Recessions in a Zero Interest Rate Environment

The mind boggles at how utterly clueless politicians are. Driving to the office through foggy Melbourne streets this morning, I was listening to News Radio. The host was waiting for Tony Abbott to start a press conference, where he was apparently going to announce some important new counter-terrorism funding and measures.

Then I thought back to last year when Syria’s Assad government was enemy number one. It crossed Obama’s ‘red line’ and the West wanted to take it out (primarily because it was afraid of an alliance between Syria, Iraq and Iran, which would upset the regions’ dominant power, Saudi Arabia).

But democracy got in the way (mass protests in Britain and the US), so the next best thing was to encourage and arm the ‘rebel’ fighters battling against Assad’s evil regime.

As it turned out, many of these ‘rebels’ were members of the Islamic State (IS), that medieval bunch of religious zealots now running amok through half of Syria and Iraq.

Why has IS’ rise been so dramatic and effective? Because they’ve been trained and armed by the US…with help from Saudi Arabia. Unfortunately, IS weren’t content to just try to take out the Assad government. They saw an opportunity to spread their influence in Iraq too.

And now here we are, with Tony Abbott using the time honoured threat of ‘terrorism’ to chip away at our freedoms. We shouldn’t be involved in the region, full stop…yet, we heard a politician on the radio this morning saying he would endorse Aussie air strikes in the region.

Did he endorse using IS as the main destabilising force in Syria, too?

Politics has descended to such a state in the West that the people running the show are completely out of their depth. War and economic vulnerability are the result.

This is why we called our investment conference, held in March this year, World War D. It was an attempt to encapsulate the descent of everything into some type of war…either real, cyber or economic.

If you missed the actual event, you can now watch a recording. Click here to find out more.

Part of the reason for the general descent of everything is because the dominant global power, the United States, is losing its grip. The balance of power in the world is slowly but surely changing.

But you wouldn’t know it by looking at the S&P 500! The index gave the headline writers an easy job overnight by breaching the 2,000 level for the first time. It didn’t cooperate fully, though, and closed just below that level, at the not so round number of 1,997.92.

Is the ongoing market melt-up a sign of strength or a sign of weakness? On the surface, it’s a good thing. Increasing stock prices represent underlying economic strength, right? Unfortunately, not this time around.

Increasing stock prices represent the market’s rational response to irrational central bank policy. That is, by pushing yields as low as possible on fixed income assets like bonds, central banks force investors into higher risk assets like equities.

The latest excuse for a rally came on the back of Mario Draghi’s speech at Jackson Hole, the place where central bankers meet at the end of each northern summer. Draghi apparently signalled that European QE could be on the table soon, especially given that inflation expectations remain so low in the region. Didn’t he say the same thing last month?

The prospect of more money printing in Europe offset the prospect of less money printing in the US…and markets duly rallied.

Read the rest of this article at The Daily Reckoning