Between TBP and Of Two Minds (Charles Hugh Smith) I feel like I have received a world class education. Either that or the ultimate red pilled experience.
Of Two Minds gives us, in today’s post, an explanation of the New Age Nationalization.
This is the new model of nationalization: central banks control the valuation of private-sector assets without actually having to own them lock, stock and barrel.
As you no doubt know, central banks don’t actually print money and toss it out of helicopters; they create a digital liability and use this new currency to buy assets such as bonds and stocks. Central banks have found that they can take control of the stock and bond markets by buying up as much as these markets as is necessary to force price and yield to do the central banks’ bidding.
Central Banks Have Purchased $2 Trillion In Assets In 2017. This increases their combined asset purchases above $15 trillion. A trillion here, a trillion there, and pretty soon you’re talking real money–especially if you add in assets purchased by sovereign wealth funds, dark pools acting on behalf of monetary authorities, etc.
Gordon Long and I discuss this stealth nationalization in our latest video program, The Results of Financialization: “Nationalization” (35 min):
[youtube https://www.youtube.com/watch?v=9lMDfkHbPGY]
In the old model of nationalization, governments expropriated/seized privately owned assets lock, stock and barrel. When a central state nationalized an enterprise, it took total ownership of the asset.
In today’s globalized financial world, such crude expropriation is avoided for two reasons:
1. The entire point of the dominant neoliberal / neofeudal /neocolonial model is to maintain private ownership as a means of transferring the wealth to the New Aristocracy, i.e. the financier class. Government ownership certainly conveys benefits to the some are more equal than others functionaries atop the state’s wealth-power pyramid, but it doesn’t transfer the assets’ income streams to private hands.
2. It sends the wrong message: central banks want private investors to do their bidding, i.e. to go along with the transfer of wealth and income from the many to the few (the New Aristocracy). Maintaining the system of private ownership enables the central banks to control the markets for these assets at the modest cost of a few handfuls of the loot being distributed to the small-fry owners of IRAs, 401K retirement accounts, etc.
In other words, what central banks want is not outright ownership, which is costly and troublesome; what central banks want is to control the markets on the cheap, with leveraged buying. In effect, central banks have been able to manage assets worth $150 trillion with a mere $15 trillion in well-timed (and loudly announced) asset purchases.
This is the new model of nationalization: central banks control the valuation of private-sector assets without actually having to own them lock, stock and barrel. Being the buyer of last resort–the Plunge Protection Team that buys every dip in whatever size is needed to stabilize valuations and then reverse the downturn into yet another rally to new highs–has worked for nine long years.
This success has bred a complacent faith in the central bank cargo-cult that there is no limit to central bank control of yields, valuations and market sentiment.
But as I’ve described here many times, financialization is a box canyon. Once you start down the path to the Dark Side of phantom wealth created by commoditized debt and leverage (i.e. financialization), there’s no turning back to the real world.
The central bank aircraft is flying into a canyon with walls 2,000 feet high at an altitude of 300 feet. Everything seems to be going splendidly until the central bank aircraft rounds a bend in the canyon and discovers the canyon ends in a rock face 2,000 high.
In a desperate attempt to escape the box canyon, central banks will ramp up their assets purchases of bonds to keep yields near zero, and of stocks to keep the bubble valuations high enough to support all the debt and leverage that’s been piled on the underlying collateral of the stock market: non-phantom net earnings.
Needless to say, attempting to control global markets via the issuance of trillions in new currency and using that currency to buy huge chunks of the stock and bond markets is an unprecedented experiment.
To continue the box canyon analogy: central bankers and their cargo-cult faithful are confident central banks are flying an F-18 with afterburners on max; climbing 1,700 feet in a near-vertical ascent should be no problem.
Those of us outside the cargo cult see the central bankers flying a Wright Flyer: innovative in its time, but inadequate to the task of controlling private-sector markets via stealth nationalization.
I’ve watched this new way of nationalization unfold for many years now, it’s amazing how the public still thinks the stock market reflects the economy. Just in case some curious types want to dig further, the unemployment rate follows in lock step with the stock market which proves everything is fine. For any who still smell something fishy, just look at the precious metals market and see an undervalued commodity that would be sky high if the economy was tanking, so obviously, everything is awesome.
The one part of this story I’ve never been able to trace is the plunge protection team; and how do they do what they do? Are they central bankers, private organizations or both?
I’m no economist and have very limited understanding of how the system operates, but the PPT that appears out of nowhere to do its magic is something I would like to have a better understanding of what they’re about.
This explains a lot of it:
https://en.wikipedia.org/wiki/Exchange_Stabilization_Fund
This is the much talked about “PPT.” This is a pretty light explanation, and I believe that it is MUCH MUCH larger than the article states.
Thanks for the link!
Not Sure, I agree the market today is detached from the economy ever since Clinton, Bush and Obama started fudging the numbers. Many may recall employment numbers, and many others were revised in January 2013 so severely from initial numbers released (October 2012 just before Obama was reelected) even CNN and CNBC stated the positive jump seemed to have a political bent and they looked forward to the January revision numbers. That January the numbers were revised to show a negative not the 400+% rise the October numbers showed. Clearly showing we are worse than China at factual reporting. Colleges will teach in future economics classes this folly we are living today. Monetary and Fiscal policies were the 2 ways govt “fixed” the economy. Bernanke showed them a way to become dictators. Rather than the Fed creating money supply by printing, loaning to banks so banks loan to businesses and the people increasing money supply causing inflation, they printed money, reduced rates so the market is the ONLY place where baby boomers (where most wealth is) can get a return on assets. They bought every dip to keep the market going up. Increasing consumer sentiment only to allow the market to crash (soon 2-5 years) so certain elites can then buy up shares and ownership in a near future worse than 1929 crash. The 1% will become the .01% by ten fold. Brilliant strategy actually. This will be the mother of all crashes in derivatives like no other. There are roughly 32 owners per each share of stock. Everyone thinks they own the share. Read your brokerage agreement at every firm. You give consent to allow the broker dealer or custodian to resell or loan your shares unless you strictly opt out. Read it! Nobody reads it and simply signs. The govt can lose the $4 trillion they already spent buying shares, to be made up with inflation and taxes quickly during an unraveling. Will take less than a year to recoup. I remain unsure if precious metals will help as they have a plan of either making it illegal to own again or will confiscate. My belief is they are destroying the gold narrative that it’s just a piece of metal and now fewer believe in it’s intrinsic value so we ourselves will have demoted golds value and will be dependent on govt policy and maneuvers during the next crash. Virtual currencies spooked them but they already have a plan in place to hack that and cause its crash simultaneously, just watch. There will be no safe haven. Land ownership (with no loans seems safe) until burdensome tax laws are increased under false premise of govt needing revenues. Makes me wonder where these elites are storing cash for the “buy” of a lifetime? Must be foreign currency, SPDR’s (special drawing rights not available to us commoners), or potential lucrative govt contracts that guarantee payments, I am unsure but confident it’s not held in normal fashion. They are “fixing” the structure to allow significant inflation in fossil fuels by keeping archaic laws to allow banning of new refineries in turn will cause massive output problems with very limited supply making the 1970’s gas lines look small. This will reward the electric vehicle narratives. They want to limit your travel distances and freedoms. Govt plays the long game (100 years, citizens live paycheck to paycheck). Most people cannot play a 10 year game due to emotional and behavioral finance patterns/habits. The only thing in their way is the 2nd amendment and once that is so muted the end game is up. They will destroy it under Trump so it provided credible cover. The narrative was in place by Obama for every 122 days mass shootings for 6 years! Still happening under Trump! The 2030 plan is in full swing and I can see it. Very well thought out and effective to say the least. Once the 2nd amendment is muted or gone, magically all 700 million guns no longer hurt people and everything seems like utopia. They need people to believe it worked. Then they will have one major gun issue and go house to house to eliminate nearly all of them by 2025. The last 5 years they will crack down on “wolverines” like in red dawn, but they will the be people that buried them etc. and by 2030 you will feel the Impluse to get out of the USA as it will feel like a prison making North Korea look like a 8th grade sleep in with chaperones. 1984 will have become an actual reality. I remain on the hunt for Galts Gulch……
I doubt if even one person will read your post.
It might be good, it might not be.
You might consider PARAGRAPH BREAKS.
It’s really easy. Do you need the instructions?
A paragraph is device meant to reduce reader fatigue.