A Hard Rain Is Going to Fall
A Hard Rain Is Going to Fall
There are core systemic dynamics that are impervious to technological or financial gimmicks, and as they play out, a hard rain is going to fall.
1) The credit-business cycle. The credit-business cycle has been pushed forward for the past 15 years, and arguably for the past 24 years. The last “real recession”–the organic contraction of credit and risk-taking that drains the excesses from the economy and financial system over the course of several years–occurred 43 years ago in 1981-82.
The mechanism for pushing this essential cleansing is moral hazard, the disconnection of risk from consequence by unprecedented central bank monetary stimulus and central state fiscal stimulus. The net result of moral hazard is the excesses of risk and debt are rewarded and expand to even more precarious heights, ensuring the eventual downturn will be far more destructive than had the system been allowed to fully re-set in 2000-02 and again in 2008-09.
2) The reversal of financialization and the collapse of the Everything Bubble and the wealth effect. The commoditization of credit, leverage and speculation is a boon when first introduced to a credit-starved economy, but once the productive investments have been made, financialization continues expanding into extremes of debt, leverage and speculation.
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