{"id":29337,"date":"2018-01-03T09:50:24","date_gmt":"2018-01-03T14:50:24","guid":{"rendered":"http:\/\/olduvai.ca\/?p=29337"},"modified":"2018-01-03T09:50:24","modified_gmt":"2018-01-03T14:50:24","slug":"why-the-financial-system-will-break-you-cant-normalize-markets-that-depend-on-extreme-monetary-stimulus","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=29337","title":{"rendered":"Why the Financial System Will Break: You Can’t “Normalize” Markets that Depend on Extreme Monetary Stimulus"},"content":{"rendered":"

Why the Financial System Will Break: You Can’t “Normalize” Markets that Depend on Extreme Monetary Stimulus<\/a><\/h3>\n

Central banks are now trapped.<\/i><\/p>\n

In a nutshell, central banks are promising to “normalize” their monetary policy extremes in 2018.<\/b> Nice, but there’s a problem: you can’t “normalize” markets that are now entirely dependent on extremes of monetary stimulus. Attempts to “normalize” will break the markets and the financial system.<\/p>\n

Let’s start with the core dynamic of the global economy and nosebleed-valuation markets: credit.<\/b><\/p>\n

Modern finance has many complex moving parts, and this complexity masks its inner simplicity.<\/p>\n

Let\u2019s break down the core dynamics of the current financial system.<\/p>\n

The Core Dynamic of the \u201cRecovery\u201d and Asset Bubbles: Credit<\/b><\/p>\n

Credit is the foundation of the current financial system, for credit enables consumers to bring consumption forward<\/em>, that is, buy more stuff today than they could buy with the cash they have on hand, in exchange for promising to pay principal and interest with their future income.<\/p>\n

Credit also enables speculators to buy more assets than they otherwise could were they limited to cash on hand.<\/p>\n

Buying goods, services and assets with credit appears to be a good thing: consumers get to enjoy more stuff without having to scrimp and save up income, and investors\/speculators can reap more income from owning more assets.<\/p>\n

But all goods\/services and assets are not equal, and all credit is not equal.<\/p>\n

There is an opportunity cost<\/em> to any loan (i.e. credit), as the income that will be devoted to paying principal and interest in the future could have been devoted to some other use or investment.<\/p>\n

So borrowing money to purchase a product or an asset now means foregoing some future purchase.<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n","protected":false},"excerpt":{"rendered":"

Why the Financial System Will Break: You Can’t “Normalize” Markets that Depend on Extreme Monetary Stimulus Central banks are now trapped. In a nutshell, central banks are promising to “normalize” their monetary policy extremes in 2018. Nice, but there’s a problem: you can’t “normalize” markets that are now entirely dependent on extremes of monetary stimulus. […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[37,124,127,175,317,506,535,587],"class_list":["post-29337","post","type-post","status-publish","format-standard","hentry","category-economics","tag-asset-bubbles","tag-central-banks","tag-charles-hugh-smith","tag-credit","tag-financial-system","tag-markets","tag-monetary-stimulus","tag-of-two-minds"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/29337","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=29337"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/29337\/revisions"}],"predecessor-version":[{"id":29338,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/29337\/revisions\/29338"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=29337"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=29337"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=29337"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}