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Wednesday, September 11, 2013

The New liquidity trap

The classical Liquidity Trap occurs when no matter how much money is printed by the Central Banks and given to the member banks, still nobody wants to borrow and spend.

Right now there is a small class of people with so much paper money all they do is spend.  They can spend 24 hours a day, seven day a week and not make a dent in their paper horde.  So they do.

Then there is the 99 percent who are trying to cut back and make ends meet.

In that classic bar where 99 of these poor middle class shmucks are drowning their sorrows in dollar beers, Bill Gates walks in, and suddenly the average drunk in that bar is a multi-millionaire, statistically speaking.  This situation approximates the statistical nominal growth in our economy.

How did this one percent become so fabulously wealthy?  Well, sure, a few of them invented something.  But most work at the banks where they get given all that money that the Central Banks print up.

They don't lend it out.  Nobody really wants to borrow it anyway.

Rather, they gamble it in the liquid markets.  This creates the New Liquidity Trap.  Any market liquid enough to accommodate large scale gambling is now controlled by the Central Banks and the Member Banks.  This includes Currencies, Debt, Metals, Oil, Stocks, Real Estate, and all sorts of Derivatives.

That means that any market large/liquid enough to create and store wealth for the Banking Class, is also at the complete mercy of the Banking Class.  And they will eventually strip all value out of those markets through massive market bubbles that eventually must collapse.

Therefor, true stores of wealth that are protected from the Banking Class only occur in relatively illiquid markets.  Because the very illiquidity protects these markets from large scale gambling.  Thus they hold no interest for the Banks. 

These markets include Art, Antiquities, Coins, Medals, Historical Documents, etc.  That doesn't mean there isn't fraud, cheating, lying, and manipulation in these markets. These are problems of human nature.  But it does mean that those private citizens investing in these markets as a store of value can do so with some degree of protection from the Banking Class.

Yes, Individual Bankers are entering these markets.  They are buying with their usual vengeance, as another way to diversify out of their paper.  But they can't got out and corner these markets to subsequently manipulate them.  The product doesn't exist it that quantity.  It has to be bought patiently over many years.  It requires time intensive expertise, as no two pieces are alike.  Each purchase is unique.

This is frustrating and confusing for traders used to bullying markets through sheer volume.  

This actually creates advantages over the banking class for private citizens willing to put in the time and effort.

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