Anticipating a Correction in the Global Monetary System

Posted by Bill Bonner - The Daily Reckoning

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Whoa! The Dow rose almost 500 points yesterday. Whoopee! Hallelujah!

It was like the Second Coming on Wall Street. As if He walked across the East River…and announced it Himself:

“The fix is in.”

But it was not the sacred that spoke yesterday. It was the profane. The world’s central banks, to be precise. They got together. More like a meeting of mobsters than a gathering of the gods. They made it clear.

You want money? You want cash? You want something you can take to the bank? Well, you’ve got it!


“A move by the world’s central banks to lower the cost of borrowing exhilarated investors Wednesday,” the Associated Press reports, “sending the Dow Jones industrial average soaring 490 points and easing fears of a global credit crisis similar to the one that followed the 2008 collapse of Lehman Brothers.”

It was the Dow’s biggest gain since March 2009.

Large US banks were among the top performers, jumping as much as 7 percent. Markets in Europe surged, too, with Germany’s DAX index climbing 5 percent.

Wednesday’s action by the banks of Europe, the US, Britain, Canada, Japan and Switzerland represented an extraordinary coordinated effort.

But amid the market’s excitement, many doubts loomed. Some analysts cautioned that the banks’ move did nothing to provide a permanent fix to the problems facing heavily indebted European nations such as Italy and Greece. It only buys time for political leaders.

“It is a short-term solution,” said Jack Ablin, chief investment officer at Harris Private Bank. “The bottom line on any central bank action is that it papers over the problems, buys time and in some respects takes pressure from politicians… If nothing’s done in a week, this market gain will disappear.”

Banks stocks soared as fears about an imminent disaster in the European financial system ebbed.

But wait.

What has really happened? The central bankers have given out the word that they’ll print up as much money as necessary. So what’s new? Haven’t they been doing that all along? What is lending at zero interest rate? What is buying the government’s debt? What is taking the toxic bonds off the banks and brokerage houses?

What is really new? Not much.

You remember our advice, dear reader? Sell stocks on rallies. Well…what are you waiting for?

And if we were speculators we’d be selling stocks…even stocks we didn’t own. Because we have here an opportunity. The market is rising on hope, not on reality. And today, it might rise a bit more…

…until it finally realizes that there is no really good reason to be so bullish.

Stocks are bits of businesses. And businesses do not make more money just because the central banks print money. If this were not so, a few years ago, Zimbabwe’s companies would have been the most profitable on earth. Under the leadership of Gideon Gono, the central bank of Zimbabwe was printing up trillion-dollar notes and handing them out all over town. Trouble was, you couldn’t even buy a cup of coffee with them. In fact, you couldn’t buy a cup of coffee anyway…the whole economy was in such disarray nobody could get any coffee. Or anything else.

That was at the end. At the beginning money-printing works miracles.

But businesses do not operate in the realm of the mysterious or the sacred. They are remarkably down-to-earth undertakings. They’re real enterprises with real revenues and real expenses. They make money by selling goods and services. And, taken all together, they only make as much money as the economy itself allows. In other words, it’s not possible for all the businesses to do better than the economy that supports them.

So, now we can ask you a question: will the economies of the world’s countries do better, now that the central banks have announced they will print more money?

Or will they do worse?

It’s hard to say. But by our reckoning, the world is in the grip of a major correction. Among the things the correction is likely to correct is the money system…in which central banks have the power to create “money” out of thin air.

Would the correction correct something that didn’t need correction? If central bankers refused to print money there would be no need to correct them, would there? So this latest announcement just confirms what we thought all along.

Printing money is easier than raising taxes. It is also easier than borrowing…especially when lenders get wary. All that stands in the way is the integrity of the central bankers themselves.

Looks like that just gave way…

Bill Bonner
for The Daily Reckoning


Bill Bonner



Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily ReckoningDice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010. 

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