Without Planning Permission

Stock market crash threatens big redevelopment...

WE LEARNED from our lawyer that our new house is on the "Preservation List", writes Bill Bonner in his Diary of a Rogue Economist.

"What does that mean?" we asked, innocently.

"Ah...it's a disaster. They go around, and for no apparent reason, they put your house on the list of historic houses. That's what they did to me.

"Then, you canny drive a nail without asking permission. When I have to do something...I do it at night...or during the holidays."

This news came as a bit of a shock. Because we intend to drive lots of nails. But the architect disputed it.

"Noooo, it's not that bad. You just need planning permission. It won't be a problem. But it will take three months. Unless you want to put some American-style deck onto the house. Then, you'll never get permission."

Meanwhile, it looks to us as if the markets are planning to knock down the entire capital structure – without planning permission.

The financial modifications now underway in Washington are more serious than most people realize. We seem to have gone from a 30-year era of EZ money to an era of Not-So-EZ money.

After adding $4 trillion in QE "liquidity" over the last nine years, the feds are set to withdraw $3 trillion (according to economist Richard Duncan) over the next three years. And instead of lowering interest rates, the Fed is raising them.

Perhaps in anticipation, stock markets reduced the value of equities by $2.5 trillion last week. If this is true, every financial projection, calculation, and wishful guess needs to be reconsidered.

As long as the Fed was providing financing, people could borrow as much as they wanted...

...without forcing up interest rates...

...without correcting reckless speculators...

...without providing honest price discovery...

...and without keeping people from borrowing so much money that they were almost certain to blow themselves up.

Here are the latest figures from the New York Fed:

"Aggregate household debt balances increased in the third quarter of 2017, for the 13th consecutive quarter, and are now $280 billion higher than the previous (2008 Q3) peak of $12.68 trillion. As of September 30, 2017, total household indebtedness was $12.96 trillion, a $116 billion (0.9%) increase from the second quarter of 2017. Overall household debt is now 16.2% above the 2013Q2 trough."

But now, the world's total debt level – about $233 trillion – is higher than ever.

Stock market valuations, too, according to a new calculation by investment manager John Hussman, are higher than ever.

And as much as $7 trillion in government bonds still trades at negative yields.

All those numbers – and the millions of private plans that depend on them – are about to be corrected.

The Fed is no longer providing unlimited funds; it's extracting them. And this changes everything.

We predicted that the Fed would never follow through on its plan to "normalize" interest rates.

We still believe it.

When the going gets tough, the new Fed chairman, Jerome Powell, and his fellow central bankers, will all turn tail and run.

They will show the same "courage to act" as Greenspan, Bernanke, and Yellen.

That said, we also see that the Fed was remarkably blind to the problems it was causing by leaving interest rates too low for too long.

Most likely, its vision hasn't improved; it will repeat the error in the other direction, continuing to put away the booze even as the revelers begin to show signs of delirium tremens.