Executive Summary

• The source of leverage being used to manipulate us
• The powers that be have a much weaker hand than we realize
• The increase use of force to control the system will ultimately undermine it
• What options are available to those who want to free themselves from this supression?

If you have not yet read Part 1: Upon The Next Crisis, The Rules Will Suddenly Change available free to all readers, please click here to read it first.

In Part 1 we surveyed the dynamics driving ever-expanding state control, the state’s priorities in crisis management (secure the state’s authority and the wealth/power of elites) and the authorities’ current preference for indirect control of the market.

Leverage and the Market as a Signifier

Markets are no longer markets—they are simulacra of markets, displaying the superficial appearance but not the dynamics and uncertainties of real markets, which have an unnerving tendency to veer away from the state-approved scripts of permanent, stable expansion.

Why have central banks and states (which includes blocs of nations such as the Eurozone with a centralized governing elite) chosen to cloak their control of markets?

The answer is has two parts:  1) central banks/states must leverage their intervention due to the monumental scale of global markets; owning assets worth hundreds of trillions of dollars is at best awkward in the current arrangement and at worst politically impossible.  

While financial leverage is a relatively straightforward tool, 2) the real leverage is exerting psychological control over the market by transforming market price action into a signifier (i.e. signaling mechanism) that persuades participants to do what central banks/states want them to do without forcing them to do so.

Power vs. Force

Author/analyst Edward Luttwak has noted the difference between power and force. In the context of financial crisis, force is buying $20 trillion in assets outright; power is persuading private-sector players to buy $20 trillion in assets.

Force is costly, power, if leveraged strategically, is relatively cheap.

Compare the enormous size of global assets—financial assets and real estate—with the balance sheets of the primary central banks: over $300 trillion in financial assets, including public and private debt instruments such as bonds, securitized debt and unsecured debts.