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Sunday, 30 August 2015


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At least I know what the 'clever cartoon' meant now ...
(sorry to be so thick)


As predicted, the question is not answered.


Some quick answers:
1. Markets never were free. They have been freer than they are now, but like universities, they are now quasi-essential services and hence quite regulated. If you want a free market now, get a bit-coin and enjoy the ride!
2. Traders have always used borrowed money. Traders have always taken high risks for big returns. If it pays off twice in a row, they call it market practice. Investment companies that did something would not be investment companies. But stock markets do not work without them - they link buyers and sellers by taking on risk.
3. Central banks can keep printing free money, but they all agree that now is a good time to stop. This year I went into debt over 100% of my income. The family needed an important structural reform. I am expecting a long tern return on the investment. The bank has accepted my platitudes. While I do not welcome extra debt, austerity and educational failure were a worse option.
4. Derivatives are a worry as they cover vastly more of the world's value than exists. However, they serve as in interesting instrument. If they fire en masse, we will have another financial crisis ala 2009, but I don't think that will happen.
5. the twentieth century was the least violent century (in terms of premature death from violence) in history. Trends for the 21st century suggest it will be less violent again. Still no cause to stop prayer, but there are now fewer nations that can start World Wars, and less benefit from them. I discount a World War in my lifetime.
6. Most of the loss of value of last week has been recovered. It was not a correction because nothing fundamentally changed. China changes will continue and will shake the world. However, the big issue is the addiction of investment markets to free money. That is the major reform that is now due to happen. China blips will continue even after that reform.

After writing this blog, I did the best possible thing to ameliorate the risk. I walked the dog around the block, absorbed some sunshine and felt less stressed. Alas, the lack of the turn on my return undid some of the goodness.


As always, I admire Python's optimism.

I completely disagree that all that awaits us is a 10% correction.

I'm not sure that Python has included in his calculations;

1. The markets are no longer free or even markets. The extent of central bank manipulation (whether the Plunge Protection Team' or precious metals short selling based on paper where there is 120 times more paper gold than real gold) has totally distorted values. Shares and property is artificially and unsustainably over valued.

2. Python's 'traders' are trading on borrowed money, not their own. With zero interest rates it is all risk without consequence. There is no mechanism to encourage investment in companies that actually do something.

3. There is no ammunition left for the central banks. The Fed has deployed a zero interest rate policy for seven years and has already printed $3.7 trillion to boost markets and GDP growth. And U.S. debt to GDP is over 100 percent. Japan’s debt to GDP is at 230 percent and the Bank of Japan is printing 7 trillion yen ($58 billion) per month of QE. The European Central Bank is printing $67 billion a month and the European Union has negative interest rates. But all this easy money and deficit spending aren’t helping these economies move much off the flat line. All this money did not generate real economic growth or productivity. It only generated bubbles which burst. The central banks are so devoid of options now that they are talking about extending negative interest rates and the abolition of cash. This is the end of both any form of market economics and a civilisation that values liberty and choice. This is simply defeat, and a last ditch attempt to lock in the top 1% who own almost everything when social order disintegrates.

4. The levels of debt, and hidden beneath this derivative liabilities of many times the world's entire GDP, has grown to a level which can never be repaid. What happens when debt cannot be repaid? The debtor and the creditor both lose. The bigger the debt, the more catastrophic the consequences. The current world debt - private and public - is beyond belief. There is a simple question that anyone who does not believe there is going to be a crash needs to answer: how will the debt be repaid? I am waiting for an answer from any central bank, government and the Python and I have not received an answer.

5. Historically, economic crashes normally cause major wars. World Wars are themselves economic crashes with mass killing and widespread asset destruction thrown in. The signs of the desperation of Wall Street to start a big war with Russia, China or both are everywhere. Personally I think World War 3 is a really bad idea and I pray this will not happen. If it does, whoever starts to lose will throw nukes around and then you have an economic crash for 500 years.

6. We have already had the correction (last week). So Python's real hypothesis is that we will have two corrections, and the second one before Easter 2016.

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