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Forever Blowing Bubbles

Are you familiar with the classic song, “Forever Blowing Bubbles?” Though the start of the first verse— I’m scheming schemes, I’m building castles— sounds optimistic, we later learn the fate of the singer’s dreams: “I’m forever blowing bubbles, Pretty bubbles in the air, They fly so high, Nearly reach the sky, Then like my dreams, They fade and die.” According to financial analyst Dawn J. Bennett, this classic just as well be the theme song for central bank-driven monetary policy and market manipulation. But, unlike the fading dreams, the asset bubbles won’t fade; they’ll explode with significant collateral damage.

Recently, many warning signs have emerged to support the idea that trouble looms ahead. And, many key players in the financial market agree. Billionaire hedge fund manager Mark Spitznagel told the Financial Times, “Markets don’t have a purpose anymore— they just reflect whatever central planners want them to.” He continued, “This is the greatest monetary experience in history. Why wouldn’t it lead to the biggest collapse?”

In the same article, Nassim Taleb, Universa advisor and best-selling author or Fooled by Randomness and The Black Swan, explained, “Being protected from fragility in the financial system is a necessity rather than an option.” And, Spitznagel and Taleb aren’t the only ones with this viewpoint.

According to Dawn J. Bennett, “The Bank of Japan, acknowledging the violence being done to the yen by years of quantitative easing, said recently that they are setting aside money to prepare for losses on their huge holdings of Japanese government bonds which were put together and purchased through their printing of fiat currency once they are finally forced to stop monetary easing.”

She continued, “Easing is a vortex that has sucked in the central banks over the last eight years, forcing them to continue blowing bubbles to follow bubbles to follow bubbles. Indeed, there have been calls even for our own Federal Reserve to go beyond QE to “helicopter money,” essentially going beyond interest rate manipulation and money printing by injecting “permanent” money directly into private sector. Could this be why China is establishing a yuan-denominated gold benchmark for trading, in order to start backing their currency with real assets instead of academic theories?”

Bennett notes that the U.S. is close to one of the largest bubbles— the U.S. derivatives market that is valued at over $1 quadrillion dollars by some accounts. This is 20 times more than the value of the entire world economy and the biggest bubble in history.

“It’s sheer gambling, including not just equities but physical commodities,” says Bennett. “The legality is questionable in many cases, but the problem is definitely real and indisputable.”