Historically, people have worked hard, saved some money and then invested it in a good company to get more money back then they invested. The general market would reward those who saved and invested wisely and penalize those who didn’t and had to borrow money.

Much of history had some form of gold as money. It was either the real metal itself, gold coins or certificates that were good for gold. Silver was also used for smaller denominations.

If you look at our world now, all of this is completely upside down! Now we have over 13 trillion dollars worth of bonds that have been sold at negative interest rates. This means that the borrower is rewarded for borrowing and the lender is penalized for lending the money.

The problem is that the money being lent is not money that has been saved and earned, but it has mostly been created out of thin air! Much of this creation of money is done by debt.

Debt is used the same as money by many banks and other institutions. Banks create money almost every time they make a loan. This works fine as long as this debt has a very low default rate. If default rates climb very much, things could start to unravel rather quickly.

The other thing that is upside down is that corporate profits have been falling for some time. If that happens companies should be worth less. However, instead of this, the stock market is making new highs. So these companies that have falling profits are now worth more than they were. That doesn’t make sense at all.

The only thing that can be happening is that because interest rates are so low, large institutions are buying stocks to get at least a little bit of return. This can only continue until fresh money quits flowing into the markets.

It has been pretty quiet the last month, is something about ready to happen? We’ll wait and see!