Let’s have a look at yesterday’s market action. And more importantly, the price action…
Our own Slipstream Trader, Murray Dawes, is back in the public eye with another YouTube broadcast. The European and North American markets digested the election of a socialist as President of France with calm, unlike the Aussie market. You can watch this morning’s stock market update here. Murray says:
‘Last Friday’s employment numbers ignited a sharp fall in markets worldwide. US markets are poised on the edge of some very important technical levels, with further weakness confirming a false break of last April’s high and creating a potential double top. The ASX 200 has also confirmed a false break of last October’s high which points to the potential for substantial downside from here.’
Speaking of Francois Hollande, he put markets on notice yesterday. Hollande said, ‘My real enemy is the world of finance.’ He may be right, although markets didn’t care one bit. But once he gets a look at France’s books and the real state of the European banking system, he’ll probably end up pursuing the same policies as his predecessor.
There is increasingly little difference between major political parties these days. They are custodians of a system where bankrupt governments are depending on the central banks which exist to finance governments as a matter of last resort. This is the last resort.
Besides, all incumbent and mainstream politicians have one thing in common: they seek power and self-preservation. That means defending the current monetary system, despite its obvious flaws and irreparability. It also explains the rise of fringe and radical political parties.
Unsound money undermines civil society and provokes social instability. Fiat money allows unlimited deficit spending at the government level and massive credit creation in the financial sector. The people who get to use this money first in the financial sector (investment bankers, bankers, financial firms) benefit enormously, as do the people who administer the system.
But if you’re not in a privileged position, you end up with higher inflation and reduced purchasing power. Not everyone can be an investment banker, either. When you throw in the globalisation of the labour market, you get a perfect recipe for huge income inequality. The resentment this inequality breeds can be exploited by radical political parties.
It’s a little like Europe around 1939. Of course by then, the radical political parties (the National Socialists) were no longer fringe parties. They were in power. We’re not there yet. But are we headed there?
We don’t know the answer. But you can’t separate political instability from a flawed monetary system. This is another way of saying that nothing in life is free. Decades of welfare state promises have led to unsustainable debts for the public sector. Meanwhile the private sector deleverages. The two forces cancel each other out and leave financial markets treading water…for now.
for Markets and Money
From the Archives…
Markets and the Aurelius Vision
2012-05-04 – Greg Canavan
How the RBA’s Interest Rate Cuts Cause a Housing Bubble
2012-05-03 – Nick Hubble
How a Cashless Society Promotes Tyranny
2012-05-02 – Dan Denning
2012-05-01 – Dan Denning
Risky Investments in a Market Full of Conmen
2012-04-30 – Bill Bonner