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Welcome to insanity, which – by a definition commonly attributed to Albert Einstein – is doing the same thing over and over and expecting a different result.
Our insanity is actually a dangerously circuitous negative feedback loop.
It's all about "Extraordinary Popular Delusions and the Madness of Crowds," which happens to be the title of a brilliant book published in 1841 by Scottish journalist Charles Mackay. If you read this book, you should because it provides factual, granular evidence of what happened in the past when crowds – mostly crowds of investors – went mad following popular delusions of their day.
We're there again. Only this time the popular delusions are exponentially more dangerous and the crowds – most of the global populous – aren't just going to go mad, they're going to go broke.
Here's who's deluding us, over what, why, how they're doing it, and how it's going to end… and how you can save yourself from going broke.
Who's Responsible for the Insanity – and Why
It's extraordinary, for a lot of reasons, but we're being deluded by the two most powerful institutions on earth – governments and central banks.
They're deluding us into believing they can manufacture economic growth and prosperity.
And they're insanely doing the same things over and over that haven't worked.
Governments are essentially out of ammunition when it comes to their ability to generate meaningful economic growth.
The U.S. Congress abdicated their fiscal powers back in the 1970s to the Federal Reserve (when it gave the Fed the "dual mandate" to spur employment), so successive American administrations and legislatures have been impotent in terms of being able to generate meaningful economic growth.
European governments punted their sovereignty to the European Union and with it their individual ability to take extraordinary measures to spur country-specific growth. They too punted their fiscal powers to the European Central Bank (ECB).
China was the last giant country whose government was able to generate extraordinary growth.
Now, that's over.
Emerging markets followed China and grew robustly, but nothing like China. And they've slowed, too.
With global growth behind us, on account of businesses and economies being subject to immutable cyclical realities, and the beyond gigantic byproduct of insane debt darkening the planet like a Death Star, economies across the world are all languishing, at best.
Globally, that can be seen in terms of PMIs, purchasing manager's indexes. PMIs are sentiment indicators. Purchasing managers' indexes (most economists and analysts prefer following manufacturing purchasing managers indexes as opposed to services indexes) are all hovering around the 50 line in the sand marker, where a reading above 50 means expansion and a reading below 50 points to a contractionary trend.
Nowhere is any PMI much above or below 50. They pop higher, then drop back.
The U.S. ISM manufacturing PMI reading in August was 49.4. In September, it rose to 51.5.
Since 2008, it's been up and down, but basically undulating around the 50 level. China's latest PMI reading came in at 50.4, the highest it's been since October 2014. The same is true for the rest of the world.
What that means is growth, in terms of manufacturing, is languishing.
After the Great Recession, we were supposed to see a big recovery. It hasn't happened.
As a friend of mine always says, "If you're not going forward, you're going backwards."
Governments want the public to believe they are capable of generating growth by means of fiscal stimulus. They can't – because they're already too deeply in debt.
The United States, for example, is swimming in debt. Public debt's risen $1.4 trillion so far in 2016. America's total public debt (government indebtedness) is almost $20 trillion.
Globally, according to the IMF, gross debt – including government, private sector (excluding financial companies), and household debt – is $152 trillion.
It's delusional to expect governments to spend to stimulate growth by adding to already massive amounts of debt they can't ever pay back.
That's madness because increasing debt requires greater debt service payments that cancel out the net increase in GDP growth, which stagnates standards of living, ultimately depressing them.
"Excessive private debt is a major headwind against the global recovery and a risk to financial stability," IMF fiscal chief Vitor Gaspar said in a recent speech.
Governments are once again talking up fiscal stimulus because the partner they handed off their economic growth responsibilities to, their central banks, have dropped the baton.
The Same Thing Over and Over
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.