There's MUCH more to this market turmoil than meets the eye
We live in interesting times. And it looks like they’re about to get a lot more interesting.
In these times, it’s important to keep in mind that nothing is as it seems. Actually, nothing is ever as it seems -- because people and institutions distort our collective reality to shape our world views and beliefs (I’ll explore reality distortion more in future articles, so stay tuned).
But when crisis hits, our reality becomes much more fluid. That’s when the smoke around us thickens and the mirrors multiply, like the increasingly disorienting moments in a funhouse that’s suddenly not-so-fun. Crisis frightens us because we don’t know what’s going on or how to protect ourselves. It’s hard to think rationally. And that leaves us vulnerable to deeper distortions of our reality.
As the world reels from the COVID-19 pandemic, the greatest crisis of the 21st century and arguably the biggest we’ve faced in decades, I think our reality is about to be distorted on an epic level. In fact, I think it’s already begun.
In the tense months following the 2008 Financial Crisis, President Obama’s Chief of Staff, Rahm Emanuel, famously opined that “[y]ou never want a serious crisis to go to waste.” Why? Because “[c]risis provides the opportunity…to do things that you could not do before.”
Rahm knew that the administration’s activist agenda could benefit from the financial crisis because everyone was pleading for the government to quickly stimulate the economy. The crisis provided a window of opportunity that wasn't available before. It’s probably no coincidence that the Chinese symbol for crisis is made up of two other symbols: danger and opportunity. Because one man’s pain is another man’s pleasure, and one man’s gain is another man’s loss. Because whenever a crisis erupts, there are always winners and losers.
As global markets Corona-crash and begin their inevitable rollercoaster dive to lows not seen since 2008, as businesses shutter, as families go without paychecks, as cities go into lockdown and borders close, one group of people will profit handsomely, as they always do, from this crisis — even if they “appear” to be losing.
Bankers.
Throughout history, banks have perfected the art of profiting from crisis by tricking governments and holding taxpayers hostage. But after the epic bank fuckery of the subprime mortgage crisis that cost taxpayers $800 billion, pulling this trick again won't be easy.
This is where reality distortion comes in.
To the casual observer, it might appear that until COVID-19 reared its ugly head the economy was doing fine. That it was even “booming.” In reality, this wasn’t the case. In reality, pre-Corona, most Americans were running so low on fumes that 40% couldn’t come up with $400 in an emergency. Nearly 1/4 of Americans were so strapped they couldn't pay all their bills each month, and 7 million were 3 months (or more) behind on their car payments.
Does this look like a “booming” economy to you?
Just to be clear, the U.S. economy wasn’t the only country circling the drain. The entire global economy was slowing and bracing for a downturn. Saddled with trillions of dollars in debt from the 2008 Financial Crisis, insiders knew the global economy was “in much worse shape” to deal with any “shocks” than it was 10 years ago.
And yet our government continued to feed us data (that the media regurgitated) assuring us the economy was in great shape — because the stock market was hitting record highs, home prices in major cities had reached stratospheric levels, and unemployment was “officially” at 50-year lows. Everyone pretended things were fine…even though deep down, we knew they weren’t.
We all played along with our distorted reality.
Throughout history, banks have perfected the art of profiting from any crisis by tricking governments and holding taxpayers hostage.
I became acutely aware of the depths of this distortion when I had lunch with a group of friends in L.A. last summer. The were highly-educated professionals who all loathed president Trump, but my friend Audrey was especially bitter because she was convinced he would easily win in 2020.
“What makes you say that?” I asked.
“Well, it’s all about the economy,” she said, “and it’s strong now. There’s no way anyone can beat him if it keeps up like this.”
I waiting for her to laugh and tell me she was joking. But she was completely serious.
“You really think the economy is in good shape?” I asked.
“Look at the numbers — the stock market is doing great, inflation is under control, unemployment is low.”
“But you know the numbers underestimate how many people are out of work, and the inflation rate has no relationship to the actual cost of living. Plus, most people aren’t even in the stock market, so Dow 23,000 means nothing to them.”
Audrey gave this some thought. “True…but it’s still a strong economy.”
That’s when my friend Michael chimed in. He’s a plaintiffs’ lawyer who’s developed a keen nose for sniffing out System bullshit. He turned to Audrey and asked the obvious:
“You know the numbers are phony, but you still believe the economy is strong?”
She laughed, self-conscious, as if suddenly realizing how ridiculous it sounded.
“Okay, I don’t really believe the economy is strong, okay? I’m just saying the numbers look good on paper, and that’s all that matters. It doesn’t matter what any of us believes is really happening, does it?”
No, it doesn’t. Because we're all plugged into a distorted reality.
And right now, this reality is telling us that the Dow and S&P 500 are Corona-crashing because a novel virus has sent the country into “lockdown” and millions into self-quarantine. Because hospitals are bracing for a tidal wave of casualties and deaths. Because President Trump’s “mismanagement” fueled a crisis that was already raging around the world.
This reality is telling us that the Fed has taken emergency measures to pump $1.5 trillion of liquidity into the banking system and make $800 billion of credit available to banks — interest free — to keep markets from hemorrhaging, actions it never would have taken had the world remained Corona-free.
We all pretend. Because we’re all plugged into a distorted reality.
But when we unplug, a different reality emerges. We see that the banking system has been in serious trouble for the past year. While we were distracted with meddling Russians and dead-end impeachment proceedings, the banking system was seizing under the radar. In its frantic efforts to stop the seizing, the Fed pumped a staggering $500 billion into the repo market between September 2019 and January 2020.
Did we hear about this on the nightly news? Did Congress hold hearings to investigate these staggering infusions of money? Did anyone ask questions? No. We remained blissfully unaware of the chaos in the repo market and continued the charade of a “booming” economy.
At this point you’re probably wondering, “So…what’s this repo market business, and why does it matter?” All you really need to know is that it’s the short term market banks use to borrow cash from each other so they have enough on hand the next business day. But the Fed was forced to intervene last fall because banks had suddenly stopped lending to each other. They had started hoarding cash.
Let's be clear: hoarding cash isn’t something banks do in a “booming” economy. It’s something they do when they put their nose to the air and sniff something bad coming. It’s what banks do when they lose faith in the economy and the ability of consumers and businesses to repay the money they’ve borrowed.
It's what banks do when they realize — before the rest of us do — that a house of cards is moments from collapsing. You know what this means, right? It means the Coronavirus didn’t cause the markets to crash; it was simply the spark that ignited a pile of kindling that had been quietly stacking in the banking system.
But we didn’t know this because our reality had been distorted.
Which bring us to where we are now. As the Corona-crash accelerates and the market gyrations intensify, we need to prepare for ourselves for the epic distortion of our reality that’s coming. Because the $1.5 trillion that the Fed just pledged to “save” the banking system and the $800 billion in interest free loans it’s made available to banks is just the TIP of a gargantuan iceberg that is hidden under the surface — for the moment. What lies beneath, and what will very likely take the world by complete surprise in the next 12–18 months, is something banks have created that's far scarier than the Corona-crash, and it will be the subject of a future article. What lies beneath, I believe, will make the subprime mortgage crisis look like a bad day on Wall Street.
What you need to know now is that an unfathomable money will soon be printed to save the biggest banks, the ones we can’t possibly allow to die — because these banks (not the Fed) create the money that lubricates our consumer economy. And their debt tentacles extend everywhere. Of course, many of us may die in the process of “saving” these banks, but that’s never mattered to governments. Or banks.
And the kicker? At some point in the not-so-distant future, when the Titanic States of America makes full contact with what’s hidden beneath the murky water, when the markets swoon to unimaginably low levels and over-leveraged banks face catastrophe that dwarfs 2008, when trillions of dollars of bank bailouts begin in earnest, we will be told that no one saw this coming.
The Fed, pundits, economists, and other “experts” will claim that, but for a rogue virus that decided to make its evolutionary leap from animal to human one fateful day in December at a “wet market” in Wuhan, China, life in the U.S. and much of the world would have continued as normal. Booming.
But when you hear this, you need to know that it will be yet another distortion of your reality.
Coronavirus didn’t crash the markets; it was the spark that ignited a pile of kindling that had been quietly stacking in the banking system.
As this crisis unfolds, some businesses will close their doors and never re-open, homeowners living pay-check-to-paycheck will fall into foreclosure, low-wage workers will slide another rung down the class ladder and lose the roofs over their heads, and the streets will fill up with more homeless. But one group of people will profit from this crisis, because they always do.
The question is, are we going to allow them to get away with this again? Because this crisis isn’t going to be as fun as the last one. It’s going to be legendary, one that will take down entire countries. One that will no doubt trigger a global financial “re-set” that gives banks even more power and saddles the rest of us with an incomprehensible level of debt that will either reduce us to financial slaves — or make us wish we were dead.
But here’s the good news: we have the power to keep this from happening, my friends. And it begins by unplugging from our distorted reality. It begins when a critical mass wakes up and demands that our leaders transition to a sustainable and equitable monetary system, one that doesn’t leave our economy at the mercy of banks and isn’t based on debt they create by clicking keys on a computer.
We have the power to end this, but we can’t do it if we keep playing along with business as usual. We can’t do it if we keep voting for candidates who promise “change” in a toxic System they’ve spent their entire careers enabling. We can’t do it if we keep pretending that we have all the time in the world to make deep, systemic reforms to our economy.
We have the power to end this, and the power lies in our minds. Keep your mind free. And be ready for the distortions when the come. Because they most certainly will.