Financial Markets "In Love With Central Bank Tactics"

by JASmius


Rather like a heroin addict is in love with his next hit:

Financial markets have grown addicted to central bank easing, and that addiction could cause a heap of trouble when central banks tighten the credit spigot, says Mohamed El-Erian, chief economic adviser at Allianz.

Which, of course, is why that credit spigot will never been tightened.  Indeed, they dare not, for both (conventional) political and economic reasons.

"The market is in love with the central bank trade because it has paid off," he told CNBC.

More like it's enabled them to escape inside an economic fantasy where this so-called "bull market" is actually real and supported by genuine economic growth, instead of the permanent economic depression that exists back in economic reality.

The Federal Reserve has kept its federal funds rate target at a record low of zero to 0.25% since 2008. And experts agree that has played a major role in the six-year bull market that has seen the S&P 500 index triple.

Ya think?

But now the Fed has begun to reduce its stimulus. Many economists expect it will begin raising interest rates in September.

Not a chance in hell, folks, not a chance in hell - unless The One needs that Final Crisis to exploit.

And he will.

"It reminds me a little bit of 2007 and 2008," when investors tried to discern when the turn would come away from easy credit conditions, El-Erian said. "I'm not so confident that I will see the turn coming, and turns tend to happen quite quickly."

In 2008, of course, the global financial system suffered its worst crisis since the 1930s.

Which put Barack Obama in power, and which is but the prelude to the even bigger, unprecedented crisis that will keep in him power forever.  What form that will take is a matter of conjecture, but given the intractable deflation and engineered economic depression that has resisted the most stupendous currency debasement attempts by the Obama Fed, my paycheck - if I still had one - would rest upon a tightening, raising rates, and sending the Dow into another, this time bottomless, free-fall, leading the public to panic and cry out, as it always does, for the government to "do something".  And his imperial majesty will be only too happy to oblige.

Even in a conventional American political framework, though, there is still a use for an engineered economic crisis - to wit, timing it in such a way that it hits right after a President Scott Walker takes office, enabling the media to blame it and frame it on the GOP yet again, paving the way for Julian Castro's ascension in 2020 instead of 2024.

Either way, the phony scab is going to be torn off of this mortal economic wound, and soon.  Those of us who saw it coming will have the pyrrhic solace of, once again, being able to say, "We told you so!" with our oppressed, impoverished, starving, dying last gasps.