An avalanche from the Swiss currency crisis is causing global mountains of artificial debt — from Europe to Asia to the U.S. — to begin to teeter, according to former White House budget chief David Stockman.
Stockman ticked off some of the evidence that the financial marketplace is "off its lithium" — the gyrations in not only the Swiss franc, but also in gold, the euro, U.S. Treasurys, junk bonds, world stock markets and oil.
"For six years financial markets have been drugged into zombiedom by maniacal central bankers who have violated every known rule of sound money and financial market honesty," he wrote on his Contra Corner blog. davidstockmanscontracorner.com/in-praise-of-price-discovery-the-market-is-off-its-lithium/
"Politicians have been enabled to spend and borrow like never before because central banks have swapped trillions of public debt for electronic cash confected from nothing."
In Stockman's view, the unfolding drama in world financial markets simply underscores how the Federal Reserve and its lapdogs among other central banks have distorted honest capitalism and enriched speculators.
"Does a pompous dandy like Bill Ackman end up purchasing an absurdly priced $90 million Manhattan condo just 'for fun' because markets operate on the level?"
Stockman noted that if the Swiss National Bank had not lost its nerve and removed the Swiss franc's peg to the euro from fear of ever-more desperate money printing by the European Central Bank, the Swiss economy would have been obliterated.
Now the fallout will be felt from the struggling banks of Italy to the construction cranes of Istanbul to the bogus economies of Shanghai and Tokyo, he maintained.
"Yes, the Swiss National Bank did ring the bell. Slowly at first, and then with a rush, the casino players will learn that the central banks have been lying all along. Then the lost art of 'price discovery' will have its way," Stockman predicted.
Ambrose Evans-Pritchard, international business editor of The Daily Telegraph, agreed Switzerland is not alone in finding itself locked in a financial vise.
"The Swiss National Bank has lost control. It is the latest in a list of venerable central banks to be overwhelmed by deflationary forces and global economic disorder.
"[The Swiss National Bank] is damned for one set of reasons if it holds the currency peg, and damned for another set if it ditches the peg. Welcome to the world of horrible dilemmas facing modern central banks," Evans-Pritchard concluded.
The fallout from the Swiss moves demonstrates that not even central banks are bigger than the force of the marketplace, according to money manager and author Bill Fleckenstein of Fleckenstein Capital.
"The next conclusion I believe is going to be that folks are no longer going to be able to 'trust' the central banks, since bankers can change their minds,"
Fleckenstein wrote in a column for Financial Sense.
"We are going to see that in America when it turns out the Fed is unable to raise rates, except instead of breaking a promise like the Swiss did it will be more like, 'Gee, we changed our mind.' That, too, will add to volatility and eventually lead to lower multiples in financial assets I would think."
Fleckenstein predicted: "The most important thing to understand, in my opinion, is that the bull market in gold has resumed. That means it is going higher, and that is all anyone really needs to know."
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