There are no guarantees, no matter how monumental the hubris and confidence.
The American lifestyle and economy depend on a vast number of implicit guarantees— systemic forms of entitlement that we implicitly feel are our birthright.
Chief among these implicit entitlements is the Federal Reserve can always “save the day”: the Fed has the tools to escape either an inflationary spiral or a deflationary collapse.
But there are no guarantees this is actually true. In either an inflationary spiral or deflationary collapse of self-reinforcing defaults, the Fed’s “save” would destroy the economy, which is now so fragile that any increase in interest rates (to rescue us from an inflationary spiral) would destroy our completely debt-dependent economy: were mortgage rates to climb back to historical averages, the housing bubble would immediately implode.Hello negative wealth effect, as every homeowner watches their temporary (and illusory) “wealth” dissipate before their eyes.
The Fed’s “fix” to deflationary defaults is equally destructive: bailing out too big to fail lenders will spark a political revolt that could topple the Fed itself, as the populace has finally connected the dots between the Fed bailing out the banks and financiers and the astounding rise in income and wealth inequality.
Other than the phantom “wealth” of real estate and stock bubbles, the vast majority of the ‘wealth” generated by the Fed’s actions of the past 20 years has flowed to the top 0.1%. This will become self-evident once the phantom gains of speculative bubbles vanish.
The Fed’s other “trick” to halt a deflationary collapse is negative interest rates, in effect taxing savers and those holding cash and rewarding those who borrow.Negative interest rates destroy every institution that depends on relatively low-risk interest income via bonds: pension funds, insurance companies, etc.
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