Having an out of money experience.

The free market’s nemesis is surely the supply of free money. And incessant has that supply been of late. In less than three decades, central bank balance sheets have ballooned from $400 billion (having taken 75 years to get to that point) to a now $22 trillion (trillion with a ‘t’) which is a lot of money even if you say it quickly.

But where is the harm? Interest rates are biblically low (as in literally the lowest they have been in 5,000 years of civilization – the bible is relatively contemporary in fact), inflation low, unemployment low, stock markets thriving, gross domestic product good, and business expansion continuing.

Today resembles, in part, the golden age of the early 1960’s in the US when GDP growth was 3.5%, unemployment below 4%, inflation below 2%, etc., etc. At that point the Fed’s balance sheet was circa $25bn and therein lies an important difference.

Cut back to today: the Fed and friends (the ECB definitely, Bank of Canada, maybe the Bank of Japan) will have to shrink some grotesque looking balance sheets, reportedly by draining $1tn or more per year out of financial markets. This is going to be an experience, because it will eclipse (by an order of magnitude) any previous such dumping.

What will the smart money do: real interest rates will rise, multiples will go down, pricing will reset and furniture will get broken. The dollar (which, granted, can’t seem to get a bid at the moment) is still likely better than the euro and certainly the red Ponzi; gold is flat on its back presently (down from $2000 in 2011); aggressive investors will no doubt find shorts within the bubbles and probably be just fine.

“A crop that never fails - Buy more bonds.” -United States Department of the Treasury c. 1946