Why This Market Needs to Crash (And Likely Will)

Editor's Note: The following is a guest post by Chris Martenson with PeakProsperity.com.

Like an old vinyl record with a well-worn groove, the needle skipping merrily back to the same track over and over again, we repeat: Today's markets are dangerously overpriced.

Being market fundamentalists who don’t believe it’s possible to simply print prosperity out of thin air, we’ve been deeply skeptical of the financial markets ever since the central banks began their highly interventionist policies. Since 2009, they have unleashed over $12 Trillion in new money into the world, concentrating wealth into the hands of an elite few, while blowing asset price bubbles everywhere in the process (see our recent report The Mother Of All Financial Bubbles).

Our consistent view is that price bubbles always burst. Which is why we predict the world’s financial markets will implode spectacularly from today's heights -- destroying jobs, dreams, hopes, economies and political careers alike.

When this happens, it will frighten the central bankers enough (or merely embarrass them enough, being the egotists that they are) that they will respond with even more aggressive money printing -- and that will then cause the entire money system to blow up.  Ka-Poom!  First inwards in a compressed ball of deflation, then exploding outwards in a final hyperinflationary fireball (see our recent report When This All Blows Up...).

It really cannot end any other way.  Money is not wealth; it is merely a claim on wealth.  Debt is a claim on future money.  The only way to have faith in our current monetary policies is if one believes that we can always grow our debts at roughly twice the rate of GDP -- forever.   That is, compound the claims at twice the rate of income year after year from here on out.

This would be like having your credit card balance rolled over every month as the balance grows at 10% each year, while your income advances at only 5% per year.  Eventually you simply have a math problem: your income becomes swamped by your debt service payment.  First you are insolvent, then bankruptcy eventually follows.

At the national level, the US is already insolvent, meaning liabilities exceed assets.  The US has been spending far above our means for decades and decades, amassing a tremendous amount of public and private debt (as well as entitlement promises) along the way. And, yes, even nations can go bankrupt.

But bankruptcy is a legal process, and it’s not possible for an entire economy to enter a legal process, so what do we mean when by talking of a looming bankruptcy? Simply put, all those the claims represented by all the debt and excess printed currency have to be destroyed, or reduced, to bring things back into balance. 

The Austrian economist Ludwig von Mises said it best: “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”

Sadly, there’s been absolutely no demonstrated willingness on behalf of our national leadership for  “voluntary abandonment of further credit expansion”. In fact, it’s been the exact opposite.  With the Federal Reserve leading the way, the ‘plan’ has been the voluntary, increasingly desperate, attempt to expand credit even more aggressively than before.

To understand just how dangerous this has become, we need look no further than this chart:

Our current debts and other national liabilities now total more than 1,000%(!) of the nation's annual income, a.k.a GDP.

US economic growth began slowing due to its accelerating ‘too much debt’ problem back around 2000. Instead of allowing natural market forces to clear out the excessive debts, the Federal Reserve chose to go into overdrive to ‘remedy’ the problem. It's remedy? Drive interest rates to 0% to reduce the service burden of those debts, and print trillions of fresh dollars that in turn can fund new borrowing.

Of course, no true ‘solution’ for having too much debt involves piling up even more of it.  That's like treating cancer with more cancer.  Or alcoholism with more alcohol. But such has been the twisted logic of our central bankers.

The only path that history has shown works involves fiscal austerity and reducing debt.  Or, as von Mises put it, "a voluntary abandonment of the credit expansion".  But, that requires real political courage and a willingness from society to endure actual ‘pain’ in the form of living below its means to make up for the prior periods of living too lavishly. Don't expect that to happen anytime soon? Nether do we... 

Returning to the chart above, it’s sufficient to know that no country, ever, in all of history, has ever dug out from such a mountain of excess claims.  Never.  Not once.

The only possible way we're avoiding crisis is if the economy suddenly returns to extremely rapid economic growth for an extremely long time.  And that’s if AND ONLY IF during such a period of rapid growth, we use that windfall to pay down the debts and other associated IOU’s -- rather than as an excuse to once again look the other way because, hey, everything's awesome now!

At any rate, what we can divine from all of this is that there’s been zero effort towards ‘voluntary abandonment’ of the credit cycle. And there's been every effort made towards extending it farther. We're simply climbing ever higher up an extension ladder from which we will someday fall.  We passed the ‘moderately painful’ height a long time ago; now we're up at the ‘quite possibly lethal’ altitude.

But make no mistake, pushing us further up this credit ladder is exactly what 0% interest rates were meant to do.  The openly-stated intent of the central banks in treading into the never-before-tried ZIRP and NIRP waters was to spark more borrowing (and spending). 

The fact that savers and pension plans have been utterly decimated by these low (even negative rates in some parts of the world) is not even a passing concern to the Federal Reserve.  Their only goal has been to get credit expanding again as fast as possible.  Ditto for the European Central Bank, The Bank of England, and the Bank of Japan, as well as The People’s Bank of China.

All of them have the same plan: Expand!

But this ‘plan’ does not pencil out.  It fails basic math both here in the short term, as evidenced by more than a decade of sub-par GDP growth, but especially later over the long term. Why?  Because there’s no such thing as perpetual exponential expansion of anything. Even the universe itself is expected to one day stop expanding and eventually implode in a "big crunch".

Regrettably, though, that’s the ‘plan’ of every major central bank around the world right now.

Because it's mathematically guaranteed to fail, our only job as private individuals is to understand the situation accurately and to then take actions that are in alignment with the reality of living within such a broken system.  If we can’t stop the lunatics, at least we can foresee the consequences of their actions and begin to unhitch ourselves as best as possible from their nutty trajectory.

Just how reality-detached are these bankers?

As Adam Taggart recently wrote:

Janet Yellen just poured more gasoline on the anti-bank fire smoldering in my heart...

Speaking today at the 10th Biennial Federal Reserve System Community Development Research Conference in Washington, D.C, she delivered a short speech titled "Strong Foundations: The Economic Futures of Kids and Communities". In it, she focuses on the difficulties of growing up poor and is clearly trying to present herself as an advocate for raising families out of poverty.

Really, Janet? Really???

What about the record-low interest rates you've presided over?

The ones that have destroyed all incentive to save?

The ones that have starved American households of savings income, especially for those on a fixed income?

The ones that have created asset bubbles everywhere, making it nearly impossible for young families to buy a house and sending the cost of rent and other living expenses skyrocketing?

The ones that have made it tremendously cheap for companies to borrow and invest in automation, gutting future demand for unskilled/low-skilled workers?

The ones that have led to the greatest wealth disparity in our country's history?

This is a classic example of the shameless pathological hypocrisy/evil of those running our monetary and financial systems. It's akin to a bloody-handed serial killer lecturing to his dying victims "You know, someone should really do something about the murder rate in this town")

Janet has a strong tradition of “blaming the victim” which she did a few years ago by lecturing poor and working class Americans that their own lack of advancement had nothing to do with Federal Reserve policies that literally hand money to big banks and wealthy insiders. Instead, she saw the root causes as shoddy early childhood education, a lack of entrepreneurship, and not having had wealthy parents who passed down a reasonable inheritance.  I kid you not, she really said all that back in 2014. 

Maddening?  You bet.  But only if you're of the mind that Janet Yellen cares about connecting the consequences of her actions to real people and their increasingly poor outcomes.  Once you understand that Janet, et al., are psychologically unable to cross the chasm between their personal views of themselves and the consequences of their actions, it’s much less surprising. And much more sad and pathetic.

But also very human.  All throughout history, oppressors and genocidal maniacs have always deployed elaborate psychological defenses to protect their fragile egos from the sort of crushing destruction that would result from a clear-eyed view of themselves and their actions.  It’s hard to transition from one's self-inflated view of being a virtuous superhero to admitting you're actually the source of untold misery and heartbreak.

At Peak Prosperity, we hold out hope, dim though it may be, that the bankers and their bought-and-paid-for-politicians will be held accountable for the lives they are ruining, as well as the immoral and criminal acts they've committed in the process.  Without accountability, nothing ever changes. You only get a repeat of the same bad behavior that got you into trouble in the first place.

That right there, in a nutshell, describes the systemic abuse by the banking elite that began under Greenspan when he bailed out Wall Street in 1998 (during the LTCM debacle). This was followed closely by the repeal of Glass-Steagall under Clinton in 1999.  Since then, it has been an orgy of exploitation. And after a brief pause during the Great Recession (during which the banks paid themselves record bonuses while receiving taxpayer bailouts), it got worse than ever.

Conclusion (To Part 1)

All of the efforts to extend today's sky-high asset prices are drawing to a close. And the ending will be ugly. As prices correct, dazed investors will lose $trillions of market value, likely quite swiftly. 

But how was it ever supposed to end any differently?  The entire premise of what the Federal Reserve has been attempting to do is completely preposterous.  They have ignored (or just as alarming, have been ignorant of) the risks of everything from moral hazard, to historical precedent, to the role of incentives on human behavior, to common sense.

And just as happened in 2008, the accumulating instabilities within the system will reach a tipping point where they can no longer be suppressed. The deflation monster will escape from the box the central banks have been desperate to confine him within, and he will very quickly set about making up for lost time. A lot of wealth will get destroyed very quickly.

Strange as it may sound, it's our opinion that the sooner this happens, the better. Crash now while there’s still chance of picking up the pieces afterwards and making something useful from them. The longer we push off the inevitable correction, the more destructive it will be and the more difficult it will be to recover from.

Why risk taking the overdrafts to such extreme levels that the future is ruined for generations? Or ends in the sort of global warfare that can result from economically-wounded nations lashing out instead of holding themselves to proper account? 

The boomer generation in charge has a lot to answer for in this story; from their inability to lead boldly, to their selfish pushing-off of the repercussions of their own poor decisions onto future generations

More simply put: We not only need a market crash, but deserve one.  

So, with that somber realization in mind, what to do? Well, for individuals like yourself, our strongest advice is to position yourself for crisis before crisis arrives.

In Part 2: Positioning Yourself For The Crash we detail out the steps a prudent individual should seriously consider taking now, while things are still relatively tranquil.

You want to make sure the bulk of your investment capital is positioned for safety, and you want to make your lifestyle as resilient as possible so that, no matter what jarring developments the future may bring, you and the ones you love are least impacted by them.

Click here to read the report (free executive summary, enrollment required for full access)

From the moment the 33-year-old Thomas Jefferson arrived at the Continental Congress in Philadelphia in 1776, he was on the radical side. That caused John Adams to like him immediately. Then the Congress stuck Jefferson and Adams together on the five-man committee to write a formal statement justifying a break with Great Britain, and their mutual admiration society began.

Jefferson thought Adams should write the Declaration. But Adams protested, saying, “It can't come from me because I'm obnoxious and disliked." Adams reasoned that Jefferson was not obnoxious or disliked, therefore he should write it. Plus, he flattered Jefferson, by telling him he was a great writer. It was a master class in passing the buck.

So, over the next 17 days, Jefferson holed up in his room, applying his lawyer skills to the ideas of the Enlightenment. He borrowed freely from existing documents like the Virginia Declaration of Rights. He later wrote that “he was not striving for originality of principle or sentiment." Instead, he hoped his words served as “an expression of the American mind."

It's safe to say he achieved his goal.

The five-man committee changed about 25 percent of Jefferson's first draft of the Declaration before submitting it to Congress. Then, Congress altered about one-fifth of that draft. But most of the final Declaration's words are Jefferson's, including the most famous passage — the Preamble — which Congress left intact. The result is nothing less than America's mission statement, the words that ultimately bind the nation together. And words that we desperately need to rediscover because of our boiling partisan rage.

The Declaration is brilliant in structure and purpose. It was designed for multiple audiences: the King of Great Britain, the colonists, and the world. And it was designed for multiple purposes: rallying the troops, gaining foreign allies, and announcing the creation of a new country.

The Declaration is structured in five sections: the Introduction, Preamble, the Body composed of two parts, and the Conclusion. It's basically the most genius breakup letter ever written.

In the Introduction, step 1 is the notificationI think we need to break up. And to be fair, I feel I owe you an explanation...

When in the Course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another…

The Continental Congress felt they were entitled by “the Laws of Nature and of Nature's God" to “dissolve the political bands," but they needed to prove the legitimacy of their cause. They were defying the world's most powerful nation and needed to motivate foreign allies to join the effort. So, they set their struggle within the entire “Course of human events." They're saying, this is no petty political spat — this is a major event in world history.

Step 2 is declaring what you believe in, your standardsHere's what I'm looking for in a healthy relationship...

This is the most famous part of the Declaration; the part school children recite — the Preamble:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.

That's as much as many Americans know of the Declaration. But the Preamble is the DNA of our nation, and it really needs to be taken as a whole:

That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.

The Preamble takes us through a logical progression: All men are created equal; God gives all humans certain inherent rights that cannot be denied; these include the rights to life, liberty, and the pursuit of happiness; to protect those rights, we have governments set up; but when a government fails to protect our inherent rights, people have the right to change or replace it.

Government is only there to protect the rights of mankind. They don't have any power unless we give it to them. That was an extraordinarily radical concept then and we're drifting away from it now.

The Preamble is the justification for revolution. But note how they don't mention Great Britain yet. And again, note how they frame it within a universal context. These are fundamental principles, not just squabbling between neighbors. These are the principles that make the Declaration just as relevant today. It's not just a dusty parchment that applied in 1776.

Step 3 is laying out your caseHere's why things didn't work out between us. It's not me, it's you...

This is Part 1 of the Body of the Declaration. It's the section where Jefferson gets to flex his lawyer muscles by listing 27 grievances against the British crown. This is the specific proof of their right to rebellion:

He has obstructed the administration of justice...

For imposing taxes on us without our consent...

For suspending our own legislatures...

For quartering large bodies of armed troops among us...

Again, Congress presented these “causes which impel them to separation" in universal terms to appeal to an international audience. It's like they were saying, by joining our fight you'll be joining mankind's overall fight against tyranny.

Step 4 is demonstrating the actions you took I really tried to make this relationship work, and here's how...

This is Part 2 of the Body. It explains how the colonists attempted to plead their case directly to the British people, only to have the door slammed in their face:

In every stage of these Oppressions We have Petitioned for Redress in the most humble terms: Our repeated Petitions have been answered only by repeated injury...

They too have been deaf to the voice of justice... We must, therefore... hold them, as we hold the rest of mankind, Enemies in War, in Peace Friends.

This basically wrapped up America's argument for independence — we haven't been treated justly, we tried to talk to you about it, but since you refuse to listen and things are only getting worse, we're done here.

Step 5 is stating your intent — So, I think it's best if we go our separate ways. And my decision is final...

This is the powerful Conclusion. If people know any part of the Declaration besides the Preamble, this is it:

...that all political connection between them and the State of Great Britain, is and ought to be totally dissolved...

They left no room for doubt. The relationship was over, and America was going to reboot, on its own, with all the rights of an independent nation.

And for the support of this Declaration, with a firm reliance on the protection of divine Providence, we mutually pledge to each other our Lives, our Fortunes and our sacred Honor.

The message was clear — this was no pitchfork mob. These were serious men who had carefully thought through the issues before taking action. They were putting everything on the line for this cause.

The Declaration of Independence is a landmark in the history of democracy because it was the first formal statement of a people announcing their right to choose their own government. That seems so obvious to us now, but in 1776 it was radical and unprecedented.

In 1825, Jefferson wrote that the purpose of the Declaration was “not to find out new principles, or new arguments, never before thought of… but to place before mankind the common sense of the subject, in terms so plain and firm… to justify ourselves in the independent stand we are compelled to take."

You're not going to do better than the Declaration of Independence. Sure, it worked as a means of breaking away from Great Britain, but its genius is that its principles of equality, inherent rights, and self-government work for all time — as long as we actually know and pursue those principles.

On June 7, 1776, the Second Continental Congress met in Philadelphia at the Pennsylvania State House, better known today as Independence Hall. Virginia delegate Richard Henry Lee introduced a motion calling for the colonies' independence. The “Lee Resolution" was short and sweet:

Resolved, That these United Colonies are, and of right ought to be, free and independent States, that they are absolved from all allegiance to the British Crown, and that all political connection between them and the State of Great Britain is, and ought to be, totally dissolved.

Intense debate followed, and the Congress voted 7 to 5 (with New York abstaining) to postpone a vote on Lee's Resolution. They called a recess for three weeks. In the meantime, the delegates felt they needed to explain what they were doing in writing. So, before the recess, they appointed a five-man committee to come up with a formal statement justifying a break with Great Britain. They appointed two men from New England — Roger Sherman and John Adams; two from the middle colonies — Robert Livingston and Benjamin Franklin; and one Southerner — Thomas Jefferson. The responsibility for writing what would become the Declaration of Independence fell to Jefferson.

In the rotunda of the National Archives building in Washington, D.C., there are three original documents on permanent display: the Constitution, the Bill of Rights, and the Declaration of Independence. These are the three pillars of the United States, yet America barely seems to know them anymore. We need to get reacquainted — quickly.

In a letter to his friend John Adams in 1816, Jefferson wrote: “I like the dreams of the future, better than the history of the past."

America used to be a forward-looking nation of dreamers. We still are in spots, but the national attitude that we hear broadcast loudest across media is not looking toward the future with optimism and hope. In late 2017, a national poll found 59% of Americans think we are currently at the “lowest point in our nation's history that they can remember."

America spends far too much time looking to the past for blame and excuse. And let's be honest, even the Right is often more concerned with “owning the left" than helping point anyone toward the practical principles of the Declaration of Independence. America has clearly lost touch with who we are as a nation. We have a national identity crisis.

The Declaration of Independence is America's thesis statement, and without it America doesn't exist.

It is urgent that we get reacquainted with the Declaration of Independence because postmodernism would have us believe that we've evolved beyond the America of our founding documents, and thus they're irrelevant to the present and the future. But the Declaration of Independence is America's thesis statement, and without it America doesn't exist.

Today, much of the nation is so addicted to partisan indignation that "day-to-day" indignation isn't enough to feed the addiction. So, we're reaching into America's past to help us get our fix. In 2016, Democrats in the Louisiana state legislature tabled a bill that would have required fourth through sixth graders to recite the opening lines of the Declaration. They didn't table it because they thought it would be too difficult or too patriotic. They tabled it because the requirement would include the phrase “all men are created equal" and the progressives in the Louisiana legislature didn't want the children to have to recite a lie. Representative Barbara Norton said, “One thing that I do know is, all men are not created equal. When I think back in 1776, July the fourth, African Americans were slaves. And for you to bring a bill to request that our children will recite the Declaration, I think it's a little bit unfair to us. To ask our children to recite something that's not the truth. And for you to ask those children to repeat the Declaration stating that all men's are free. I think that's unfair."

Remarkable — an elected representative saying it wouldn't be fair for students to have to recite the Declaration because “all men are not created equal." Another Louisiana Democrat explained that the government born out of the Declaration “was used against races of people." I guess they missed that part in school where they might have learned that the same government later made slavery illegal and amended the Constitution to guarantee all men equal protection under the law. The 13th, 14th, and 15th Amendments were an admission of guilt by the nation regarding slavery, and an effort to right the wrongs.

Yet, the progressive logic goes something like this: many of the men who signed the Declaration of Independence, including Thomas Jefferson who wrote it, owned slaves; slavery is evil; therefore, the Declaration of Independence is not valid because it was created by evil slave owners.

It's a sad reality that the left has a very hard time appreciating the universal merits of the Declaration of Independence because they're so hung up on the long-dead issue of slavery. And just to be clear — because people love to take things out of context — of course slavery was horrible. Yes, it is a total stain on our history. But defending the Declaration of Independence is not an effort to excuse any aspect of slavery.

Okay then, people might say, how could the Founders approve the phrase “All men are created equal," when many of them owned slaves? How did they miss that?

They didn't miss it. In fact, Thomas Jefferson included an anti-slavery passage in his first draft of the Declaration. The paragraph blasted King George for condoning slavery and preventing the American Colonies from passing legislation to ban slavery:

He has waged cruel war against human nature itself, violating its most sacred rights to life and liberty in the persons of a distant people who never offended him, captivating and carrying them into slavery in another hemisphere... Determined to keep open a market where men should be bought and sold, he has prostituted his negative for suppressing every legislative attempt to prohibit or to restrain this execrable commerce.

We don't say “execrable" that much anymore. It means, utterly detestable, abominable, abhorrent — basically very bad.

Jefferson was upset when Georgia and North Carolina threw up the biggest resistance to that paragraph. Ultimately, those two states twisted Congress' arm to delete the paragraph.

Still, how could a man calling the slave trade “execrable" be a slaveowner himself? No doubt about it, Jefferson was a flawed human being. He even had slaves from his estate in Virginia attending him while he was in Philadelphia, in the very apartment where he was writing the Declaration.

Many of the Southern Founders deeply believed in the principles of the Declaration yet couldn't bring themselves to upend the basis of their livelihood. By 1806, Virginia law made it more difficult for slave owners to free their slaves, especially if the owner had significant debts as Jefferson did.

At the same time, the Founders were not idiots. They understood the ramifications of signing on to the principles described so eloquently in the Declaration. They understood that logically, slavery would eventually have to be abolished in America because it was unjust, and the words they were committing to paper said as much. Remember, John Adams was on the committee of five that worked on the Declaration and he later said that the Revolution would never be complete until the slaves were free.

Also, the same generation that signed the Declaration started the process of abolition by banning the importation of slaves in 1807. Jefferson was President at the time and he urged Congress to pass the law.

America has an obvious road map that, as a nation, we're not consulting often enough.

The Declaration took a major step toward crippling the institution of slavery. It made the argument for the first time about the fundamental rights of all humans which completely undermined slavery. Planting the seeds to end slavery is not nearly commendable enough for leftist critics, but you can't discount the fact that the seeds were planted. It's like they started an expiration clock for slavery by approving the Declaration. Everything that happened almost a century later to end slavery, and then a century after that with the Civil Rights movement, flowed from the principles voiced in the Declaration.

Ironically for a movement that calls itself progressive, it is obsessed with retrying and judging the past over and over. Progressives consider this a better use of time than actually putting past abuses in the rearview and striving not to be defined by ancestral failures.

It can be very constructive to look to the past, but not when it's used to flog each other in the present. Examining history is useful in providing a road map for the future. And America has an obvious road map that, as a nation, we're not consulting often enough. But it's right there, the original, under glass. The ink is fading, but the words won't die — as long as we continue to discuss them.

'Good Morning Texas' gives exclusive preview of Mercury One museum

Screen shot from Good Morning Texas

Mercury One is holding a special exhibition over the 4th of July weekend, using hundreds of artifacts, documents and augmented reality experiences to showcase the history of slavery — including slavery today — and a path forward. Good Morning Texas reporter Paige McCoy Smith went through the exhibit for an exclusive preview with Mercury One's chief operating officer Michael Little on Tuesday.

Watch the video below to see the full preview.

Click here to purchase tickets to the museum (running from July 4 - 7).

Over the weekend, journalist Andy Ngo and several other apparent right-leaning people were brutally beaten by masked-gangs of Antifa protesters in Portland, Oregon. Short for "antifascist," Antifa claims to be fighting for social justice and tolerance — by forcibly and violently silencing anyone with opposing opinions. Ngo, who was kicked, punched, and sprayed with an unknown substance, is currently still in the hospital with a "brain bleed" as a result of the savage attack. Watch the video to get the details from Glenn.