Tuesday, July 31, 2012

What pumps the stock markets up?

Asian stock markets cheerfully rallied yesterday with the hope that super money printers-in-chiefs Ben Bernanke and Mario Draghi will step in to save the day for the nonfunctioning, corrupted, well-debted but well-connected part of the economy with the expense of every functioning parts. Pavlov’s alpha dogs and their equally idiot algo-trading algorithms are cheering up whenever they see a stimulus package in the horizon. The cheer inflates every asset it can find on its way and then ends with a sure disappointment and expectations of more and more stimulus. It seems like all the world economy is taken hostage by hard core Keynesians (Keynesian economist is an economist who believes governments can create economic activity and save the humanity by "digging holes" and "filling those holes").  To just show how absurd, wrong and stupid the things are now just look at  Yanis Varoufakis’s article:
On 20th August, the Greek government will have to borrow 3.2 billion from one arm of the Eurozone (from the EFSF) in order to repay another (the ECB). Yet Greece is insolvent. The very idea of an insolvent entity borrowing more from a community, like the Eurozone, in order to repay that same community is obscene. All it does is to shift the burden from the Central Bank to the taxpayers of Germany, Holland, Austria and Finland. This is not an act of solidarity with Greece. It is an act of irresponsible kicking-the-can-up-a-steep-hill. The simple point I have been trying to drive home for a long while now is that the Eurozone must make a simple decision: Either to give Greece a proper chance of exiting its current death spiral. Or to dump Greece now, before the Greek state loses all its remaining assets and before it gets deeper into debt. And if our Eurozone partners are not prepared to make up their minds (caught up in their own short term concerns and shenanigans), then Athens must force their hand to decide within the next 23 days. How? By announcing that Greece will NOT be borrowing on 20th August monies it cannot repay under the present scheme of things.
Here is what we have written before:
If you know economics only as much as Paul Krugman, which pretty much means you do not know economics at all, stimulus news may look good to you. The only thing it will do is to stimulate mal investment to unproductive assets such as property and add up to huge public debt which is the number one reason of the lack of growth in the first place. The problem is that by keeping interest rates near zero levels. Central Banks are damaging the functioning of a financial system whose purpose is to channel savings to profitable investments. This is because interest rate is the mechanism used to separate a profitable investment from unprofitable investment projects. Here in Asia, where there is a huge lack of innovative investment projects, savings already tend to overflow to property. And with zero interest rates, they are flowing fast to properties. Although this means great gains for early private property buyers, for Asian economy, this amounts to a huge over investment to a relatively unproductive asset and is damaging for the economy.
Source : Singapore private property prices up again from Q2 2012
By creating money out of thin air and inflating the assets all we stand on, ECB and FED are making sure that we crash down from higher and higher altitudes and end up badly. This stupidity will end badly. I hope I am wrong.

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