In motorcycling, there exists the charming term “tankslapper”

A small instability in the steering begins a cascading failure as the handlebars first twitch, then tremble, and then finally oscillate violently enough to buck the rider off the bike.

We can apply it elsewhere.

The Federal Reserve started in 1913, and the gold standard was abandoned the following year. Then in 1971 even the gold exchange standard was abandoned by Richard Nixon – governments in the developed world could suddenly print money to their heart’s content, without having to perform the tiresome act of hoiking metal out of the ground.

Their heart’s content was considerable.

Divested of monetary responsibility, they could indulge their wettest fiscal dreams – they immediately set about bribing voters with all manner of handouts.

The Welfare State could suddenly be funded very thoroughly indeed.

Millions of public sector pseudojobs were created and the welfare state boomed – the creation of an enormous client state that was completely reliant on the State for its livelihood.

Not surprisingly, the occupants of this client state were heavily incentivised to continue voting for any politician who promised to keep the gravy train rolling.

Democracy had been subverted and now votes were being bought.

As the borrowing and printing continued, so more and more of the money was gambled and invested by crony capitalists, and eventually a stock bubble formed – tech stocks were the vanguard.

When it became clear that the fundamentals of the tech companies were a joke, the same people who had bid up their values got cold feet and decided to book their profits.

All at the same time.

The resulting stock market crash was epic.

And how did the Neo-Keynesian advisers to government at the time react?

Paul Krugman, writing in 2002 suggested that we create a housing bubble.

And so they did – over the next 7-year business cycle central banks colluded with retail banks and governments to print and lend as much money as possible, to ensure the people kept earning and spending.

And then the people who had been enticed to borrow found they could not afford to pay back, and the resulting housing crash was epic.

And how did the Neo-Keynesian advisers to government at the time react?

Here’s Ben Bernanke, telling Congress in 2007 that ” the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained”

Nothing to see here, move along.

Well now the bubble is in the most senior asset class – bonds.

The tech stock bubble destroyed companies.

The sub-prime crisis destroyed banks.

The bond market crisis is about to destroy currencies and nations.

This is the ball game – a monetary tankslapper to tell your kids about.

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1 COMMENT

  1. The Fed has been famously wrong in both directions. It does not seem like a whipsaw to me but just a sequence of pseudo-randomness. The 2008 presentation, I insist, was deliberate sabotage by Geithner and Bernanke to steal an election. In 2012 they had Benghazi; in 2016, Russia Collusion and Incontinent Prostitutes wasn’t quite weaponized but no one thought it would be needed. But it came out last week that Clapper and Comey trolled Trump exactly to get him to act rashly and/or to use him to give their claptrap the status of news.