How (Not) To Pop A Bubble

By James Corbett

It may not have been the craziest headline that the Trump whirlwind has generated in recent months, but you might have seen it amidst all the Stormy Kavanaughs out there:

Trump says Fed is his ‘biggest threat’ because it is raising rates too fast

This latest outburst is just one more example of a pattern we have seen emerge over the past two years: Any and all good news about the economy is because of Trump, and any and all bad news about the economy is because of the Fed. I’ve touched on this theme before, but I think we all know how it goes.

When candidate Trump was on the campaign trail, he bemoaned the “big fat ugly bubble” blown by the Fed’s low interest rate policies. But when candidate Trump became President Trump, he suddenly stopped pushing for higher rates and instead started touting the big fat ugly bubble. And now that the Fed is actually raising interest rates like candidate Trump said he wanted, the dissembler-in-chief has suddenly decided that this is horrible and tells us the Fed has “gone crazy.”

Correction: The Fed has not “gone crazy.” And although it might make a good quip, it’s not even true that the Fed has always been crazy. Sadly, the wizards of Wall Street are perfectly in control of their mental faculties. They know what they are doing when they blow a bubble up, and they know what they are doing when they make one pop. And guess who’s got their needle pointing ominously at the global economy right now?

So, for the benefit of those who haven’t been keeping up, chaos has returned to the markets this week. A dead-cat bounce after a six-day losing streak has abruptly ended and, as of press time, stocks are back in freefall, led by plunging European markets (on track for their worst rout in five years) and poor earnings from two of Silicon Valley’s FAANGs. I say this not as someone who cares about the phoney baloney stock market (see literally anything I’ve ever written about stocks on this website for reference). I simply observe this as part of a wave of indicators that are being sent out to the hoi polloi right now that the pin is ready to prick this current bubble of economic unreality that we are living in.

Joe Sixpack and Jane Soccermom are meant to follow the ups and downs of the stock market and react to those signals in predictable ways. When stocks are reaching record high after record high, the message is clear: “BUY! BUY! BUY! Things are only ever going to go up from here on out! It’s different this time!” When stocks are suddenly falling the message is likewise clear: “PANIC! SELL! Get out while you still can!”

Add this to the list of things that people who follow the major economic headlines are meant to be worrying about right now. Rising interest rates. The looming specter of the end of quantitative easing in Europe. The trade war. The cutbacks to official forecasts. And now we’re hearing reports that the Fed, “may have to raise rates further than justified just to prove their independence” (i.e. to prove that they are the real rulers of the country), thus causing even more panic selling.

Again, a lot of this is smoke and mirrors. But in an economy that runs mostly on smoke and mirrors, that’s the point. The narrative that we’ve been fed for the past decade—you know, the one that assures us we avoided the financial crisis from the Lehman shock when the valiant central bankers stepped in to literally save the planet (again)—is finally coming to an end. The next chapter in this story is beginning to unfold, and we can already discern its outline…

Read the rest of the article at Steemit

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