Financial Time Bombs Hiding in Plain Sight

by David Stockman

Unlike the last two bubble cycles, when central planners managed to ratchet up the money market rate, this time they rode the zero-bound train right to the end of capitalism’s natural recovery cycle.

Accordingly, the casinos are populated with financial time bombs like never before. Worse still, the central bankers are now so utterly lost and confused that they are moving toward the one thing that will finally ignite these time bombs: negative interest rates.

Negative interest rates reflect the sheer irrational desperation among central bankers and their ilk, and will soon spark a firestorm of political revolt, currency hoarding and revulsion among even the gamblers inside the casino.

Besides that, they are crushing bank net interest margins, thereby endangering the solvency of the very banking system that the central banks claim to have rescued and fixed.

The third bubble collapse of this century is imminent, because both the global and domestic economy is cooling rapidly, meaning that recession is just around the corner.

Based on the common sense proposition that America’s 16 million employers send payroll tax withholding monies to the IRS based on actual labour hours utilized—and without any regard for phantom jobs embedded in such BLS fantasies as birth/death adjustments and seasonal adjustments—inflation-adjusted collections have dropped by 7-8% from the prior year.

So there will be a recession, and the Fed is out of dry powder.


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