What Could Pop The Everything Bubble?

A crisis that can't be solved by just printing more dollars
Saturday, October 28, 2017, 12:37 AM

I’ve long held that if a problem can be solved by creating $1 trillion out of thin air and buying a raft of assets with that $1 trillion, then central banks will solve the problem by creating the $1 trillion out of thin air—nothing could be easier.

This is the lesson of the past eight years: if a problem can be solved by creating new money and buying assets, then central banks will solve that problem.

Problem: stock market is declining. Solution: create new money and buy, buy, buy stock index funds. Problem solved! Market stops falling and quickly rebounds as “central banks have our backs.”

Problem: interest rates are inhibiting lending and growth. Solution: create a few trillion units of currency and buy enough sovereign bonds to drop interest rates to near-zero.

Problem: nobody’s left who can afford to buy the new nosebleed-priced flats that underpin China’s miracle-grow economy. Solution: create new currency, lend it to local government agencies who then buy the empty flats.

Problem: stagnant employment and deflation. Solution: create a trillion in new currency, buy a trillion in new government bonds that then fund infrastructure projects, i.e. bridges to nowhere.

And so on. Any problem that can be solved by creating a few trillion out of thin air and buying assets will be solved.  The mechanism to solve these problems—creating currency out of nothing—is like a perpetual motion machine: there are no intrinsic limits on the amount of new money that can created at near-zero interest, as the interest payments can be funded by new money.

Even better, the central bank (the Federal Reserve) buys Treasury bonds with the new currency that generate income, which is then returned to the Treasury: a perpetual-motion money machine!

The policy of creating trillions in new currency and buying trillions in assets has inflated an everything bubble, a bubble in all the asset classes being supported or purchased by central banks and their proxies.

Many observers wonder what, if anything, could pop the everything bubble.

This leads to an interesting question: what problems can’t be solved by creating another trillion and buying assets?

What Problems Can’t Be Solved by Creating Another Trillion and Buying Assets?

The past eight years have created the comforting illusion that essentially all problems in the modern era of globalized, centralized, debt-based, state-cartel capitalism in all its flavors (Chinese, Japanese, European, American, etc.) can be solved by creating as many trillions as are needed (whatever it takes) and buying assets or issuing guaranteed lines of credit with the new currency.

But there are some structural problems that can’t be solved by this mechanism. Some are primarily economic, some are primarily political-social, but all of them affect the entire system, not just the financial realm.


We’re told that inflation—the loss of purchasing power of a currency—is near death and this greatly saddens the globe’s central bankers, who desperately need inflation to push wages higher and reduce the burden on debtors.

So let’s say, just as a thought experiment, that central banks get their much-desired inflation, but it runs hotter than their 2% annual target.  Once inflation is embedded in expectations and the supply chain, printing another trillion and using it to buy stocks, bonds, empty flats, etc. won’t make inflation go away.  Rather, the inflation in asset valuations generated by endless central bank buying of assets ends up feeding real-world inflation as all this new currency doesn’t actually produce more goods and services; it simply expands the supply of currency sloshing around the world looking for speculative yield.

The chorus of voices advocating for Universal Basic Income (UBI) is growing, and central banks will increasingly be pressured to issue new currency to fund UBI and its equivalents—what’s known as helicopter money, as the central bank issues currency that then funds deficit spending, i.e. the government dropping cash into the real economy.

Helicopter money comes in a variety of forms: debt forgiveness, negative tax rates (i.e. tax rebates to those who owe no income taxes), and cash stipends such as UBI. In every case, this helicopter money doesn’t expand the supply of goods and services; all it does is expand the funds available for consumption.

While China may be able to export deflation in goods that are tradable, that is, commoditized goods that can be made anywhere and shipped to markets elsewhere, nontradable goods and services such as local government services, housing, groceries, fast food, most healthcare services, haircuts, education, etc.—the bulk of the real economy—soar in price as the supply of money expands faster than the supply of these goods and services.

This is why inflation is already running extremely hot in nontradable sectors (which are often dominated, funded or controlled by the public sector/government), while deflation is still visible in tradable goods such as TVs, software, etc. I covered real-world inflation rates in The Burrito Index: Consumer Prices Have Soared 160% Since 2001 (August 1, 2016))

Much of the real-world inflation in sectors such as healthcare is invisible to protected classes because it’s being absorbed by employers and the government, a topic I covered in Inflation Isn't Evenly Distributed: The Protected Are Fine, the Unprotected Are Impoverished Debt-Serfs (May 25, 2017)

Real-world inflation is also distorted by hedonics and substitution, tricks that lower the official rate of inflation but don’t change the reality that the average prices paid for vehicles have risen substantially, despite the official claim that vehicle prices have been flatlined for years, a topic I addressed in About Those "Hedonic Adjustments" to Inflation: Ignoring the Systemic Decline in Quality, Utility, Durability and Service (October 11, 2017)

Be Careful What You Wish For: Inflation Is Much Higher Than Advertised (October 5, 2017)

As political pressure on central banks mounts to fund QE for the people, QE for Main Street, etc., that is, helicopter money in one form or another, the introduction of new currency into the real economy has the potential to make real-world inflation undeniable.

Once inflation is undeniably in the 5% to 7% range, who will be willing to buy a negative-interest rate bond, or a bond paying 1%?

Another potential engine of inflation that’s widely discounted is global shortages of key commodities such as oil, grain, fresh water, etc. The global economy has come to view cheap, abundant commodities as the natural and permanent state of affairs, but history tells us that abundance and low prices are not permanent.  Since essential commodities are integral to the global supply chain, any price increases due to scarcity or supply disruption quickly feed inflation into the entire supply chain.

Inflation is a problem that creating another trillion won’t solve; creating and distributing another trillion or two will actually make the problem worse.

Rising Social Disorder Due to Soaring Wealth-Income Inequality

Famed financer Ray Dalio recently penned a commentary labeling the divergence of the wealthy elite from the bottom 90% The Most Important Economic, Political And Social Issue Of Our Time.

This is a topic many alt-financial bloggers have covered for years; I’ve penned dozens of essays on the topic, most recently The Fading Scent of the American Dream (October 16, 2017)

This chart depicts the inconvenient reality: central bank currency-creation-asset-buying has enriched the top of the wealth-power pyramid, with limited trickledown to the top 10% and negative effects on the bottom 90%.

The consequences of this outcome of central bank stimulus-for-the-already-wealthy can manifest in all sorts of ways.

Political pressure on central banks may grow, forcing policy changes or even limiting the scope of central bank largesse to banks and financiers.

Social movements demanding UBI and other income-distribution policies may become mainstream, a dynamic that as described above will add to the inflationary pressures building in the real world.

Once again, creating another trillion and buying more assets held by the wealthy won’t fix this problem—it will only make it worse.

Fragmentation of the Elites

As I have often noted, historian Michael Grant identified profound political disunity in the ruling class as a key cause of the dissolution of the Roman Empire. Grant described this dynamic in his excellent account The Fall of the Roman Empire, a book I have been recommending since 2009.

The chapter titles of the book provide a precis of the dynamics Grant identifies:

The Gulfs Between the Classes

The Credibility Gap

The Partnerships That Failed

The Groups That Opted Out

The Undermining of Effort

I’ve discussed profound political disunity in dozens of essays since 2009, for example, When Did Our Elites Become Self-Serving Parasites? (October 4, 2016)

The Real Trouble Begins When Rising Inequality Splinters the Elites (October 22, 2015)

There are a number of manifestations of profound political disunity we can discern:

-- The splintering of the technocrat class as soaring wealth and income inequality narrows opportunities for financial security for the class that considered security and wealth a birthright.

-- The fragmenting of the Deep State, the unelected, permanent leadership of the Establishment, a subject I’ve addressed since 2014: The Age of Disintegration: Political Disunity and Elites At War. (November 21, 2016)

-- The fragmentation of the two political parties into warring camps that have little common ground in a struggle for control of the rising tide of populism.

-- The splintering of the social order into conflicting classes of Haves and Have-Nots, a topic I covered in America's Nine Classes (April 13, 2015).

Once again, creating another trillion and buying assets—a policy that enriches the financial elites at the expense of every other class and elite—doesn’t solve the problem, it only makes it worse.

Popping the Everything Bubble Created by Central Bank Currency Creation-Asset Buying

As central bank creation of currency and asset purchases fail to solve the problems outlined above, these dynamics will undermine the status quo rather than prop it up.  As central bank policies are increasingly fingered by the mainstream as the source of soaring wealth-income inequality, central bank policies supporting credit/asset bubbles will either be limited or cut off, and at that point all the credit/asset bubbles will pop.

In Part 2: What To Invest In When The Everything Bubble Bursts, we lay out our how to best prepare for the social discord, political disorder and financial upheaval that will result when the central banks inevitably lose control of the system.

As today's bubble-drunk asset prices start plummeting, what investment opportunities will offer the best returns?

To find out, click here to read Part 2 of this report (free executive summary, enrollment required for full access)

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JohnH123's picture
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Posts: 39
Bond Market Exodus?

Is it possible that interest rates will rise, and the bond market will go down, and people will sell bonds and put that money into the stock market, thereby keeping the stock market going up for a long time?

LesPhelps's picture
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A Decline in Morals?

When Did Our Elites Become Self-Serving Parasites?

It's not just the elites.  The abuse of the disability benefit system by the working class, among other things, leads me to believe that almost everyone is trying to scam or manipulate the system in one form or another.

It's as much instinct as knowledge, but I feel like it is, by and large, a morally challenged global society that will be adressing the looming challenges.


charleshughsmith's picture
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Maybe--but historically,rising rates crush the stock market as investors flee low-yield, higher risk stocks for new higher interest bonds. I suspect sector rotation will fail as everything is correlated now.

Uncletommy's picture
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I suppose I'm just being an alarmist!

charleshughsmith's picture
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noworries, Fed has our backs!

Agreed, Uncletommy--that soaring margin debt being dumped into stocks, no worries, the Fed has our backs...  it makes perfect sense to pick up dimes in front of the steamroller, it's totally safe, in fact anyone who doesn't scoop up all the free dimes is crazy. It's like all those fish flopping around now that all the water has magically drained from the bay... (sarcasm off) 

Cornelius999's picture
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History isn't always Bunk!

Great analysis Charles.  History isn't always bunk!

TimothyPMadden's picture
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Misuse of the word "loan"

Hi: While I am onside with the general message and warning, I find it increasingly difficult to follow economic and financial arguments due to heavy misuse of the word "loan" and the absence of the term "advancing credit" which itself is more accurately and precisely "reinsuring credit". Banks are not "lenders" - they are credit reinsures who obtain credit from nominal debtors via promissory notes etc and then reinsure that credit in favour of the vendors. The following is an excerpt from a much longer piece that I am currently working on that explains the basic problem as founded in what I call "cogno-lingusitics".

Very briefly, humans are psycho-linguistic or cogno-linguistic. We perceive reality very largely as a function of the language that we use to describe it. Most everyone inherently believes or assumes that you have to be able to think something before you can say it. The greater reality is that, above a certain base level of perception and communication, you have to be able to say something before you can think it.



Lender versus creditor; loan versus advance

Lenders make loans, which they pay for by: 

  1. pre-existing money/equity already earned and possessed by the lender,
  2. assumption of risk, and 
  3. administrative overhead.

Creditors advance credit, which they pay for by:

  1. assumption of risk, and 
  2. administrative overhead.

It costs at least a billion dollars to loan a billion dollars, and the lender walks away from the transaction a billion dollars poorer in terms of immediate purchasing power, because now the borrower has it, and the lender does not. A lender incurs a net depletion of its existing money assets by making a loan.

It costs at least nothing to advance a billion dollars of credit, and the creditor walks away from the transaction a billion dollars richer than the instant before, because now they own the debtor’s security, plus the debtor owes them a billion dollars that the creditor did not even possess the instant before. A creditor obtains a net increase in its money assets by making an advance of credit.

A billion dollar loan instantly costs a lender a billion dollars.

A billion dollar advance instantly advances or gains a creditor a billion dollars.

Yet not one man or woman in 10,000 even appreciates that there is a difference; that a loan is vastly more expensive to one of the parties, than an advance of credit, because of the added cost of the money itself. Yet legal documents, securities, mortgages, credit-card contracts, newspapers, TV and radio media, court judgements, all of it - all use the word-pairs lender and creditor; loan and advance, cross-interchangeably for what is objectively the single greatest distinction to be made on Earth. I had done so myself for years without realising it (and on occasion still do – it takes persistent mental discipline to avoid it).

“Mr. Banker, that $1 billion transaction that you just completed – did it cost you $1 billion? Or did it gain you $1 billion?”

Banker: “Cost, gain; what’s the difference? You just need to get back to work and leave the complicated philosophical questions to us. As the president of the Anthracite Coal Trust/Monopoly, Mr. George F. Baer, so aptly put it in 1902:

“The interests of the labouring man will be cared for, not by the labour agitators, but by the Christian men [read: inherited wealth] to whom God has given control of the property rights of the country.”

Among the foundational elements of broadly-defined English law, which still dominates most of the planet (including the U.S.), is the concept of what the judges of the civil/money courts call ones station in life. Under such doctrine, if you were born poor, then it is because God wants you poor, and it is deemed a morally wrongful act for the law to actively assist you to escape God’s will. The English language - including and especially legalese and the language of finance - has concurrently developed so as to mould our perception of reality consistent with that principle.

A closely-related collateral or converse principle or doctrine is the avoidance of unjust enrichment whereby the law holds it as a wrongful and harmful act, of itself, for a living human to get something for nothing (except via inheritance/God’s will). This was also the ground for the original prohibition against financial lotteries, which were portrayed as an attempt by the poor to escape God’s will that they be poor.

A foundational exception/precedent was created, however, and ratified by the House of Lords in 1830 (The Amicable Society for a Perpetual Life Assurance Office v. Bolland et al. [1830] 4 Bligh N. S. 194) under which it was argued by lawyers for the financial institution, and accepted by the judges of the Court, that a corporation owes a duty to its shareholders, wherever possible, to seek and obtain unearned/unjust enrichment, even if it has to commit a tort (an otherwise actionable wrongful act) and/or breach its contract(s) to do it. The Lords agreed.

After establishing this schism in our aggregate and/or collective minds, the commercial law system has slowly massaged and shaped our perceptions of reality to accept the unearned enrichment of a human as a wickedly wrongful act (unless they are already wealthy), while simultaneously accepting the same unearned enrichment of a corporation (and therefore its management and owners) as the epitome of virtue.    

Law is a necessary….What?

Answer: Evil.

Equity means to do what is right according to conscience. Equity means virtue. Law means to take what someone else produces, by force or coercion. Law is and is recognised in law as an inherently evil thing and which must be very carefully administered. The only argument to be had is as to the extent to which it is necessary.

But the masses of humanity were dead-in-the-water the instant the entrenched-money-power deceived us into intellectually classifying the rule of law or rule of force or coercion as an inherently good thing to be worshipped as a religion.

Consider now the following purported definition of “Loans” from the Handbook of the Canadian Institute of Chartered Accountants (CICA):


(a) Loans


Financing arrangements whereby an enterprise provides funds in a creditor/debtor relationship. These include financing instruments which are classified legally as equity but where the substance of the instrument reflects a creditor/debtor relationship.


First, the CICA is not defining “Loans” but “Credit”. Loans, properly defined is to the effect:


Money transferred from a lender to a borrower, with a corresponding reduction or depletion in money assets held by the lender.


Note especially the thing being officially defined - “Loans” - and yet the immediate default by the controlling minds of the CICA is to label the result a “creditor/debtor relationship” (i.e., and not a “lender/borrower relationship”). So the CICA does not even provide a definition for “Credit” and immediately cross-confuses the two in its definition of “Loans”.


So what is this cogno-linguistic abomination provided by the CICA?


There are several layers of deceit and fraud in the so-called definition. The first is evidenced by realising that the term “enterprise” can only refer grammatically to the party (nominal-debtor/creditor-in-fact) who provides the said “financing instruments” which is normally the promissory note and mortgage. So with substitution we get:


Financing arrangements whereby a nominal-debtor-but-creditor-in-fact provides cash-equivalent money assets to a nominal-creditor-but-debtor-in-fact. These include promissory notes and mortgages which are classified legally as equity but where the writings have been falsified by the nominal-creditor-but-debtor-in-fact to claim a lender/borrower relationship the other way and contrary to reality/equity.


Also note that by substituting the logically necessary parties into the alleged definition results in a literally (and scandalously) true statement:


Financing arrangements whereby [a nominal or pretended debtor] provides funds in a creditor/debtor relationship. These [funds] include [promissory notes and mortgages] which are classified legally as equity [contributed by the nominal or pretended debtor] but where the substance of the instrument [a false-document/falsified-security/legal-forgery] reflects a lender/borrower relationship.


The definition of “Loans” provided by the professional accountants of the CICA literally satisfies the legal definition and test of both a constructive and actual fraud and forgery. It is all about using language to normalize fraudulent process and results.


The real question for the masses of humanity who are being systemically and systematically robbed is: How can we possibly ever beat these guys if they can arbitrarily redefine reality and also believe it? Or again as Orwell described it: “To tell deliberate lies while genuinely believing in them, and then, when it becomes necessary again, to draw it back from oblivion for just so long as it is needed, to deny the existence of objective reality and all the while to take account of the reality which one denies…”

Mark1977's picture
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Posts: 1
Bubbles most often "pop" when

Bubbles most often "pop" when people lose confidence and start demanding hard assets. It's gonna be a one hell on earth when the Everything bubble pops...

Best regards,

Poet's picture
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Joined: Jan 21 2009
Posts: 1889
Land Mines

Here's my thought...

This current economic bubble has been going on for close to ten years since 2008/2009. And we keep thinking it's going to pop. But it hasn't yet. We know it will, but we don't know when. We just know it will be catastrophic. (I think I joined this community in 2008, and 2018 is coming up!)

When Bitcoin hit $3,000, I thought, that would be it. I wasn't gonna go in. Now it's over $6,000. I'm not going in. I'm sure I'll say the same thing at $10,000.

At the same time, just like farmers living in an area seeded by land mines, we still gotta go out there into the economy and farm money, because we gotta eat.

You think you can insulate yourself from all the landmines. No, it most likely will affect you. It most definitely will  affect your neighbors and your family - and that means it will affect you.


cmartenson's picture
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Posts: 5440
This is a very important point
TimothyPMadden wrote:

It costs at least a billion dollars to loan a billion dollars, and the lender walks away from the transaction a billion dollars poorer in terms of immediate purchasing power, because now the borrower has it, and the lender does not. A lender incurs a net depletion of its existing money assets by making a loan.

It costs at least nothing to advance a billion dollars of credit, and the creditor walks away from the transaction a billion dollars richer than the instant before, because now they own the debtor’s security, plus the debtor owes them a billion dollars that the creditor did not even possess the instant before. A creditor obtains a net increase in its money assets by making an advance of credit.

A billion dollar loan instantly costs a lender a billion dollars.

A billion dollar advance instantly advances or gains a creditor a billion dollars.

Great point.

Lenders give up cash and opportunity when they lend.

Creditors gain access to whatever is securing the credit right from the get-go.

It's a system of slavery, but subtle enough that most miss it for what it is.

Perhaps we'll all rue the day the world of credit collapses because then the powers that be will simply revert back to more obvious forms of slavery.  After all, the point of the game is to get someone else to do your work for you, is it not?

At least in the hierarchical game of social construction that we've all been practicing since the advent of agriculture.  There are other ways, of course.  And this is the idea that is trying to birth itself here in the waning days of cheap free energy.

At any rate, great point on the difference between lenders and creditors.

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