3/30/2010 PERMALINK
The effect on markets of the world's governments going into 'national security panic mode.' All the financial pundits are wildly underestimating the profound impact on markets the world governments going into full "national security panic mode" is having.

Once in 'national security panic mode,' our politicos will change accounting laws to allow big banks to hide enormous levels of bad debts from their depositors and investors. Give big banks, insurance companies, car makers, etc. huge bailout injections of capital. Take on ANY amount of bad assets and assume ANY amount of market risk, which they see as necessary to propping up the financial system. They will inject however much liquidity it takes to keep the stock market buoyant. Indeed, they would probably even be willing to secretly acquire trillions in common stocks. If they reckoned that was the only way to stave off a large decline in the stock market at this dangerous 'national security' threatening moment in history.

When the rules of the game you are playing have been profoundly shifted from the economic realm into the political realm. Trying to use the old rules to assess markets is profoundly foolish, but that is exactly what financial pundits are doing.

While we need to beware of this, it should not surprise us. Since this tendency is a well documented programming flaw in the human mind. All humans tend to have serious blind spots towards perception of large game-changing shifts. Typically only perceiving them well after having been trampled into the ground by them.

As Douglas Adams once observed. When your tribe's woolly mammoth hunts are giving you lots of food, material for sewing incredibly warm and comfortable clothing and for building great water proof shelters. And even providing ivory and bones that can be easily shaped into great tools for killing even more woolly mammoths. Human minds have a powerful tendency to just go with the flow and never contemplate what will happen to the bloated population of their tribe when the mammoth-fueled good-times runs out next hunting season with the death of the last woolly mammoth.

The few who can purge the old game's rules from their heads and get tuned into the new game's rules a little ahead of the pack are going to be the ones that survive and prosper in the post fiat money world.

The Keynesian theory that fiat monies, credit expansion, suppression of interest rates and other types of government interventions and controls can build a lasting prosperity is a fatally flawed theory. And humanity has just begun to pay the terrible price that will be exacted from us for allowing the world's nation states to remodel our economies using these flawed theories.

So as you read those pundits who are trying to interpret the new game using the old game's rules, beware of letting this retard further your mind's already limited capacity to perceive and adjust to a systemic shift.