Because things happen so gradually in politics and finance, sometimes one needs to step back and look at the big picture. Having followed financial markets for over 30 years, I’d like to think I’ve learned a few things and have gotten somewhat better at pattern recognition in markets. I find myself increasingly amazed at the amount of madness that I’m seeing in markets, and at the acceleration in the pace of the madness.
I remember the dot-com bubble in the late nineties, the subsequent Nasdaq collapse, with the tech-laden Nasdaq down over 80% from peak to trough. I remember 9/11 and the dip in markets as the world got used to the idea of a GWOT. I remember very clearly the housing market dip in 2008-2009, and the large drawdown in global stock markets. And then of course, we had the big panic drawdown and immediate bounce back up during Covid.
Each of these episodes were met with massive amounts of money printing. Each episode saw the Fed pump money back into a system that badly needed a market-clearing liquidation of malinvestments. And each episode led to even more delusional expectations by market participants.
But what I’m realizing more and more clearly, is that we’re in a period of what I’ve heard several commentators describe as “Financial Nihilism.” When I look around, I see a kind of nihilism regarding the economy that I’ve never seen before in my lifetime. There are lots of different things that lead me to that description, and it’s hard to tell where they begin and end at. The most obvious symptom of the disease is the absolute madness of cryptocurrencies. Now, to be clear, cryptocurrencies are not the disease itself, but rather just the most obvious manifestation of the disease. The roots of the disease are much, much deeper. I believe it could be tracked all the way back to the creation of the Federal Reserve in 1913, and it has clearly accelerated since delinking the dollar from gold in 1971. This is the most obvious precursor to the madness of financial nihilism that we’re seeing now, but it doesn’t begin to explain the entire problem.
Demitri Kofinas and Grant Williams did an excellent podcast on the topic recently. Normally, Grant’s podcasts are behind a paywall, but this episode is available without a subscription. Their discussion, and virtually all the points that they made completely resonated with me. I was already thinking of doing a post on financial nihilism before I heard it, but listening to their conversation crystalized in my mind that financial nihilism is a real thing.
One of the things they discussed is how there have been absolutely no consequences for bad behavior for anyone in government or financial markets since at least the Gulf War II. America has been essentially lawless on the global stage ever since, bullying the world through foreign policy blunders and financial intervention without any introspection whatsoever. George W. Bush’s idiotic invasion of Iraq after the September 11th attacks, and his childish economic policies incentivizing Americans to spend money and save the economy after the attacks were one symptom among many. The Fed’s completely irresponsible money printing and enabling ridiculous government spending was much closer to the core of the problem.
Bailing out all the banks and markets during the 2008 financial crisis was an absolute crime against the American people. Anyone even slightly familiar with basic economics should have been absolutely outraged at how the biggest gamblers on Wall Street were bailed out with taxpayer money, all the while continuing with paying bonuses and claiming that they were saving the “little guy.” It was all such a travesty and a farce; and yet they did it with an air of total arrogance and contempt for anyone who questioned the fairness of their farcical behavior.
I personally believe that was a tipping point which led to a realization by many people that the system was rigged and to the realization that the system was completely lawless. No consequences would face those whose reckless, greedy behavior almost brought the entire system down. The total lack of accountability opened the floodgates of egregiously reckless behavior that we’ve seen ever since in markets.
The rise of cryptocurrencies has taken this nihilism to an entirely new level. What was initially viewed by some as a way to seperate money from the control of corrupt and reckless government money-printing, an admirable goal, and one I completely support, quickly devolved into the absolute opposite of everything it was supposed to represent. What was once a totally decentralized payment system, free from any government intervention, and intended to be used as a currency, has devolved into an industry that is in bed with government lobbyists, kissing up to Wall Street, printing massive amounts of pure garbage coins, and nothing but get-rich-quick gambling tokens.
The fact that the entire cryptocurrency “space” is a total fraud, and how incredibly obvious it is that it is fraud, is mind-blowing. People who should know better have either completely abandoned their moral compass as they participate in these schemes, or they simply never really understood the most basic concepts of finance. I’m not entirely sure which it is. As the saying goes, they are either knaves or fools. I’m honestly not sure which is worse.
The effect on the younger generation of “investors” has been incredibly destructive. It has promoted every negative impulse that inexperienced investors are prone to and will end disastrously for most. Cryptocurrencies are the most flagrant example of money-for-nothing, reckless gambling, greater-fool Ponzi promotions that the world has ever seen. Even worse than the fact that it is literally a negative-sum gambling technology, is the fact that its effect on young people morally and ethically is perverse and destructive. The entire culture of YOLO and FOMO are the antithesis of what capitalism is supposed to stand for. The “get-rich-quick without any productive effort” mentality of crypto makes a mockery of the vital concept of time preference and delayed gratification that is essential to the development of character in young people. When it all crashes and burns, capitalism will be blamed for the carnage and the demands for more regulation and more socialism will ring out across the land.
Private Equity is another perversity of the easy money Fed money printing era. The amount of damage being done by private equity to the soundness of the economy is disgusting. Buying up companies, strip-selling assets, loading up the balance sheets with unpayable debts, while paying out massive bonuses to the rapacious PE denizens is a disgrace, and weakens capitalism as well.
Stock markets, bond markets, and real estate markets being fueled by easy money are also symptoms of the disease.
There’s a reason it’s being called the “everything bubble”. By any kind of historic measurement, we’re living in the granddaddy of bubbles. Reading financial history informs us of what bubbles have looked like in the past. Nothing that I’ve read even comes close to the kind of universal delusion that I’m seeing in markets right now. The amount of prosperity caused by the past century of capital markets is incredible. So, it’s difficult to have a sound perspective about what is real and what isn’t real in this economy. Periods of history, in hindsight, seem to pass swiftly, and the bubbles look so obvious in hindsight, but when you’re living in the midst of one, time seems to stand still.
It is all going to end really, really, badly. The worst part is that our culture has descended into a lawless, money-is-all-that-matters kind of nihilism. Easy money has led to a kind of apathy regarding community and personal responsibility. This has led to an explosion in the size and scope of government which is growing rapaciously in every area of our lives. From education to medicine, from the military to retirement savings, and from the media to technology, government has exploded in size and has taken on an increasingly overbearing role in every part of our lives.
I think the thing that sums it all up for me is that even Donald Trump, the man who half the country is hoping will “drain the swamp” is so obviously in on the grift. Less than 24 hours before being inaugurated into the Presidency, he issues his own meme coin, a meme coin where anyone can essentially bribe his administration by funneling funds into it and benefiting the Donald. What an absolute farce of complete corruption. Any thinking person should be able to see by this one action alone, Trump has absolutely no intention of cleaning up the swamp. It is sickening to watch the Republic implode, but I truly believe that is what is going to happen. We’re headed to a very dark place with the path that we’re on. Any sense of civic duty seems to have been virtually abandoned by the populace, and they view even Trump’s blatant corruption with his meme-coin as humorous. I don’t find it humorous at all. I find it disgusting, contemptible, and quite frankly, frightening.
I don’t know if our society lost its morals first, which then led to this money printing and financial nihilism, or if the money printing led to our loss of morals. But one thing is for certain: this is not going to end well.
Perhaps the most ironic aspect of the financial delusion is that young people, kids who are struggling already, are “investing” what little valuable capital that they have into ephemeral mirages of wealth like crypto. It is difficult to understand how, at a time when all of history screams to get into hard assets that can survive chaos, the public is most enamored with the biggest Ponzi in all of history. Gold, on the other hand, is derided by most of the “crypto bros” as a pet rock. The one asset that has outlasted every financial panic and collapse in history is considered a dinosaur by the “in” crowd. This is hubris on a grand scale.
But, enough bloviating by me. Grant and Demitri do a much better job of describing the financial nihilism here…
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