{"id":51557,"date":"2020-03-04T09:20:26","date_gmt":"2020-03-04T14:20:26","guid":{"rendered":"https:\/\/olduvai.ca\/?p=51557"},"modified":"2020-03-04T09:20:31","modified_gmt":"2020-03-04T14:20:31","slug":"did-covid-19-just-pop-all-the-global-financial-bubbles","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=51557","title":{"rendered":"Did Covid-19 Just Pop All the Global Financial Bubbles"},"content":{"rendered":"\n<h3 class=\"wp-block-heading\"><a href=\"http:\/\/charleshughsmith.blogspot.com\/2020\/03\/did-covid-19-just-pop-all-global.html\">Did Covid-19 Just Pop All the Global Financial Bubbles?<\/a><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\"><em>Once confidence and certainty are lost, the willingness to expand debt and leverage collapses.<\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Even though the first-order effects of the Covid-19 pandemic are still impossible to predict, it&#8217;s already possible to ask: did the pandemic pop all the global financial bubbles?<\/strong>\u00a0The reason we can ask this question is the entire bull mania of the 21st century has been based on a permanently high rate of expansion of leverage and debt.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>The lesson of the 2008-09 Global Financial meltdown was clear:<\/strong>\u00a0any decline in the rate of debt\/leverage expansion is enough to threaten financial bubbles, and any absolute decline in debt and leverage will unleash a cascade that collapses all the speculative bubbles in stocks, real estate, collectibles, etc.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>What&#8217;s the connection between Covid-19 and the rate of debt\/leverage expansion?<\/strong>\u00a0Confidence and certainty: people will make bets on future growth and take on additional debt and leverage when they feel confident and have a high degree of certainty that the trends are running their way.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Over the past 20 years, the certainty that central banks would support markets has been high, as central banks stepped in at every wobble. Today&#8217;s 50 basis-points cut by the Fed sustains that certainty.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>What&#8217;s now broken is the certainty that central bank interventions will lift risk assets and the real-world economy.<\/strong>\u00a0Given the uncertainties of the eventual consequences of the pandemic globally, confidence in future trends has been either dented or destroyed, depending on your perspective and timeline.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Certainty that central bank interventions will push markets and real-world economies higher has also been dented. What happens if the market tanks after every 50 basis-points cut by the Fed?<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>We wouldn&#8217;t be in such a precariously brittle state if the global economy hadn&#8217;t been ruthlessly financialized<\/strong>\u00a0to the point that market dependence on central bank intervention is now essentially 100%.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">\u2026click on the above link to read the rest of the article\u2026<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Did Covid-19 Just Pop All the Global Financial Bubbles? Once confidence and certainty are lost, the willingness to expand debt and leverage collapses. Even though the first-order effects of the Covid-19 pandemic are still impossible to predict, it&#8217;s already possible to ask: did the pandemic pop all the global financial bubbles?\u00a0The reason we can ask [&hellip;]<\/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":[2,4],"tags":[127,6237,28817,10024,2127,587,7258],"class_list":["post-51557","post","type-post","status-publish","format-standard","hentry","category-economics","category-environment","tag-charles-hugh-smith","tag-confidence","tag-coronavirus","tag-financial-bubbles","tag-interventionism","tag-of-two-minds","tag-viral-outbreak"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/51557","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=51557"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/51557\/revisions"}],"predecessor-version":[{"id":51558,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/51557\/revisions\/51558"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=51557"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=51557"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=51557"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}