Credit is not innately good or bad. Simplistically, productive Credit is constructive, while non-productive Credit is inevitably problematic. This crucial distinction tends to be masked throughout the boom period. Worse yet, a prolonged boom in “productive” Credit – surely fueled by some type of underlying monetary disorder – can prove particularly hazardous (to finance and the real economy).
Fundamentally, Credit is unstable. It is self-reinforcing and prone to excess. Credit Bubbles foment destabilizing price distortions, economic maladjustment, wealth redistribution and financial and economic vulnerability. Only through “activist” government intervention and manipulation will protracted Bubbles reach the point of precarious systemic fragility. Government/central bank monetary issuance coupled with market manipulations and liquidity backstops negates the self-adjusting processes that would typically work to restrain Credit and financial excess (and shorten the Credit cycle).
… A tremendous number of bets were placed based on a world of ongoing liquidity abundance, risk embracement and growth. __ http://creditbubblebulletin.blogspot.com/2016/02/weekly-commentary-global-bubble.html
We have talked a lot about the China credit bubble, and the havoc it has been wreaking on China’s economic soundness and stability. China’s credit bubble is nothing new, but it is taking the idea of the credit bubble to new levels of magnitude and complexity. More on China’s bubble-trouble.
Japan traveled a similar path in the 1970s and 1980s, and is paying the price. The central banks of Europe and the US have likewise been engaged in blowing credit bubbles for decades. They have been somewhat more discrete and cautious than China, but over time the bubble residues and consequences build until collapses occur on some level.
Georgetown University historian Professor Carroll Quigley argued that the aim of the powers-that-be is “nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole.” This system is to be controlled “in a feudalist fashion by the central banks of the world acting in concert by secret agreements,” central banks that “were themselves private corporations.”
… The Bank of Japan has used a heavy hand on Japanese economy for many decades, but Japan is stuck in a horrible slump.
But Werner says the same thing about the European Central Bank (ECB). The ECB has used loans and liquidity as a weapon to loot European nations. __ http://www.zerohedge.com/news/2016-02-11/central-banks-are-trojan-horses-looting-their-host-nations
Central banks are very helpful for powerful central governments, and enrich the powerful people who pull the hidden strings that determine long-term government policies.
A longer video from the Mises Institute looks at the underlying problem of central banking policies below:
Does this mean that the global economy is set to collapse, with TEOTWAWKI and TSHTF following on its heels? Not really. But stagnation and loss of opportunity are built into the current systems. Those who must pay their own way will have fewer children — while those whose way is being paid by governments, will tend to have more children. Eventually, the children of the freeloaders will swamp the children of the workers in absolute numbers and influence on future possibilities.
So what is to be done? It seems clear to us at the Al Fin Institutes in 2016 — just as it seemed to Ayn Rand in 1957 when Atlas Shrugged was published — that central governments and central banks have wrapped themselves up so snugly into the fabric of societies, that they are virtually impregnable to any imaginable conventional attack. At least they seem impregnable to any attack that would not also destroy the underlying society. (free PDF download of Atlas Shrugged)
This invulnerability of central banks and central governments to change via built-in political mechanisms, makes mandatory the creation of parallel mechanisms of money, credit, critical infrastructure — including energy, health care, education, transportation, and more.
Parallel systems of infrastructure, economy, and defence, spring up naturally in third world nations and in other nations with struggling economies. But they are likely to be weak, rudimentary, and will tend to be replaced at the earliest opportunity, should a strong central entity move in to supply a sounder economic and infrastructural basis of operation.
The collapsitarian dreams of your favourite doomers are most unlikely to come to pass. But then, it is always the doom that you didn’t see coming that gets you in the end.
Hope for the best. Prepare for the worst. It is never too early or late for a Dangerous Childhood.