by Karl Denninger, Market Ticker:
So they said at 7:41 on 10/11.
Ok. I happen to agree by the way because, as was noted in one of the first few pages of Leverage: Nobody, in a free market, ever lends money at a loss on purpose.
This doesn’t mean people don’t do dumb things; they do — all the time.
But nobody holds a bonfire on their back porch with $100 bills.
So what is the nominal short-term (e.g. 13 week T-bill) rate of interest required today to have a positive real rate?
That is the forward real rate must be greater than the federal budget deficit in nominal terms as a percentage of the economy or you are lending money intentionally at a loss.
Yet the entire bubble machine game since the 1990s has been predicated on intentionally lending at a loss, with the game being a simple one: How do you con people world-wide into buying Treasuries at a coupon rate that is less than the budget deficit of the Federal Government on an annual basis?
You can only do it by lying and outright coercion.
There is no other way because nobody will do it on purpose otherwise.
The stock market is overvalued by an enormous amount as a direct consequence of this because a “forward P/E” is inherently a declaration of leverage.
Go look at the top of The Market Ticker masthead. Take said leverage out of the system and then account for the expected overshoot and that’s about where it trades.
The entire so-called “recovery” since 2009 has been one fraud-laced leverage game.
These games always end and they always end in crashes because nobody — and I do mean nobody — ever comes out and actually puts forward the two basic facts: Nobody ever intentionally lends at a loss and The actual rate of monetary inflation is trivially measurable as the advance in Federal Debt against GDP.