2018-2019 Pop Goes The Bubble
Today, instruments of debt issued by central banks
After the 2008 financial crisis, Fed Chairman Ben Bernanke invoked Milton Friedman’s theory that a helicopter drop of money could prevent a collapsing credit bubble from becoming a Great Depression.
When credit bubbles burst, defaulting debt and disappearing demand cause the velocity of money to plunge; and, in 2008, Bernanke resorted to Friedman’s untested theory hoping to prevent the US economy from collapsing as it did in the 1930s.
Velocity of Money
Friedman’s helicopter drop of money increased US bank reserves an extraordinary 65 times, i.e. from $13 billion to almost $850 billion; adding unprecedented trillions of dollars to the Fed balance sheet. Between 2008 and 2014, Fed liabilities ballooned from $850 million to $4.4 trillion, mirroring in nominal terms the exponential growth of the US national debt during the Reagan presidency.
Friedman’s helicopter drop, however, proved to be a band aid, not a solution. Central bankers hoped the historic helicopter drop of $4.4 trillion would return the velocity of money to pre-crisis levels and reverse deflationary forces set in motion by the collapse. It didn’t.
Deflation is the pathological slowing in the velocity of money - Professor Antal E. Fekete
At best, the bankers’ helicopter drop bought time, i.e. ten years (2009-2019). At worst, it created the largest asset bubble in history in stocks, bonds, commodities, real estate, and cryptocurrencies..
In December 2018, the massive asset bubble began to deflate, confirming a prediction made in December 2014 by Richard Hoey, chief economist at BNY/Mellon,:
Don’t Worry About The Us Economy…Until 2018Richard Hoey, CNBC Interview, December 31, 2014
Richard Hoey was right about 2018. On December 17, 2018, CNBC reported:
On December 18, 2018, The Financial Times wrote:
THE COLLAPSE OF FIAT PAPER MONEY
Today’s crisis will be even more devastating than the Great Depression. In 2018, currencies are no longer anchored to gold as they were in the 1930s. Not only will economies collapse, so, too, will fiat paper money.
TheGoldTelegraph, Is the US dollar on the verge of a major currency crisis? December 10, 2018
Shortly after the 2008 financial crisis, I talked with Sandeep Jaitly about when the financial endgame might begin. At the time, in April 2009, we agreed it was not possible to then know when the massive imbalance of credit and debt would self-correct, i.e. self-destruct.
Today, we know. In 2018, the historic $100 trillion asset bubble has started to collapse and, in 2019, Sandeep, myself and Durant Schoon will offer a securitized crypto token, Wampum, designed to profitably survive the collapse of the fiat asset bubble, to investors in a securitized token offering, a STO.
In September 2018, Ray Dalio described financial markets as ‘being in the seventh inning’. Two more innings and the game’s over. Of course, there’s always the possibility of overtime and if you want to bet on it, go ahead.
These are most interesting times.
Buy gold, buy silver, have faith.
Darryl Robert Schoon
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