On Thursday 7n January this newspaper commented that behind the capital markets selloff, which shook the financial world in the first week of this year, were the financial moguls who want to impose their terms to central banks and mainly the American Fed. Since then stock markets keep losing a lot of grounds every day. Yesterday this tendency took frightening dimensions. The S&P index reached its two years low.
In Europe it was even been worse with the London, Paris and Frankfurt stock markets losing between 3% and 4%. Oil prices fell by 6% reaching $26.2 a barrel. Even worse, it seems that there is a widespread perception, probably officiously nurtured, that this will continue. And as if the time has stopped in Davos on the Swiss Alps and what is happening in the rest of the world right now doesn’t reach the perennial Alpen valley, academics and super rich people keep wondering about what will our daily life look like after fifty years and what the ‘fourth industrial revolution’ will do to employment in the distant future? In the spirit of John Maynard Keynes, a good answer to such worries could be that, in the long term we will all be dead. Let’s return to today’s realities.
What the moguls want has recently been aired with ‘penetrating’ analysis published in main stream media, authored by market pundits. Their motto is that the Fed, for one thing should not start cutting down the $4.5 trillion it has injected into the US major banks for free. And secondly, the Fed shouldn’t raise further, the almost zero interest rate it just started charging for its trillions or better it has to return to the flat zero interest rate practice, it followed during the last five years.
The American super banks
In short, the major American banks are telling us that we should continue generously subcidising their profitability with our dollars. The method is very simple. The Fed gives to banks trillions at zero interest rate and they lend it to foreign governments and other big borrowers for an average interest rate of 8%, thus making a net profit of $360 billion a year. Given that they have been doing this for five years now, they have usurped €1,800bn mainly from the Americans, who sweat five days a week for their living.
The banks have also been ‘investing’ the money they get for free from the Fed at every grey or dark market, making even larger but riskier profits. Of course they don’t care about risks, because if their bets turn sour, they will be saved again with Fed’s money. As everybody knows ‘they are too big to fail’.
In Europe too
The European banks are developing their strategy around the same lines. Currently they are promised by the European Central Bank to get €1.41 trillion more, during the next twelve months for an interest rate too close to zero. Everybody else, that is consumers or small businesses have to pay dear interest rates for a loan. For comparison reasons, consider that consumers pay on the average for their loans anything between 20% and 30% for the same money the banks have received for free.
Coming back to yesterday’s selloff in all markets from Tokyo to London and from Shanghai to Frankfurt, some people may think that this was a genuine fall of values and the banks had nothing to do with it. Add to that the unbelievable fall of the price of oil and one may arrive at the conclusion that the banks are innocent and they just have to take percussions and get more money from the monetary authorities, in order to save capitalism and us all from a new Armageddon.
Driving the markets down
If you dig a bit deeper however in what happened in the markets yesterday, you will find out that it all started with the selloff of the oil giants Exxon and Chevron stocks, which fell 4.6% and 6.3% respectively. Interrelated with that was the fall of the WTI crude oil price by 5.96% in the NYMEX market. Then every other value in the capital and the commodities markets followed suit in the abyss. It was a clear cut short selling of everything.
One may comment that this was to be expected because the world economy is lowering gear. But a reduction of the global economy growth rate from 4% last year to 3.4% in 2016 can hardly a cause for the capital and commodities markets to lose trillions and the real economy to be threatened with destruction. No economic theory can support that, with the exception of the market pundits, who theorize that the ‘investors’ are currently over reacting. It’s not the investors who do that. On the contrary most investors, especially, those with long term perspectives, would never push the market to a new crisis.
Is it a trap?
In any case the present down tendency, or rather the strategy of bankers will continue for as long as the Fed will be contemplating another increase in its interest rate. All in all, this may not be a gigantic set up by a handful of money sharks. It’s more probably a natural reaction of those who are accustomed to usurping the real economy. From times immemorial, bankers were considered to use deception in order to create value out of nothing, just by creating new money. That’s why even the pioneer and philosopher of free-market economics, Adam Smith advised that the money market and the banker trade should be closely monitored, controlled and strictly regulated unlike any other trade.
Unfortunately during the past twenty years bankers managed to free themselves from traditional tight controls and regulations and now they have imposed their will on the economy and consequently on the society. Rolland Reagan and Margaret Thatcher started deregulating the banking industry and Bill Clinton and Tony Blair finished the job.