The Great Lie Being Masked by Even Greater Lies

Wednesday, 8 April 2020
Adelaide, Australia
By Bernd Struben

  • Markets
  • They Want You to Live to Borrow Another Day

Hi, Bernd here.

I’m taking the day off today to spend some quality time with my 6-year-old daughter.

South Australia’s schools opted to close early for the autumn break due to the coronavirus. But teachers, like my wife, are still going in. Essential services and all…

So I’m putting on my home schooling cap and digging into the board games cabinet. We’ll also spend a few hours outside. Plenty of sparsely used nature trails to choose from right off our back fence line. We can hone her biking skills…and do a bit of kangaroo spotting…all while maintaining hundreds of metres of social distancing.

Read on for today’s essay from Vern Gowdie, part of Monday’s edition of The Gowdie Letter.

But before you do so…an important reminder.

Yesterday I told you about Vern’s new research report, ‘How to Arrange Your Wealth Now for a Post-COVID-19 World’.

As Vern advises, ‘The actions you take with your money over the next days and weeks could have repercussions for the rest of your life.

For his recommendations on those actions, you can access his new report here.

Now, a quick look at the markets…


Overnight, the Dow Jones Industrial Average closed down 26.13 points, or 0.12%.

The S&P 500 closed down 4.27 points, or 0.16%.

The Euro Stoxx 50 Index closed up 61.70 points, or 2.21%. Meanwhile, the FTSE 100 gained 2.19%, and Germany’s DAX closed up 281.53 points, or 2.79%.

In Asian markets Japan’s Nikkei 225 is up 321.18 points, or 1.69%. China’s CSI 300 is down 0.28%.

The S&P/ASX 200 is up 64.70 points, or 1.27%.

West Texas Intermediate crude oil is US$25.00 per barrel. Brent crude is US$32.66 per barrel.

Turning to gold, the yellow metal is trading for US$1,650.61 (AU$2,688.72) per troy ounce. Silver is US$15.09 (AU$24.59) per troy ounce.

One bitcoin is worth US$7,355.13.

The Aussie dollar is worth 61.04 US cents.

Now, over to Vern…

They Want You to Live to Borrow Another Day

There are decades where nothing happens; and there are weeks where decades happen.

Vladimir Ilyich Lenin

Over the past decade…

Markets steadily moved higher, property prices edged up, interest rates went down, superannuation balances ticked along nicely, households kept spending and borrowing.

Debt levels were on an upward path, unemployment trended lower, GDP numbers continued to remain in the positive.

On the surface, everything appeared to be oh so (boringly) repetitive. Different year, same outcome. Ho hum.

During this largely ‘uneventful’ period, The Gowdie Letter looked beneath the surface…and it was not pretty.

The rot on the inside was making its way out. Mortgage stress. Increased issuance of low-grade corporate debt. Valuation metrics at historical highs.

However, in the main, people remained blissfully unaware of the risks building in the system.

Over the years, many readers were making the same observation…no one is listening. Friends had tuned out. Warnings were falling on deaf ears.

Those of us labelled ‘doomsayer’, were forced into self-isolation a long time ago.

Where most were seeing strength and continued price appreciation, we saw something different. This system was getting weaker and more fragile with every dollar of new debt.

That new debt — totalling more than US$110 trillion since the GFC — created a world of illusion and delusion.

It may have seemed real, but it was one giant fraud, built on false data (GDP and unemployment numbers) and an extremely powerful and well-connected propaganda machine.

Government. Central banks. Financial Institutions. Property spruikers. All these actors played a role in this grand deception.

And the public bought into it, literally and figuratively.

Businesses (from large to small) developed annual business plans based on year-on-year growth targets.

The realisation of these growth projections relied on one MASSIVE condition/assumption that society would continue spending more than it earned.

Such was the (almost) universal belief in perpetual growth, my guess is most businesses didn’t even realise this was a condition.

As someone who has written extensively about this, I can confidently say ‘we were always headed towards this very ugly outcome.’

The known unknowns were the how and when. Both are now known.

In the space of six weeks, years of (fraudulent) growth has been wiped out.

The actions by those responsible for this greatest of lies, has (predictably) been both swift and excessive.

This is just a snippet from the US Federal Reserve’s media release on 23 March 2020 (emphasis added):

  • Support for critical market functioning. The Federal Open Market Committee (FOMC) will purchase Treasury securities and agency mortgage-backed securities in the amounts needed…
  • Supporting the flow of credit to employers, consumers, and businesses by establishing new programs…
  • Establishment of two facilities to support credit to large employers…
  • Establishment of a third facility, the Term Asset-Backed Securities Loan Facility (TALF), to support the flow of credit to consumers and businesses.
  • Facilitating the flow of credit to municipalities
  • …the Federal Reserve expects to announce soon the establishment of a Main Street Business Lending Program

And, this is only a sample of what’s being rolled out. Different countries are implementing different schemes. But they all have one common denominator…flow of creditsupport creditloan facilitylending program.

The perpetrators of this deception want borrowers kept on life support so they can live to borrow another day, to keep the lie from being exposed.

Central bank efforts aren’t about stopping the debt bubble deflating, they’re doing their utmost to reflate it.

The recklessness of these people leaves me shaking my head. When will they stop trying to cover up their great lie with even greater lies?

You cannot put solid economic foundations down on the quicksand of too much debt. It’s never been done before and cannot be done now or in the future. History tells us time and time again, episodes of excessive debt always end badly.

But let’s indulge the central bank fantasy. Let’s say this ‘alphabet soup’ of reflating programmes actually works and the damage to the economy is minimised.

Then what? What’s the endgame?

Do they really want us to go back and blow an even bigger credit bubble? And, when that one meets its pin — as it surely will — then what even grander schemes (greater lies) of credit creation?

How can you fix a problem with a ‘solution’ that created the problem in the first, second and third place?

This is madness writ large. Why can’t people see that? This is just the beginning of a sustained period of contraction and already we’re seeing the unleashing of the unprecedented.

What awaits us when the unprecedented is not enough? More lies. More stupidity. More printing. Get ready for it…it’s a comin’.

The ‘escalated and measured’ responses will become more escalated and less measured.

They have no other choice. Why? Because that’s what all pathological liars do: cover up lies with more lies.

My expectation is for markets to, initially, operate on a ‘hope triumphing over experience’ basis.

Those who hoped bank dividends would be better than money in the bank are about to experience some pain.

Vern Gowdie

PS: Vern’s research report, ‘How to Arrange Your Wealth Now for a Post-COVID-19 World’ was published yesterday. You can get that, and all his latest recommendations, here.