So what happens when these huge and reckless buyers with their nearly endless resources start cutting back after a phenomenal peak? Well, we know what happened in 2008.
I was interviewed by Jorge Nascimento Rodrigues for “Janela na web” (a Portuguese site) and the printed edition of Expresso. After what I said, he might never interview me again :-]
State and city pension plans have been in a heap of trouble for years. What they need in order to be there in the future is a booming economy year after year and endlessly inflating asset bubbles. Otherwise, forget it. And even then, there’s a $1.1 trillion hole.
Wiping out in one fell swoop six years of carefully orchestrated propaganda, St. Louis Fed President James Bullard admitted the Fed had dropped the ball during the prior bubble that blew up the financial system, and that it’s dropping the ball again during the current bubble.
It was a very basic question: Have there been times when you did not have enough money to buy the food you or your family needed? In wealthy countries, the percentages should be small, and given all the money-printing, it should be zero, you’d think.
The equation might not have gone so horribly awry if each class of graduates had seen their incomes skyrocket in line with their student debt. But that’s a crummy joke in America.
The monetary plumbers keep banging money market rates to zero, thereby ignoring what the money market rate really is in a financialized, debt-ridden system: the price of hot money, the single most important price in all of capitalism.
Even while the googly-eyed mainstream media celebrate the Dow’s record high, beneath the gloss, thousands of stocks are getting gutted. And the carnage is spreading.
We don’t know what hedge fund manager Steven Cohen will do with the money he borrowed from Goldman Sachs. We don’t even know how much it is, though it’s a lot; the personal loan is backed by his $1 billion art collection. But we know how he’ll use it: cheap leverage.
New regulations force banks to get rid of CLOs. They’re similar to subprime-mortgage-backed CDOs that blew up in 2008. But CLOs are backed by junk corporate loans, including malodorous “leveraged loans.” And they’re booming again. So the banks made a deal.