Central Banks are out of Ammo with no Choice but to let their Currencies Burn
At the beginning of last week, everyone expected central banks to “tighten until something breaks”. By the end of the week it was clear that they’d already broken everything. Two middling US banks imploded, European mega-bank Credit Suisse finally died a well-justified death, and “who’s next?” speculation ran wild. And just like that, the era of tight money ended. The piecemeal, fingers-in-the-dike character of this response can be explained in one of two ways: Either the morons running the global financial system were completely blindsided because they actually thought rising interest rates and a falling money supply would slow inflation without unintended consequences, despite a century of contrary experience. Or the evil geniuses running the global financial system have engineered a multi-faceted crisis as an excuse to assume total control. Banks were already tightening credit standards before last week’s flash crisis. Now virtually all of them will stop lending to any but their strongest clients. The number of underwater car loans, where the loan balance exceeds the value of the car, has been rising for months. Commercial real estate was toast in any event, but now it’s burnt toast.