Two numbers, two vastly different realities…
We can’t kick the can down the road forever…
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Dear reader,
Market observer Erik Ghirarduzzi:
You are told, on the same front page, that markets are at record highs, that the economy is generating record jobs, and that “national wealth” has never been greater — while in the next tab, you… find record credit-card balances, record insurance renewals, and a savings buffer that rounds to zero.
Record stock market valuations sit beside record credit card delinquency rates. Record low unemployment sits beside record time-to-hire and job-search fatigue. Record corporate profits stack on top of record household interest-to-income ratios. Record “national wealth” coexists with record subjective financial anxiety.
I am not familiar with this Ghirarduzzi fellow. Yet I believe here he strikes bullseye.
I myself have registered similar observations. And a man is receptive to anything, or anyone, that validates his observations.
The stock market runs to record heights, the wealthy wallow in high style, the official economic data suggest strength.
Yet the lower and middling classes run furiously upon the hamster wheel… remaining largely still.
The “K-Shaped” Economy
Some have labeled it the “K-shaped” economy.
Observe the letter K.
The upward-sloping extension from the vertical line represents the beneficiaries of the economic arrangement.
Along this axis you will find Wall Street, corporations and, in the main, owners of assets.
The downward-sloping extension from the vertical line represents the laggards of the economic arrangement.
Along this axis you will find the laboring classes, smaller businesses and the non-owners of assets.
I have labeled it the “Reverse Robin Hood Effect.”
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A System Built Around a “Mirage”
Mr. Ghirarduzzi believes the existing system represents in essence a “mirage.”
It tells, in his estimation, “the story of a financial system that has become extraordinarily skilled not at pricing risk, but at deferring it.”
Once again, my head nods in violent agreement.
At the merest indication of distress, the Federal Reserve intervenes with rate reductions, quantitative easing under this name or that name, and other implements of financial easing.
It excels at kicking cans down roadways… and then kicking them farther down roadways.
Yet how stable is this system?
The Financial System Is in Perfect Health
This fellow cites two separate figures that draw a vast distinction between the financial system’s supposed sturdiness — and the worrying risks confronting it.
The first figure is 0.22.
That is the current reading of a financial gauge known as the Composite Indicator of Systemic Stress.
The European Central Bank concocted it to assess the financial system’s integrity along five central nodes — banks, money markets, stocks, bonds, and foreign exchange.
In Mr. Ghirarduzzi’s telling, a 0.02 reading of the Composite Indicator of Systemic Stress
is:
About as low as the instrument goes. It says, in effect, that the pipes are flowing with perfect, frictionless liquidity. Nothing in the financial system, according to this gauge, is under stress.
Just so. Yet next we come to the second figure of the two.
The Highest Level of Risk in 60 Years!
This second figure is 106,862.
That is the current reading of the World Uncertainty Index (WUI), so-called. About which:
The WUI — which scours Economist Intelligence Unit country reports from 143 nations, counts how often the word “uncertainty” appears, normalizes it, and rescales the result.
Yet here we find the yawning chasm that divides the hale and hearty Composite Indicator of Systemic Stress… from the unhale and unhearty World Uncertainty Index:
A reading of 106,862 is not just high. It exceeds the peak readings of COVID-19, the 2008 Global Financial Crisis, and the September 11 attacks — combined. It says that the narrative fabric of the global economy is more frayed than at any point in sixty years of recorded data.
More frayed than at any point in 60 years of recorded data! Did you catch that?
It is as if the weather service ran two simultaneous forecasts. The one indicates blue skies and ideal conditions, while the second indicates heavy, heavy weather.
Or as Mr. Ghirarduzzi styles it:
“These two numbers describe two incompatible realities sitting on top of each other.”
The Most Important Number in the World Today
He continues:
The 106,862 WUI reading is the most important number in the world today.
It is, in context, the signal of the century — evidence that the narrative fabric binding 143 economies together is more frayed than at any point in sixty years of data collection. That this signal coexists with a near-zero CISS… tells us nothing about the genuine strength of the system, and everything about the success of our policy-driven delusions…
The system has not gotten better at understanding risk. It has gotten better at deferring it.
Yet risk cannot be forever put off. Risk cannot forever be deferred.
The roadway terminates eventually… and at that point the can-kicking ends.
The Federal’s traditional tricks of risk-deferral will at that point fizzle.
I do not pretend to know the precise location where the roadway terminates.
It may stretch to the distant horizon… or it may terminate of a sudden.
Yet given the extreme reading of the World Uncertainty Index, I hazard termination may be nearer than farther.
Yet the auto barrels ahead… its driver fully confident the road will never end.
Brian Maher
for Freedom Financial News
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