Prelude to Crisis
Simple Conceit
Radical Actions
Ballooning Balance Sheet
Merry Christmas and the Happiest New Year
Ignoring problems rarely solves them. You need to deal with them—not just the effects, but the underlying causes, or else they usually get worse. The older you get, the more you know that is true in almost every area of life.
In the developed world and especially the US, and even in China, our economic challenges are rapidly approaching that point. Things that would have been easily fixed a decade ago, or even five years ago, will soon be unsolvable by conventional means.
There is almost no willingness to face our top problems, specifically our rising debt. The economic challenges we face can’t continue, which is why I expect the Great Reset, a kind of worldwide do-over. It’s not the best choice but we are slowly ruling out all others.
Last week I talked about the political side of this. Our embrace of either crony capitalism or welfare statism is going to end very badly. Ideological positions have hardened to the point that compromise seems impossible.
Central bankers are politicians, in a sense, and in some ways far more powerful and dangerous than the elected ones. Some recent events provide a glimpse of where they’re taking us.
Hint: It’s nowhere good. And when you combine it with the fiscal shenanigans, it’s far worse.
Simple Conceit
Central banks weren’t always as responsibly irresponsible, as my friend Paul McCulley would say, as they are today. Walter Bagehot, one of the early editors of The Economist, wrote what came to be called Bagehot’s Dictum for central banks: As the lender of last resort, during a financial or liquidity crisis, the central bank should lend freely, at a high interest rate, on good securities.
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