By Charles Hugh Smith
February 19, 2021 "Information
Clearing House" - A few days after the
Covid pandemic was officially announced last year on
1/23/20, I prepared a chart projecting the course of
the pandemic. In my view it still stands, with two
updates: "vaccines months away" has been updated
to "mass vaccinations months away" and "Wave 2" has
been updated to "Wave 4." (see chart below)
The end-point--global depression--is up next.
Very few are prepared for this eventuality because
they put their faith in 1) central banks pursuing an
insane folly and 2) a fragile, brittle global
economy that was already teetering on the edge of
destabilization before the pandemic.
Here's the central banks' insane folly in a
nutshell: to create new enterprises and jobs,
we'll blow the world's greatest speculative bubble
into an even greater speculative bubble. So
in other words, we'll further enrich the top layer
of the Financial Aristocracy who own the vast
majority of the assets we're pushing to the moon,
and by some inexplicable magic, adding trillions of
dollars, yuan, yen and euros to the wealth of this
elite will somehow launch a thousand new thriving
enterprises which will magically hire 500,000 new
workers every month.
Can we be honest for a split second and admit
that the Tooth Fairy and Santa Claus look plausible
compared to this insane proposition? Since
there's a tiny window of honesty open, let's also
admit that adding a booster rocket to the
wealth-income inequality that is undermining
democracy, society and the economy is exactly what
we'd choose to do if our goal was destroying
America. Yet this is precisely what the entire
Federal Reserve policy sets out to do: boost
wealth-income inequality to new extremes.
What Poisoned America?
Meanwhile, global supply chains that were
optimized for Globalization Heaven are incredibly
brittle and fragile as a result of the optimization.
Optimizing for maximizing profit means getting rid
of redundancies, buffers, quality control and
ramping dependence on offshore suppliers to 100%.
If you set out to design a global supply system
that would fail catastrophically, creating
self-reinforcing shortages of essentials and key
components, you'd choose the system now teetering on
the edge of implosion. Optimization is wonderful
for boosting profits when everything is priced to
perfection and functioning to perfection, but when
reality intrudes, you find you've stripped out all
those costly, unnecessary bits that enabled the
supply chain to deal with a spot of bother.
Unfortunately for the central bankers, their
policy of giving trillions in free money for
financiers and speculators is suffering from
diminishing returns: where $100 billion once
had a significant effect on financial markets, now
$1 trillion no longer has any effect at all, and so
the only dose that causes the patient's eyelids to
flicker briefly is $3 trillion--no wait a minute,
make that $5 trillion, nope, not enough, make it $10
trillion, yikes, still not enough, pump in $20
I prepared a chart (below) which depicts how
diminishing returns on inflating speculative
asset bubbles leads the global financial system to a
cliff from which there is no return.
Though few seem to be aware of it, we're
tottering on that cliff edge. The final
manifestation of central bankers' insane folly is
the promise that endless wealth can be yours if
only you join the speculative extremes racing over
the cliff. Maybe the immense herd of speculators
will all magically grow wings once they're in
free-fall; that's no more insane than counting on
speculative asset bubbles to magically create real
enterprises and jobs.
This madness is now global, so next up: global
depression. The story of the past year hasn't
changed: blowing an even bigger speculative asset
bubble is the sure cure; the latest "fix" to the
pandemic will make it go away forever and ever, and
everything that was broken before the pandemic will
magically be restored by the magic of ever larger
and more precarious speculative asset bubbles.
Charles Hugh Smith is a
contributing editor to PeakProsperity.com and the
proprietor of the popular blog OfTwoMinds.com. He is
the author of numerous books, including Why
Everything Is Falling Apart: An Unconventional Guide
To Investing In Troubled Times.