Are We Really Crazy Enough To Believe This Is Going To Work?

Republished By Plato

Followers: 0

October 15, 2021

Unbeknownst to the giddy participants, they’re not just betting on the omnipotence of
the Fed Politburo, they’re also making a max-leverage bet that “the madness of crowds” will never end.

Imagine an economy so dominated by its central bank that all markets hang on every word
of its priesthood as life or death. You know, like the Federal Reserve and the American
economy.

Now imagine this central bank issues enormous sums of new money which supercharges speculative
activity such as hundreds of billions of dollars in stock buybacks, special purpose acquisition
casinos, oops, I mean companies, and so on. You know, like the Federal Reserve’s trillions in
nearly free money for financiers.

Next, imagine that the central bank makes barely concealed promises that should any big gambler lose money in the casino, the bank will flood the financial system with even more
nearly free money for financiers and bail out the loser.

Since flooding the system with
nearly free money for financiers keeps the speculative frenzy going, the bank has implicitly
promised that assets driven higher by speculative frenzy will never be allowed to drop.
This promise naturally incentivizes even more speculative borrowing, leverage and risk,
generating a titanic Everything Bubble in which risky assets skyrocket from pennies into
dollars and dollars into fortunes.

Now imagine that this speculative frenzy spreads into every nook and cranny of the economy
such that everyone is drawn into one casino or another, and previously sober, cautious people
are seized by a quasi-religious fervor in which they become convinced that their gambling chips
on NFTs, SPACs, meme-stocks, obscure alt-coins, homes, collectables and pretty much anything
within the manic swirl of speculative frenzy is now a can’t lose path to
carefree permanent wealth because the central bank guarantees it and anyone who questions this is in league with the Devil (or worse).

Next, imagine that as a result of this vast expansion of “wealth” in the Everything Bubble,
the entire economy is now dependent on this bubble never popping as speculation is
driving incomes and a wealth effect without precedent as every participant feels newly
empowered to borrow and spend more because their bubble-wealth just keeps rocketing higher.

The problem here is all speculative bubbles pop and so the central bank’s inflation of a speculative Everything Bubble has backed the entire economy into a corner
from which there is no escape: either the bubble must keep inflating to ever dizzier heights
of delusion and risk or the bubble pops and lays waste to all the phantom wealth.

Lastly, imagine that the enthralled participants in the speculative orgy truly believe
the central bank has the power to keep the Everything Bubble expanding forever, or
at a minimum, bubbling along at a permanently high plateau that guarantees everyone’s
phantom wealth will be forever available for tapping and spending.

This is where we are, and it raises one question: are we really crazy enough to believe this
is going to work? That the Federal Reserve can keep the Everything Bubble expanding
essentially forever, or bubbling along at a permanently high plateau?

Are we really crazy enough to believe that conjuring trillions of dollars out of thin air and
then leveraging this into tens of trillions of dollars and dumping all this money into
assets which don’t increase in utility so that their “value” rises 10-fold even as
their utility remains unchanged is sustainable and a solid foundation for our economy?

Unbeknownst to the giddy participants, they’re not just betting on the omnipotence of
the Fed Politburo, they’re also making a max-leverage bet that the madness of crowds will never end.

Are we really crazy enough to believe this is going to work? The answer appears to be a
resounding “yes” because everyone knows the Fed has our backs and so permanently
expanding wealth is guaranteed. (And if it isn’t, no problem, I’ll jump off the merry-go-round
before the music stops. And of course, 99.9% of all punters succeed in doing so.)

In this blissful moment of speculative confidence in a) the music will never stop or
b) I’ll jump off just before the music stops, fortune fully intact, feast your eyes on these charts of guaranteed permanently high plateaus.

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