be discussing whether what we are witnessing in the financial markets these last couple of weeks is just a much-needed correction in the stock market or whether it is actually the beginning of a much bigger crisis. A sudden collapse would, of course, be very disruptive but would also cleanse the system of a lot of malinvestments, excess credit and leverage. A Muddle-Through scenario is what the Powers that Be, Wall Street and mainstream economists would hope for. They think we can emulate the Japanese experience of the last three decades of keeping a Zombie financial system going at the expense of the real economy.

The Central Bankers and politicians think they can keep inflating the debt bubble and lumber the public with even greater debt and they point to the fact that Japan has been able to do so as their public debt is over 200% of GDP.

Also: (Maneco64) – Stock Market Troubles Spillover into the Credit Market

Today I look at how the big drop in the stock market we have since the end of February is starting to spill over into the corporate bond sector which is the spigot for the credit that keeps the modern-day economy running. The other factor that could continue to create havoc in the corporate bond markets is that there is almost $3.5 trillion of debt or bonds that are rated just above junk and therefore are one downgrade away from becoming “fallen angels”. Back in 2005, potential “fallen angels” added up to around $670 billion.

So even though the major stock averages eked out small gains for the week the corporate bond market and the government bond markets are pointing to more trouble ahead for the financial markets and the economy.