The stock markets are wrapping it up for the year. Really, all that is going on now is a bit of post-Christmas, pre-New Year window dressing by the traders, bankers and politicians. Now it is time to enjoy a well-earned break. Well-earned because generally the lead indicators in the free markets all finished higher year on year. The stock markets, gold, silver and oil, have all wrapped up on a positive note. From the outside looking in, anyone would think that 2010 has been a successful year. Instead, what we have seen is that the current fiat currency system is collapsing at every level, from the euro, to the banks, to the Feeds attempt to re-inflate via Quantitative Easing (QE2), with the end result being a distorted picture of how markets price assets.
In fact, 2010 has seen the extension of the catastrophic failure of monetary policy through the western markets. We have seen the unprecedented bail out of the euro via the taxpayer, closely followed by an increase in bank failures, where yet more public funds were committed to cover private losses in banks. As if that were not enough, Ben Bernanke sailed on the QE2 in an attempt to create a sea of liquidity designed to re-inflate asset prices, create jobs of course and most importantly for Ben Bernanke, reverse the trend of failing banks. The end result has been excess dollar liquidity bouncing between stock and commodity markets, further laying bare the moribund and at time fraudulent mechanisms that western markets rely on to price assets.
The one-trillion-dollar bailout of the euro by the European Central Bank was a pretty fair indication that not all was well in “euro-land.” The euro was supposed to be a solid monetary base for the world to rely on, and even an alternative to the U.S. dollar. To prove this point, a bit of “stress testing” by the ECB was in order. The problem was, the stress tests failed. Basically, these tests were supposed to gauge the level of confidence in the banking system. Instead, what happened was a series of sovereign bailouts, starting with Greece, caused by speculation over the financial health of the Greek government. Instead of a cohesive response in support of Greece from other European members, it led to contagion whereby speculation ran rampant across the euro zone as to who or which government would be the next in need of a bailout. Spain, Portugal, Ireland, France and even Germany came under the spotlight. Eventually, the ECB had to announce an unprecedented one-trillion-dollar bailout for its members, all of which was paper money, fiat currency.
So it follows that if the banking system is not quite right, then the banks that make up the system must also be a little out of kilter. And they are, to such an extent that in the free-market model there is virtually no market whose banks are not largely owned or have been bailed out by the taxpayer. The public in these markets, Europe and the United States, have had to largely invest in all their banks, to the extent that they now hold majority stakes in many of them. It has been a classic case of privatizing profits and socializing losses on an unprecedented scale. As it became clear that the ECB bailout of “euro-land” was not going to be enough, the Fed under Ben Bernanke decided to roll out Quantitative Easing 2: A process where the Fed prints yet more fiat money to buy back debt from the banks. The idea is to re-inflate the markets, provide jobs of course, put people back in their homes and reduce bank-driven foreclosures. The problem was that it did none of that. Bank failures are at an all-time record, government intervention in the free markets has rendered them anything but driven by market forces, hence free, and the taxpayer has been left with a bill that they are never ever going to be able to pay.
On the face of it, it looks like 2010 has been a banner year. If you had invested in the Aussie dollar, or commodities like gold, silver or oil, or even in emerging markets, you would have done all right. The problem is these markets have been the recipients of the excess liquidity that was created by the bailout of the euro, the bailout of the banks and the sea of dollars that are hitting the markets from QE2. This is not progress of a real kind; it is an illusion which will not last for long. As a wise old market pundit once told me: “Sonny, the only thing you have to know how to do in banking is to make motion look like progress.” There has been no progress in the western banking system, but plenty of motion! I wonder what lies ahead for 2011.
Global Markets are anything but integrated. What if we had a paradigm shift in the way we think, the way we actually do business with each other, between nations. Balanced global trade can only occur if we have transparent, accessible, efficient markets, with standardized contracts and on a standardized platform of global exchange. We are on the cusp of achieving this, although most people cannot see it. Sam’s Exchange aims to give its readers a clearer view and a platform for discussion. Markets, trade and economics are in fact nothing more than the result of our thoughts and actions expressed in numbers, not the reverse.
Sam Barden is CEO of SBI Markets General Trading LLC, a Dubai-registered trading and advisory company. Barden, 39, has worked in the global financial markets for more than 17 years in Europe, Russia and the Middle East. He has advised and executed strategic transactions for both the government and private sector, in particular in energy and commodity markets, advising various energy producing nations on their strategic market developments and interaction. He holds a degree in economics and finance from Victoria University, Melbourne, Australia.