The current stocks/bonds game is for all the marbles, by which I mean the status quo now depends on valuations and interest rates remaining near their current levels for the system to function.
If interest rates soar and/or stocks plummet, the game is over: pension funds collapse, tax revenues drop, debt based on high asset valuations defaults, employment craters and the much-lauded “wealth effect” reverses into a “negative wealth effect” (i.e. everyone looking at their IRA or 401K statement feels poorer every month).
Let’s scan a few relevant charts to understand why this game is for all the marbles. Given the systemic fragility of the global economy, a crash in one asset class or a rise in interest rates trigger defaults, sell-offs, etc. that forcibly revalue other assets.
Central bankers are watching Marx’s dictum all that is solid melts into air play out in global stock markets with a terror informed by the scalding memories of 2008’s global financial meltdown.
Once the trap-door opens, there is no bottom without prompt action by the world’s Plunge Protection Teams–the plausible-deniability action heroes of the hyper-speculative status quo who leap into action when global stock markets threaten to melt down.
After half a decade of ceaseless saves, we all know the mechanics of Plunge Protection.
We discuss the moral sink estate that is the City of London where dealers sell debt crack on street corners and many old ladies have their pensions stolen. They also discuss the corruption of the leveraged buyout whereby now whole nations are stolen using the nation’s own assets and resources as collateral and now, with the TPP deal, the globe is about to be taken for cheap. In the second half, Max interviews investment adviser, Pippa Malmgren, a politics and policy expert who used to be Special Assistant to the President of the United States for Economic Policy on the National Economic Council and former member of the US President’s Working Group on Financial Markets. They discuss ‘shrinkflation,’ inflation and the Plunge Protection team.
Tagged with: central bank
, Federal Reserve
, leveraged buyout
, monetary policy
, pippa malmgren
, plunge protection team
, sink estate