Financial Cold War
Were they really that dim? Why would the governments, and all the self-interested individuals which comprise them, put themselves through the financial horrors of 2007/2008, the crash of 1987, the Internet bubble collapse of 2000, or the grinding equities-are-dead market that lasted the entire 1970s? It doesn’t make any sense.
However, I’ve been fleshing out something that I think might provide an answer to the question by way of a surprisingly strong analogy. During this “Everything Bubble”, conjured up by Mario Draghi, Ben Bernanke, Haruhiko Kuroda, and Zhou Xiaochuan, the idea of “mutually assured destruction” keeps springing to mind. M.A.D. is defined as “a form of Nash equilibrium in which, once armed, neither side has any incentive to initiate a conflict or to disarm.” As a child of the cold war myself, I probably have this M.A.D. analog deeply planted, but as I thought about it more deeply, I was astonished how cleanly it explains our new financial world.
To explain this analogy, I’ll lay out the players involved:
The Pre-Atomic World: In the case of military conflict, there were obviously countless wars throughout the centuries. In the financial world, there were likewise countless periods of booms and busts. The mass of humanity in both the military and financial worlds tended to engage locally, and there certainly was no overarching global “hand” over either of these worlds.
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