Financial expert Dawn J. Bennett recently wrote an article titled, “Forever Blowing Bubbles”, in which she describes how central bank driven monetary policy and market manipulation will likely cause asset bubbles to explode dramatically and cause major collateral damage.
There have been numerous signs over the past few weeks that suggest this will occur soon. In the Financial Times, Mark Spitznagel, a billion dollar hedge fund manager said, “Markets don’t have a purpose anymore. They just reflect whatever central planners want them to.” He goes on to say, “This is the greatest monetary experiment in history. Why wouldn’t it lead to the biggest collapse?” The article also quotes bestselling author and Universa advisor Nassim Taleb, who said, “Being protected from fragility in the financial system is a necessity rather than an option.”
They aren’t the only ones with this view. Dawn J. Bennett notes, “The Bank of Japan, acknowledging the violence being done to the yen by years of quantitative easing, said recently that they are setting aside money to prepare for losses on their huge holdings of Japanese government bonds which were put together and purchased through their printing of fiat currency once they are finally forced to stop monetary easing. Easing is a vortex that has sucked in the central banks over the last eight years, forcing them to continue blowing bubbles to follow bubbles to follow bubbles. Indeed, there have been calls even for our own Federal Reserve to go beyond QE to ‘helicopter money’, essentially going beyond interest rate manipulation and money printing by injecting ‘permanent’ money directly into private sector. Could this be why China is establishing a yuan-denominated gold benchmark for trading, in order to start backing their currency with real assets instead of academic theories?”
Among the biggest bubbles is the U.S. derivatives market, which is worth $1 quadrillion dollars by some accounts— about 20 times the value of the entire world economy. This is sheer gambling, says Bennett, not only with equities but also physical commodities.
Bennett points out a lot of evidence to support the poor fate for asset bubbles. The majority of asset classes are flat to negative year-to-date, and initial jobless claims recently spiked to 278 million after being up for two weeks. There’s continued weakness in corporate earnings, as well as increased layoffs, manufacturing data and wages. The recent FOMC meeting showed a possibility of increased interest rates, causing the June rate hike odds to move from 4% to 30% and the July odds from 20% to 50%
“What will happen to our market bubbles then? Many hope that the Fed will continue printing money, but that option continues to degrade our currency and economy,” Bennett says. “Something will eventually have to give.”