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When Central Banker Economic Delusions Become Everyone Else’s Living Nightmare

This is an excerpt from the weekly Liquidity Trader Pro MacroLiquidity Update and Monthly Investor Macroliquidity Update. Macroliquidity Pro Trader weekly subscribers (or Professional Edition), click here to download complete report in pdf format.

Macroliquidity Investor Monthly subscribers, click here to download complete report.

The Composite Liquidity Indicator has been inching sideways after hitting a new high during the August 26 week. More importantly, the slope of the line has been nearly flat since January. In this game, if liquidity isn’t growing, that’s tight. Governments are always borrowing more, so if the system isn’t providing new cash to absorb that debt, the cash to pay for the new debt needs to come from somewhere else. That spells liquidation.

Add to that the crash of oversupplied, overpriced commodities, and the world’s stock markets become a necessary liquidity sink funding margin calls from every corner of the earth.

And if margin calls weren’t enough, add the pressure of liquidation by sovereign wealth funds raising cash to fund government programs that their commodity based economies can no longer fund. This has all the makings of a worldwide market disaster of epic proportions.

Money printing was the direct cause of the asset inflation that was the antecedent of this disaster. It is not likely that money printing will fix it. The world has seen enough of rising asset prices. It knows that the jig is up. Just as monetary policy can be pushing on a string in economic terms, it can also reach the point of saturation and pushing on a string in terms of asset prices. While US central bankers seem to have reluctantly recognized that fact, European and Japanese central bankers are still living the dream, the dream that has turned into a nightmare for ordinary people around the world. Eventually forces that ignore, circumvent, or even suppress the economic wellbeing of the majority of the populace will bring down the markets. That’s what we are beginning to see.

The problem now for the clinically insane central bankers making policy and the economists who support them is that the forces of liquidation that their delusional policies have ultimately unleashed are destroying cash faster than they can print it. They are like hamsters running on a treadmill, believing in and acting out their delusion that if they just keep printing, eventually they’ll get somewhere.

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Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also publish LiquidityTrader.com, and was lead analyst for Sure Money Investor, of blessed memory. I developed David Stockman's Contra Corner for Mr. Stockman. I’ve had a wide variety of finance related jobs since 1972, including a stint on Wall Street in both sales, analytical, and trading capacities. Prior to starting the Wall Street Examiner I was a commercial real estate appraiser in Florida for 15 years. I was considered an expert in the analysis of failed properties that ended up in the hands of bank REO divisions, the FDIC, and the RTC. Remember those guys? I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. I'm not some Ivory Tower academic, Wall Street guy. My perspective comes from having my boots on the ground and in the trenches, as a real estate broker, mortgage broker, trader, account rep, and analyst. I've watched most of the games these Wall Street wiseguys play from right up close. I know the drill from my 55 years of paying attention. And I'm happy to share that experience with you, right here. 

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