Here's the central banks' insane folly in a nutshell: to create new enterprises and jobs, we'll blow the world's greatest speculative bubble into an even greater speculative bubble. So in other words, we'll further enrich the top layer of the Financial Aristocracy who own the vast majority of the assets we're pushing to the moon, and by some inexplicable magic, adding trillions of dollars, yuan, yen and euros to the wealth of this elite will somehow launch a thousand new thriving enterprises which will magically hire 500,000 new workers every month.
Can we be honest for a split second and admit that the Tooth Fairy and Santa Claus look plausible compared to this insane proposition? Since there's a tiny window of honesty open, let's also admit that adding a booster rocket to the wealth-income inequality that is undermining democracy, society and the economy is exactly what we'd choose to do if our goal was destroying America. Yet this is precisely what the entire Federal Reserve policy sets out to do: boost wealth-income inequality to new extremes.
What Poisoned America? (2/18/21)
Meanwhile, global supply chains that were optimized for Globalization Heaven are incredibly brittle and fragile as a result of the optimization. Optimizing for maximizing profit means getting rid of redundancies, buffers, quality control and ramping dependence on offshore suppliers to 100%.
If you set out to design a global supply system that would fail catastrophically, creating self-reinforcing shortages of essentials and key components, you'd choose the system now teetering on the edge of implosion. Optimization is wonderful for boosting profits when everything is priced to perfection and functioning to perfection, but when reality intrudes, you find you've stripped out all those costly, unnecessary bits that enabled the supply chain to deal with a spot of bother.
Unfortunately for the central bankers, their policy of giving trillions in free money for financiers and speculators is suffering from diminishing returns: where $100 billion once had a significant effect on financial markets, now $1 trillion no longer has any effect at all, and so the only dose that causes the patient's eyelids to flicker briefly is $3 trillion--no wait a minute, make that $5 trillion, nope, not enough, make it $10 trillion, yikes, still not enough, pump in $20 trillion!
I prepared a chart (below) which depicts how diminishing returns on inflating speculative asset bubbles leads the global financial system to a cliff from which there is no return.
Though few seem to be aware of it, we're tottering on that cliff edge. The final manifestation of central bankers' insane folly is the promise that endless wealth can be yours if only you join the speculative extremes racing over the cliff. Maybe the immense herd of speculators will all magically grow wings once they're in free-fall; that's no more insane than counting on speculative asset bubbles to magically create real enterprises and jobs.
This madness is now global, so next up: global depression. The story of the past year hasn't changed: blowing an even bigger speculative asset bubble is the sure cure; the latest "fix" to the pandemic will make it go away forever and ever, and everything that was broken before the pandemic will magically be restored by the magic of ever larger and more precarious speculative asset bubbles.
Author
Charles Hugh Smith is a contributing editor to PeakProsperity.com and the proprietor of the popular blog OfTwoMinds.com. He is the author of numerous books, including Why Everything Is Falling Apart: An Unconventional Guide To Investing In Troubled Times.
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