In Bubbles We Trust, For Tomorrow We Die :: by Wilfred Hahn

Policymakers and societies at large are desperately waging their fight against the consequences of their past choices. Again, they have turned to the spurious advice of humanist shaman advisers and prophets — namely, macroeconomists and monetary theorists — who didn’t recognize nor anticipate the current problems to begin with. Their hope and presumption is that money — its manipulation, fabrication and supply — along with the magic hand signals and opaque hints of the monetary policymakers will surmount the chronic problems of our times.

However, before commenting further, a quick disclaimer for any new readers. As this letter is freely available and accessible to anyone, we do encounter the occasional shocked response. Just from whence comes our seemingly warped reference point … from a one-time top-ranked secular analyst, no less?

This column derives its perspectives solely from the Bible. Why? Its compilation of 66 ancient books (miraculously interconnected) has a lot to say about economics, justice and money, and this long before anyone defined such concepts as capitalism, Marxism, socialism or neo-liberalism … to name just a few modern belief systems. Crucially, the Bible claims to understand the heart of mankind saying “The heart is deceitful above all things and beyond cure. Who can understand it? I the LORD search the heart and examine the mind […]” (Jeremiah 17:9-10). The fact that the human heart is deceitful and its thoughts unpredictable, throws a wrench into any economic model or policymaker’s theory.

No doubt, regulators, having witnessed the massive corruption in the U.S. mortgage industry during the 2002-2007 period and in securities markets from time to time, might be inclined to side with Jeremiah. They were unable to sufficiently “search the hearts” and couldn’t keep up with deceit that was beyond cure. Humans today are prone to the same lures and temptations that they were before the Flood when the Bible says that “[…] every inclination of the thoughts of the human heart was only evil all the time” (Genesis 6:5).

Most would agree that the viewpoints found here will be mostly in contradiction to those that dominate the secular mainstream. That is not to say that a moral perspective or a Biblical world view would disqualify one from participating in investment decisions or economic diagnosis. On the contrary, in our opinion. If anything, it adds understanding to the nature of human actions. Nonetheless, many Biblically-based viewpoints would be in contradiction with the secular consensus and economic theories promoted on Wall Street. Why? Because, for all intents and purposes, modern-day economics does not deal with the issue of morality and instead focuses only upon its amoral theories.

Let’s return to our discussion of the trials of policymakers and leaders of nations. Of course, no one expects monetary policies to solve things like endemic poverty or malnutrition. Yet, similarly, the amoral monetary policies being perpetrated by the major central banks of the world today will not correct conditions of extreme wealth distribution, aging populations, post-Familialism, and various other global and ethical imbalances either. That is why policymakers are indeed becoming ever more desperate. Their potions aren’t working as of late.

Japan, its economy having stagnated for some two decades, piling up immense government debts during this period, finally threw all caution to the wind, recklessly depreciating its currency (yen). Lately, Chinese leaders are worrying that the economic slowdown that has recently gripped their nation might spin out of control and trigger a massive deluge of debt defaults. What to do? Plunge further into debt and try to reinstate the unsustainable policies that led to the current problems in the first place? To date, Japan’s actions have not spurred any recovery (nor is this likely to happen).

The same frustrations are being experienced by most countries, including the U.S. Unstable economic conditions extend from Brazil to Russia. Were conditions to deteriorate further, the world would find itself in a most dangerous condition, with a return to recessionary conditions at a time when interest rates are already low (in fact, at negative levels after adjustment for inflation).

We have a world-wide condition of desperation and fear of the future. Who or what can provide any hope? At present, it is seen to be central bankers and monetary policymakers. They are venerated as never before … the new, secular priesthood.

Watching the news coverage of policymakers, what we see is an idolization of these people. Their every pronouncement and gesture is magnified for world-wide consumption. One would think that these human bureaucrats must have “god-like” powers. A single syllable uttered by them is sufficient to trigger the actions of hundreds of thousands of investors, causing financial markets to instantly tumble or surge. It is the new dogma of the ripening religion of humanistic materialism. It wasn’t always this way. We would say that the fixation with the powers of central banks and its leaders is less than two decades old. It started in North America during the tenure of Alan Greenspan as head of the Federal Reserve (1987 to 2006). The German Bundesbank also attained a certain mystique during that time.

This idolatry is a reflection of a cultic faith. Why? Its adherents appeal to metaphysical interventions and suspensions of natural and physical laws by mere mortals. And, mere mortals they are. Anyone holding their job (including us) would likely free faint under the stresses of the expectations that are put upon them.

Nevertheless, the reality is that they are humans that have no special insight as to what will happen in the future. William White (a Canadian with lots of central banking experience and one-time economist with the Bank of International Settlements) recently was quoted as saying: “The analytical underpinnings of what we [mainstream economists] do are actually pretty shaky. People are making it up as they go along. They can’t even agree amongst themselves about what’s the best way to do things.”

Another central banking luminary, Stanley Fisher (a new Fed committee member, no less, and recent Governor of the Bank of Israel), says: “We don’t know what we’ll be doing a year from now. It’s a mistake to try and get too precise […] you can’t expect the Fed to spell out what it’s going to do … because it doesn’t know.”

Therefore, what do we see? Blind policymakers that cannot find any agreement on the nature of the problems, who nevertheless are the one and only hope to rescue humanity’s dear wealth hoard. What will desperation drive them to do? Like a dog, they may go back to their past folly (Proverb 26:11). In fact, this is likely.

Would it follow that another period of debt expansion (an additional $30-plus trillion in liabilities globally) and a further doubling of central bank balance sheets (relative to global GDP), as has occurred over the past 5 years, could yield a global stock market 200% higher by 2018 (5 years from now)? Would this be the ultimate test of success … stock markets that have tripled in price? It indeed could happen. However, it would not be a solution, but simply a  greater delusion … a more monstrous miscarriage of justice.

Nevertheless, this course is seen to be attractive. A rising stock market is widely accepted as the barometer of policy success, though its gains may be illusory and distributed between a very small number of people. With this in mind, we note that financial bubbles are in fact seen as a solution and not a danger. What is ignored is that all financial bubbles in prior history have ended destructively. No exceptions.

Is this likely miscalculation due to innocent ignorance, conceit or a willful desperate response? It would be all of the above, we think. Quoting John Kenneth Galbraith: “There can be few fields of human endeavor in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.”

At this late date, here in the early 21st century, fomenting bigger financial bubbles would be attributable to much greater hubris. Crucially, it would require a further collusion of policymakers, Wall Street, and the elites of the corporate world to fan up a greater “wealth effect.” As Keynes noted in reference to the financial bubble of the 1930s, it required a collective (and silent) agreement of the major players to “play the game.” Such a conspiracy would have little to do with fundamentals but rather is driven by a collective larcenous sentiment. Evil times will breed evil actions and delusions.

Also to be seen is a spirit of abandon and opportunism amongst the many financial players. “Let’s have another financial bubble.” “‘Come,’ each one cries, ‘let me get wine! Let us drink our fill of beer! And tomorrow will be like today, or even far better’” (Isaiah 56:12). “‘Let us eat and drink,’ you say, ‘for tomorrow we die!’” (Isaiah 22:13).

Consider this quote from Job. His observation will surely come to pass some day and applies to collective humanism. “Though the pride of the godless person reaches to the heavens and his head touches the clouds, […] He will spit out the riches he swallowed; God will make his stomach vomit them up” (Job 20:6,15).