Living through upside down times

We are living in some very strange times.  Humans have intervened, manipulated and tried to cover up mathematical facts for so long that many historical relationships are now broken and distorted beyond recognition.  Take money, for one.  Most of the world is desperate for it, with huge shortfalls and deficits as far as the eye can see.  And yet there is more cash piled up in the financial system than we have seen ever.  Cash is content to sit on the sidelines because market prices are too high and do not reflect the reality of the economic landscape likely to present over the foreseeable future. The more governments continue to intervene and force asset prices to remain over-valued, the longer the “cash drag” is likely to continue as the bricks and mortar economy starves for real demand and investment.  But far from an emotional, hysterical response, the reasons for sitting on cash today are entirely rational:

“Bankers have an odd-sounding problem these days: they are awash in cash. Droves of consumers and businesses unnerved by the lurching markets have been taking their money out of risky investments and socking it away in bank accounts, where it does little to stimulate the economy.” See:  Banks: In cautious times banks flooded with cash.

The systemic insistence on denial, manipulation and fraud, have rendered global stock and commodity markets today a casino driven by levered, reckless players. Rising risk markets today are not likely helpful leading indicators for the global economy. For more on why, watch this interview with Jim Bianco of Bianco Research: “Equities markets roiled by government meddling.”

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5 Responses to Living through upside down times

  1. Robert says:

    We hear a lot of criticism from the Left about all the money piled up on the sidelines which they claim should be injected into the economy. Are corporations and busness owners supposed to recklessly throw their shareholders money away on risky ventures sponsered by government experts and talking heads who don’t have a clue about the necessity and moral obligation to make a profit?

  2. peter says:

    You are making an assumption, namely that all government initiatives are reckless! I have seen reckless private businesses in the last 3 years! May I remind you of the investment banks who created this mess! In fact, one could make a case that all of those lobbyists (from the private sectors) are in fact pushing an agenda that was (and will probably continue to be) reckless! Here in the lower mainland, expensive Skytrain public transport systems were used instead of at-grade transport! When cars started to come to the fore, I read that tramway lines were ripped out. Shall I talk about the pressure by industry to prevent the leaky condo story in the 80’s? The truth is that there needs to be incredible changes from campaign funding (private to government) to more independent checks and balances. But, do you think corporations/businesses want that? They want more profits to keep up with the Jones (Mr. and Mrs). I bet you want these companies to grow so that they (and you as a shareholder) can make more money. The issue is that how much is acceptable? Who or what is collateral damage in that profit equation? Shall we hire an illegal immigrant that can be exploited? Shall we dump toxic waste in the river to make more profit, to be more competitive, to drive our competitors out of business? Let me assure that corporations and some businesses have a vested interest to make governments look really bad and will use any mess up as leverage to get fringe benefits! To claim that governments are bad and private businesses are good is erroneous, IMHO. Balance or moderation is the solution, again IMHO.

  3. Robert says:

    Peter, this mess was caused by the government that created the Community Reinvestment Act, that threatened banks in the US in order to force them to make loans to people that had no hope of making the payments let alone ever paying the mortgages off, and staffed Fannie Mae and Freddie Mac with their political operatives and refused to reign these “corporations” in. The bankers you attack were friends of the Democrat in Obama’s Mussolini style fascist government.

    You make the assumption that profit is evil and corporations are corrupt yet you believe that one big corporation called Government will fix everything. Capitalism, private property rights, and rule of law are the reasons we have a rich and compassionate society otherwise we would be living impoverished short brutal lives under a strong central government ruled by dictators, kings, or people’s committees. You will notice that more government interference in the economy and more laws and regulations governing every aspect of an individuals life invariably leads to lower living standards and quality of life.

    Why are you blaming corporations for the government decisions to build Skytrain? We have a legal system to deal with criminal behaviour and contract law to deal with things like leaky condos. These leaky condos were after all approved by “government” planners and building inspectors. What illegal immigrant? What toxic waste? If you have evidence take it and report to the proper authorities, the government.

    As for the streetcars and trams I do remember them as a child in Vancouver. I believe that similar transit systems were bought up by General Motors all across North America and replaced with buses. Building buses was more apparently more profitable than servicing existing urban rail systems and General Motors was eventually charged, convicted, and received some small fine I seem to remember. Another example of government corruption or would you say corporate corruption or just plain corruption.

  4. michael says:

    I agree……Stiglitz agrees……any one with a brain that is not attached to a yo yo string would agree….. manipulation of capital markets by increasingly reckless central bankers (punters) continues while malleable legislators turn a blind eye……the longer this goes on the worse it will be….for the unwashed……we can rest assured the insiders are covered……

    Well worth the time to watch this video….HT to Jesse

  5. Jack from Surrey says:

    Robert. Once I got to the word “left,” you lost all credibility with me. Quantifying everything in such simple terms as left/right is weak.

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