Just days after the newspapers reported the FTSE100 at an new high, yesterday saw a 150 point drop in a single day. What the Lord giveth the Lord taketh away.
Does the FTSE actually mean anything for the average person in the street though?
I think it does. The reason the FTSE, and indeed all the other stock markets are so important, is that they are one of the few areas to have benefitted from the huge sums of money created out of thin air by the central banks. Once the stock markets start heading down we know the end of the sham commonly known as Quantitative Easing is in sight.
If you could solve massive debt problems simply by printing money then we would have all done it years ago. History tells us what happens when you create money out of thin air. The fact that as a way of solving debt problems it has a 100% failure rate should send a message to central banks around the world.
Right now, the central banks are witnessing what is known as diminished returns. They keep creating more and more money money but the effect of that newly printed money is getting less and less each year.
Already the Federal reserve are talking about increasing base rates and that is certainly starting to spook the markets. Whether a change in short term interest rates will impact on long term interest rates remain to be seen. The two are not necessarily connected – as we have seen before.
More significant for me is the recent murmurings from BIS (the Bank of International Settlements) expressing concern over “market euphoria”. I have talked about the BIS before and explained that although it is the most powerful financial organisation in the world (yes you read that correctly) most people have never even heard of it.
The Bank of International Settlements (BIS) – the most powerful force in the land.
There are two things you should know about the BIS:
1. The BIS, based in Switzerland, is the meeting place and decision making centre for the central bankers. The central banks are of course owned by the banks themselves.
2. The BIS is not answerable to any government anywhere in the world. Pretty cool huh?
The BIS determines every facet of the financial world we live in and their legal framework makes them completely untouchable.
Now when the BIS get worried about inflating asset bubbles and increasingly high levels of debt you know we’ve got a real problem on our hands. The problem I’m talking about is the fact that the markets have never been so vulnerable as they are now – and never have the markets been so inter-connected.
It’s highly likely that the cost of the next financial collapse, wherever it may come from, will be too great to bear now that we have so much debt across the entire system. The idea of “too big to fail” may be an outdated concept when the next financial problem lands on our doorsteps.
Where does that leave you and I? Do any of these things relate to our world?
Well, just because the central banks think having such monstrous debts is not a problem doesn’t mean that you and I have to join in the frenzy.
Copy the BIS and put your own financial interests first
Avoid debt at every opportunity. Hold cash – and don’t keep it all in one place. Make sure you are not too exposed to a fall in the stock market. The next crash could wipe out all of your stocks and take your pension pot, or what is left of it, with it as well.
And of course – continue to slowly increase your holdings of physical gold and silver while prices remain low.
What’s good for us isn’t good for the economy – but we have to put ourselves first if we are to survive – and indeed prosper.