Forced Liquidation

The comments below are an edited and abridged synopsis of an article by James Kunstler

Historians of the future may wonder when the financial world broke with reality. When Nixon shut the gold window? When Greenspan first bamboozled a Senate finance committee? When Bernanke declared the housing bubble contained?

Forced Liquidation  | BullionBuzz
Store Closing and huge discount signs

If our reality is a world of human activity, then finance is now completely divorced from it because there is no activity. Almost everyone is locked down. The only other thing out there is finance, and it looks dodgy.

The world is locked down and in debt up to its eyeballs. It faces a restructuring, which the folks in charge are resisting because it will change many conditions of everyday life, but it is coming anyway. When debt can’t be paid back, money vanishes. Money represents capital when it is functioning. When it isn’t functioning, it stops being money. Now the whole world realizes that the debt can’t be paid back, and will never be paid back.

The Fed’s balance sheet is the black hole where money goes to die. Money is rushing in at a fantastic rate these days, and the Fed is trying to print new money to replace it, which begs the question: Is it even money anymore, or just a figment of the imagination? They brought out their biggest money-launching bazookas recently, and it may only be a few days more before that proves inadequate. What then?

Perhaps the key is how long ordinary people agree to their orderly confinement. Whether it’s a week from now or sometime after that, what will people do when they decide to de-confine?

Banking and finance were headed south long before the coronavirus arrived. It started in September with the Fed jamming trillions into the black hole that had opened in overnight lending between banks. This convergence of events tells us that banking and finance, and the global economic arrangements that evolved with them, had already passed their sell-by date.

President Trump is not well positioned to turn the ship we’re on. Rough seas lie ahead as we seek landfall in the next new world.

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