{"id":131644,"date":"2014-07-18T15:36:22","date_gmt":"2014-07-18T15:36:22","guid":{"rendered":"http:\/\/rinf.com\/alt-news\/?p=131644"},"modified":"2014-07-18T15:36:22","modified_gmt":"2014-07-18T15:36:22","slug":"coming-crash-simply-normalization-mispriced-market","status":"publish","type":"post","link":"http:\/\/rinf.com\/alt-news\/money\/coming-crash-simply-normalization-mispriced-market\/","title":{"rendered":"The Coming Crash Is Simply the Normalization of a Mispriced Market"},"content":{"rendered":"

The correlation between the Fed\u2019s monetary heroin production and the stock market will break down as the market normalizes.<\/em><\/span><\/p>\n

In the spirit of\u00a0calling things what they are<\/em>, longtime correspondent Harun I. explains that market crashes are simply distorted\/mispriced economies attempting to normalize.<\/strong>\u00a0Here\u2019s Harun\u2019s commentary:<\/span><\/p>\n

Let\u2019s examine the term \u201ccrash.\u201d A crash is nothing more than the economy trying to normalize, however, everyone seems to think the environment created by bubbles (unpayable debt) is normal. This is truly fascinating because accepting unpayable debt as a norm means that prices are irrelevant, and since prices are irrelevant, there is no risk. But just because we think a thought does not make it a fact.\u00a0Interestingly, each attempt at normalization requires exponentially greater amounts of expropriation of purchasing power.<\/strong><\/span><\/p>\n

Exactly, how does one grow one\u2019s way out of this?\u00a0To clarify the term normalize, I mean that the economy shrinks to a level of real and sustainable supply and demand dynamics.<\/strong>\u00a0Normalize does not mean \u201cdesirable\u201d or \u201cpolitically favorable.\u201d<\/span><\/p><\/blockquote>\n

Thank you, Harun, for describing the underlying dynamic of crashes.<\/strong>\u00a0Just as forest fires normalize the forest\u2019s complex ecology by turning deadwood to nourishing ash and opening up the forest to new growth, in an analogous way crashes clear markets of financial deadwood and cartels that have blocked new growth.<\/span><\/p>\n

I explain the analogy of the forest fire further in\u00a0The Yellowstone Analogy and The Crisis of Neoliberal Capitalism<\/span><\/a>\u00a0(May 18, 2009).<\/span><\/p>\n

We are living in a dying forest where fires have been suppressed at ever greater cost because the\u00a0deadwood<\/em>\u2014the central bank and its cartel-cronies\u2014are doing everything in their power to maintain their perquisites and power.<\/strong>\u00a0But as Harun noted, the cost of each fire suppression (not just in eroded purchasing power but in systemic instability and the mispricing of risk) goes up dramatically.<\/span><\/p>\n

Courtesy of\u00a0mdbriefing.com<\/span><\/a>, here is the Federal Reserve balance sheet\u2014the main tool, along with Federal subsidies of politicized sectors such as home mortgages, of suppressing normalization of the economy and stock market:<\/span><\/p>\n

\"\"<\/span><\/p>\n

While the Fed can push monetary heroin into the financial system, it can\u2019t force anyone to shove the debt-needle in their arm.<\/strong>\u00a0One consequence is the velocity of money is absolutely cratering. If there is any measure of the economy\u2019s underlying financial health, it\u2019s this:<\/span><\/p>\n

\"\"\u00a0<\/span>
\n(thanks to correspondent Scott for calling my attention to this chart)<\/span><\/p>\n

The correlation of the Fed\u2019s pushing of monetary heroin to the stock market has long been noted:<\/strong><\/span><\/p>\n

\"\"<\/span><\/p>\n

The question is: is correlation causation?<\/strong>\u00a0In other words, will the market continue to loft higher\u00a0regardless of any other inputs<\/em>\u00a0as long as the Fed is pushing some kind of monetary heroin into the financial sector?<\/span><\/p>\n

As noted on the chart of the Fed balance sheet, the Fed\u2019s purchases of Treasury bonds and home mortgages are both rolling over (tapering), and so the Fed has been substituting another form of synthetic monetary heroin (reverse repos) to suppress the much-needed and long-delayed normalization of the economy and stock market.<\/span><\/p>\n

Suppressing the next fire will take more than the reverse repo squirt-gun.<\/strong>\u00a0Given the tremendous forces needing to be normalized, the correlation between the Fed\u2019s monetary heroin production and the stock market will break down as the market normalizes, much to the shock of all the financial deadwood that\u2019s been protected all these years.<\/span><\/p>\n

To those who believe the correlation of Fed monetary heroin and the stock market is eternal and cannot possibly come undone, please consider this line from songwriter Jackson Browne:\u00a0Don\u2019t think it won\u2019t happen just because it hasn\u2019t happened yet.<\/em>\u00a0<\/span><\/p>\n

This piece<\/a> was reprinted by RINF Independent News<\/a> with permission or license.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

The correlation between the Fed\u2019s monetary heroin production and the stock market will break down as the market normalizes. In the spirit of\u00a0calling things what they are, longtime correspondent Harun I. explains that market crashes are simply distorted\/mispriced economies attempting to normalize.\u00a0Here\u2019s Harun\u2019s commentary: Let\u2019s examine the term \u201ccrash.\u201d A crash is nothing more than […]<\/p>\n","protected":false},"author":1,"featured_media":110971,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[487,52],"tags":[],"class_list":{"0":"post-131644","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-breaking-news","8":"category-money"},"_links":{"self":[{"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/posts\/131644","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/comments?post=131644"}],"version-history":[{"count":0,"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/posts\/131644\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/media\/110971"}],"wp:attachment":[{"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/media?parent=131644"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/categories?post=131644"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/tags?post=131644"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}