Coronavirus and Economic Collapse, Part I
“But we will certainly do whatever has gone out of our own mouth, to burn incense to the queen of heaven and pour out drink offerings to her, as we have done, we and our fathers, our kings and our princes, in the cities of Judah and in the streets of Jerusalem. For then we had plenty of food, were well-off, and saw no trouble.”
- Jeremiah 44:17
In his book Logic, Gordon Clark noted a number of informal logical fallacies. On page 17, he mentioned, among others, a fallacy called in Latin post hoc ergo propter hoc, or as we would say it in English, “after this, therefore because of this.” This logical error, hereafter the post hoc fallacy, involves asserting that, because event B took place after event A, that A is what caused B.
Now it’s true that there can be a cause and effect relationship between an earlier event and a late event. In Jeremiah 44, the prophet, speaking for God, states, “You have seen all the calamity that I have brought on Jerusalem…because of their wickedness which they have committed to provoke Me to anger.” God makes it entirely clear in this passage that the prior disobedience of the people of Judah was the cause of his bringing judgment on Jerusalem. We don’t have to guess at why the Babylonians leveled Jerusalem and burned the temple in 586 BC, God tells us explicitly both the cause and the effect.
Later in chapter 44, we get the reaction from the people to whom Jeremiah was prophesying. As it turned out, they didn’t much care for his sermon. Part of their response to Jeremiah was a classic case of post hoc fallacy. See if you can spot it.
But we will certainly do whatever has gone out of our own mouth, to burn incense to the queen of heaven and pour out drink offerings to her, as we have done, we and our fathers, our kings and our princes, in the cities of Judah and in the streets of Jerusalem. For then we had plenty of food, were well-off, and saw no trouble. But since we stopped burning incense to the queen of heaven and pouring out drink offering to her, we have lacked everything and have been consumed by the sword and by famine (Jeremiah 44:17-18).
Did I say, see if you can spot it? Reading this passage further, it seems to me that there are two post hoc fallacies to be found. In the first place, the people argue that their burning incense and pouring out drink offerings were the cause of their prosperity when they were in the land, when, in fact, it was God’s grace that provided for them. Second, they attributed their current state of exile to their worshipping the queen of heaven, when, in fact, the cause of their exile was God’s punishing them for their disobedience.
I bring up the preceding Biblical example of post hoc fallacy to introduce the main point of this post, which is to refute the linkage, put forward by mainstream financial reporters, the outbreak of the Corona virus in China is reason for the recent stock market sell off and spike in the price of gold.
Stocks Down, Gold Up – Obviously, It’s Coronavirus!
A quick look at two headlines from Friday on CNBC will give you a good sense of just how hard the mainstream financial media is pushing the coronavirus-as-end-of-the-world-as-we-know-it meme.
In the first place, CNBC wants you to believe that Friday’s, and the week’s, stock selloff was due to coronavirus. “Dow drops more than 200 points, posts losing week as coronavirus fears resurface,” was how they put it. Similar headlines could be found earlier in the week as well. Now some may argue, “the headline doesn’t explicitly say, “Coronavirus causes 200-point drop in the stock market. It merely says that stocks went down as coronavirus fears went up.” Technically, that’s true. CNBC doesn’t make an explicit causal link between coronavirus and stocks going down. But the intent, in my opinion, of headlines of this sort is to plant the seed in the reader’s mind that there is a cause and effect relationship at work. Just read through the article to see what I mean.
On the same day as the headline above, CNBC ran another headline, this one reading, “Gold surges 1.5% on growing coronavirus concerns.” Not only does coronavirus have the ability to drive down stocks, but it can cause gold to spike as well.
In both cases, sinking stock and rising gold, CNBC is asking its readers to accept coronavirus as the cause. First came coronavirus, then stocks went down and gold went up. Post hoc, ergo propter hoc.
Now, am I saying that coronavirus could have no effect on stocks or gold? After all, it appears that the illness has caused significant economic disruption in the world’s second largest economy. Could not such a disruption cause stocks to go down and at the same time cause gold – gold is considered a “risk off” asset, one that does well when “risk on” assets such as stocks are doing poorly – to go up? Yes, it could.
But while coronavirus could cause stocks to go down and gold to go up, it is not, in my view, the primary reason for these events.
To illustrate what I mean, consider that case of an overly indebted man who has a personal financial crisis due to an unexpected car repair bill. The man has been living beyond his means for years, but has successfully shuffled his debts around, staying just one step ahead of bankruptcy. Now ask yourself, was the unexpected car repair the reason this fellow suddenly found himself in financial dire straits, or was it the years of profligate living? I would argue that it was the years of profligacy that were the real cause. The unexpected car repair bill was just the thing the happened to expose the underlying problem, one that had been building for a long time before his car suddenly had mechanical problems.
In like fashion, the West’s financial system has been deteriorating for years, while at the same time stocks are hitting record highs and safety assets such as gold and silver are, comparatively speaking, performing very poorly. In the opinion of this author, this is an artificial situation. Stocks, in fact, should be much lower, while gold and silver should be much higher. A better explanation for the current stock market troubles and breakout in the gold price is required.
It’s the Fed! It’s the Fed! It’s the Fed!
I mentioned above that the current valuation of the stock market is artificial, that is to say, it is not based on market forces. Stocks aren’t the only asset in a bubble, either. At the same time, we have a stock market bubble, we also have a bond market bubble and a housing bubble. There are so many assets in bubble territory – by bubble, I simply mean the assets in question are overvalued - that some financial observers are calling it the “everything bubble.”
In the late 90’s we had the tech bubble. Any stocks with .com in their name immediately shot up to stratospheric valuations, only to come crashing down in 2000. In the 00’s, we had the housing bubble, when real estate zoomed up in value, only to tank in 2008 during the financial crisis. In fact, the 2008 crisis was closely related to the popping of the housing bubble. Now we have the everything bubble, with stocks, bonds and real estate all at record valuations.
So how is it possible to have so many markets in bubble territory? The root cause of the everything bubble is the same as that of the .com and housing bubbles – it’s the Fed.
Ever since the 2008 crises, the Fed, together with the Plunge Protection Team (PPT) and the Exchange Stabilization Fund (ESF), has used its enormous power and influence, not only to prop up favored markets, but to suppress those out of favor. It has done this through money printing – quantitative easing, or QE – market manipulation – some of the Fed’s manipulations are overt, such as cutting interest rates, while some of them are covert and speculative; for example, a recent headline in ZeroHedge reported that then Fed Chairman Janet Yellen said in 2017 that the Fed “might be able to help the U.S. economy in a future downturn if it could buy stocks and corporate bonds”; what are the odds this is already going on in secret? - and good old fashioned propaganda.
So what’s the problem with market rigging? There are several, one of the most pernicious of which is this: Once you start rigging, you can’t stop. Market rigging, you see, is a lot like telling a lie. Just as you can’t tell only one lie, so too you can’t just rig one market. Rather, you have to rig all markets.
If you want to create the (false) perception that the economy is doing great, you have to push up stocks and housing. The most effective way to push up stocks and housing is to artificially support the bond market. The Fed, by purchasing bonds through QE, artificially raises the price of bonds, which has the effect of artificially lowering bond yields. When bond yields are held down, this pushes cash into the stock market where it can find a better return than it can in the bond market. Lowering bond yields also lowers the interest rate of home loans, making it easier for people to borrow more money to buy a house. More money flowing into the housing market means higher housing prices.
At the bottom of all this is Fed money printing. If the Fed did not have the ability to create money out of nothing and then to use that newly created (counterfeited) money to purchase US Treasuries (and quite possibly other assets), stocks, bonds and real estate would all be much lower.
But as was mentioned above, once the Fed started on its program of market manipulation – the Fed’s market manipulation began in earnest with the 2008 crisis, but it had been going on for at least 20 years before that – it found it could not stop.
Market rigging, you see, is a bit like having the proverbial tiger by the tail - Once you grab it, you can’t let go or you get eaten. Likewise, once the Fed started rigging markets, it found it couldn’t stop.
This is not for lack of trying. Beginning in December 2015, the Fed started to inch up interest rates up from 0%. This program went on through December 2018, at which point the markets crashed. This prompted Treasury Secretary Steve Mnuchin to convene an emergency meeting of the PPT on December 24, 2018. Remarkably, when markets reopened the day after Christmas, the Dow shot up a record 1,100 points. But if you think this was the PPT’s doing, you’re a conspiracy theorist.
Almost immediately after the December 2018 market crash, Fed Chairman Jay Powell announced the reversal of the Fed’s policy of raising interest rates as well as an end to its Quantitative Tightening (QT) program of selling long dated US Treasuries.
Today the Fed once again is in full QE mode and, very likely, will be lowering interest rates in March.
As Proverbs tells us, “Treasures of wickedness profit nothing,” and, “Wealth gained by dishonesty will be diminished.” In like fashion, while all the Fed’s machinations so far have been successful at propping up stocks and housing, these artificially inflated markets are very unstable and susceptible to crashing. All it takes is for some unexpected event, a virus outbreak for example, to undo them.
It’s not the cornovirus that’s the cause of our current bout of financial instability, it’s the Fed.
Gold and Silver Suppressed
As mentioned above there are any number of financial assets that are now in bubble territory. But two that decidedly are not are gold and especially silver. This is not an accident. Just as the powers-that-shouldn’t be artificially inflate the value of favored assets, so too do they suppress the value of assets they don’t like, precious metals. Gregory Mannarino, a trader and YouTuber whose work I follow, refers to these monetary metals as being in an “inverse bubble.” That is to say, he believes their value is being artificially held down, and by the same people who seek to artificially inflate stocks, bonds and real estate.
But just as artificially inflated bubbles in stocks, bonds and real estate are unstable, so too are inverse bubbles in gold and silver.
Rather than seeing gold going up due to coronavirus, a more likely explanation is that the rise in gold is due to Fed money printing. Gold started a major bull run as priced in US dollars around the end of May 2019, long before anyone had even heard of coronavirus. Not only was this in response to the Fed’s actions to that point, but many observers think the smart money anticipated the Fed’s bailout of the banks via its program of supporting the Repo Market, which began in September and is still ongoing.
So Why Are They Pushing the Coronavirus Meme?
If it’s true what I’ve said, that the problems in the stock market and the rise in gold are due, not to the coronavirus, but to the activities of the Fed, why is the media pushing the coronavirus meme?
The answer: The mainstream media’s main job is not to inform you, but to misinform you.
You see, fellow deplorables, we’re not supposed to know the secrets of the high priests at the Fed. They are our betters. They are our masters. Our job, like ordinary Roman Catholics before the Reformation, is to accept what our masters at the Fed and in the media say, with implicit faith. That is to say, our job is to take what they tell us at face value and never, ever ask uncomfortable questions.
The masters of the universe have an unspoken rule: Whenever there’s an economic problem, a fall guy is needed. The Fed must never be blamed.
Back in the 70’s there was a terrible bout of inflation that was the result of President Nixon pulling the plug on the Bretton Woods accord in 1971. Even as a young boy, I remember hearing all the excuses for rising prices. It was the oil sheiks of OPEC. It was frost in the orange groves in Florida. It was droughts, hurricanes and hailstorms.
Anything but the truth, Fed money printing.
Think about that famous scene in the Wizard of Oz, where Toto goes and pulls back the curtain hiding the “Wizard” in his control booth. “Pay no attention to the man behind the curtain,” bellows the Wizard, trying desperately to keep Dorothy and friends from discovering that the Wizards was no Wizard at all, but just a man with a lot of special effects at hand.
That’s exactly the way we’re treated.
And it doesn’t matter what your political persuasion is, either.
You could be the bluest of blue Bernie Bros who hangs on every word Rachel Maddow speaks. Watch her program for years if you will. Listen to all of Bernie’s stump speeches several times over. You’ll hear them talk about income and wealth inequality, but you’ll never once hear them pin it on the real culprit, the Fed.
You could be the reddest of red staters, owning multiple MAGA hats and never missing a minute of Sean Hannity. Yet you’ll never once hear him talk about the role the Fed plays in creating price inflation and how its policies have caused stagnant wages and reduced living standards for the very people Donald Trump claims to represent, ordinary working Americans.
Even if you’re a middle of the roader and stick to mainstream network news, it’s the same sorry state of affairs. Watch the evening news for decades on end if you will, but you’ll never learn a thing about how the Fed creates money from nothing and hands it out to its friends and how you pay for it.
These omissions are not by accident. They are by design.
The powers that shouldn’t be are quite happy that people are ignorant of the games the Fed plays and they want to make sure people stay that way.
Flooding the airwaves with false explanations of financial market activity is how they keep people in the dark.
It’s not the coronavirus. It’s the money printing.
It’s the Fed.
It’s the Fed.
It’s the Fed.