Debt is used in order to enslave people is basic to human liberty

By Bob Livingston January 2018

A reader named Jay R.D. wrote to me recently and asked:

Dear Bob, We hear every day how the stock market bubble will burst... so what do the personal liberty folks think will happen to the federal bond market if stock prices fall by 50%? I don't care about risky stocks or even corporations. What about the US gov bonds?  Thanks, JRD

First, let's remember that we now have a society where money = debt. Money is bank credit, and credit equals debt.

It is critical to realize that bank credit is the foundation and source of all political, economic, social and moral evil. Understanding bank credit neutralizes all government propaganda and politicians' lies. Understanding how debt is used in order to enslave people is basic to human liberty, and why I will continue to write and warn against the financialization of what were once hard assets (i.e. owning "paper" gold instead of the real thing). 

Politicians will not touch the subject of debt slavery because the game would be up. Neither the public nor private media will touch the subject. And yet the financial media — which, as finance researcher Tom Luongo puts it, provides "analysis" in order to break down retail investor sentiment and bring markets to heel so that the powers that be can promote the next thing they want to sell — promotes debt slavery all the time. They publish government bond prices. The price of debt. 

Yes, they pump up retail investors in order to get them to put their money in what banksters and their allies have made sure is the only place where there's a possibility of a decent return on your money — the stock market. When the stock market goes down, the economy goes down because "investor sentiment" goes down. 

At the same time, they promote debt and debt instruments — U.S. government bonds. If you look up the definition of a bond, you will see it listed as a "form of security." Like a stock. This is untrue. I have also see it defined as a way for the government to "raise money to operate the government and to pay down debt." 

What utter nonsense. 

Dear reader, a treasury bill or bond is a debt owed by the U.S. government — that's you and me — to the holder of that instrument, which could also be you or me, or conceivably another country. China holds $3.1 trillion worth of bonds.

The entire notion of federal government "debt" is nonsense in the first place, since the government can issue as much bank credit as it chooses to in the form of fiat money. Aside from that, you can't pay down debt by issuing debt instruments. 

Bonds are pieces of paper held by many concerned readers, many of whom have been told by the media that the bond market is in a bubble. They've been told by the buy-side propagandists on TV that bonds are riding a 20-year bull market and have to fall because the yield is so low and they just "feel" very expensive.

Indeed, the U.S. has a multi-mania of the stock market, another real estate mania, huge negative balance of trade and zero personal savings coupled with massive personal and corporate debt. How can we escape a horrible fate?

We can't. In a stock market mania there is always a variety of creative arguments to justify higher and higher prices. Investors have become fearless, sure in their "knowledge" that stock prices will only move higher and that every dip will be temporary and thus good buying opportunities. The power and length of this market has seduced more and more people into the ranks of the equity cult. 

However, if you do hold bonds, and if the stock market does fall 50 percent or more, a careful analysis by Michele Mazzoleni and Ashish Garg for Research Affiliates suggests that you could do worse than investing in bonds... in fact, their research shows that since 1980, bonds have been protective against the downside.

I disagree with the authors' claim that massive money printing has had no effect specifically because the treasury market hasn't been normal recently. But I appreciate the takeaway from their research because it disagrees with the talking heads on TV:

"... government bonds are indeed expensive, but far from bubble territory: today's valuations are well within the norm of the Treasury market's fluctuations in recent history. Moreover, it appears that quantitative easing programs did not have the cataclysmic effects that many had initially feared. Hence, for a proper valuation of the bond market, one must look beyond the Fed's policies of monetary easing."

This does go against my view overall, but as always, when I find something of value in my reading, I am compelled to bring it to you, and that's the case here. Because when one does look beyond, plotting a chart of the 10-year note's returns to the returns of the S&P 500 Index since 1971, under six different Fed chairs, Mazzoleni and Garg conclude:

"The trend of a negative relationship between stocks and bonds does not appear to be related to the quantitative easing programs of the Fed, but rather, as emphasized by Campbell, Pflueger, and Viceira (2015), is the byproduct of changes in the way monetary policy is being conducted ... Treasury bonds have become a good hedge against bad economic outcomes ... At least in the medium term, it appears a reasonable bet to expect bonds to maintain their hedging property against equities."

For me, the long-term change in monetary policy is the acceleration of theft from the producer and saver due to inflation and money printing, which they dismiss. But over the short term, and depending on who President Trump chooses to lead the Federal Reserve, and whether or not they continue to misjudge the economy by raising or lowering rates too fast or printing even more money, investors could run from bond markets. Those markets would crash, and the panic would spread to other asset classes including shares of stock.

What does all this mean? It means that over the short term, it's more likely a crash in the bond market would take down stocks and not the other way around. Bill Gross, former head of the bond giant PIMCO who is now with Janis, recently said "Bonds, like men, are in a bear market, although not a dangerous one."

A retreat in the share prices of stocks will inevitably happen. No one can say how much or how long it will last... and remember that when a stock begins to perform poorly while in the Dow (think Kodak) the financial engineers behind the stock exchanges simply toss it out for a better-performing one, and the Dow continues to rise. Even a 50 percent crash wouldn't last because the market-makers wouldn't allow it. If there's a real crash, the whole thing will crash. And I will continue to warn, we are headed towards some very bad times indeed unless the equating of debt to money can be broken.

As for bonds, a crash doesn't seem likely in the very near future. Research seems to say that even if the stock market "crashes" that bonds will provide some protection rather than crashing as well. Yet I continue to warn, we are headed towards some very bad times indeed unless the equating of debt to money can be broken.


Yours for the truth,

Bob Livingston