The Jester Has A **Problem**


I really hope you’re paying attention here folks….

First up this morning is this “glitch”:

Royal Bank of Scotland is  facing calls to make payments as soon as possible to customers affected by its long-running computer crisis, as it admitted NatWest branches would again be opened for extended hours on Monday.

Uh huh.  There isn’t a wee funding problem involved here, is there?  I mean, nobody would ever lie about what’s going on at a bank, would they?  That would be flatly unacceptable.

Of course in a world where nobody goes to jail when they lie (so long as they’re a bankster), why not lie?  And this leads to the problem of trust by the public — how do you know that this is just a “computer glitch” and not something more serious, like, for example, the bank being actually bust?

But it gets better…

Central bankers are finding it easier to support their economies than to spur expansion as the prospect of Japanese-like lost decades looms across the developed world.


The rub is that even as they renew their rescue efforts, policy makers are postponing forecasts for fuller recoveries and run the risk that their latest actions pack a smaller punch. This raises the prospect of longer-term anemic expansion akin to the doldrums Japan has suffered since the early 1990s.

The only thing they’re “supporting” is a bunch of insolvent financial institutions.

But the problem with this “solution” is that it fixes nothing and in fact makes the problem worse, as it gives politicians cover to do the wrong thing (like borrow and blow 10% of GDP, as is happening here) rather than the right thing (like allow those who made bad bets to eat them and the resulting loss, going out of business and clearing the market for those who made good bets.)

Far worse is what it does to pension funds and other defined benefit programs such as annuities.  These systems are still using 8% annualized returns (on an indefinite forward basis!) as their internal rate of return.  In a zero-interest rate environment you can’t even approach that return, which forces these funds into stocks and other risky asset classes.

Now look at Japan.  Their stock market is at 20% of where it was in its hayday.  If you assumed 8% forward returns there you’ve been underwater for 20 years and long since dead and buried.

That is coming here, and when it does it is going to be yet another instance where people claim to be “surprised” and that “nobody saw it coming.”

The hell they didn’t.  I’ve been writing on the detonation of pensions and annuities now since 2007 and 2008, and will continue to do so.  At the same time it is clear that on our current path government policy will also force a massive and uncontrolled contraction in government spending, as the governments in the US are simply unable to say “No!” to constituents and stop the deficit spending.

The market will therefore force them to do so, and probably in an extraordinarily-violent, uncontrolled and unpleasant manner.

You’re being lied to folks, and I hope you’re prepared when the cold, hard recognition of reality strikes — because if you’re not, you’re going to be in a lot of trouble.

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