We are where we are.
I must admit I haven’t a clue where we are. We could be on the cusp of the second dip and some global deflation. We could be on the brink of a heavy dose of inflation courtesy of the ECB joining in the QE process. My prejudices still lean towards the former.
I do not believe that the ‘authorities’ know where we are either. We are in the teeth of a crisis and in a crisis ‘something must be done’. Not so much as to solve the crisis as to justify the continued remuneration and adulation of the ‘authorities’. All too often the response to ‘something must be done’ is “Here! This is something. Let us do this”. In other words, “Look busy and pray this works….”.
It is still my belief that the answer to ‘too much debt’ should not be, and cannot be, ‘more debt’. In all cases (US, UK & EU) that is what is being tried. The most it has managed so far is to mitigate the severity of the eruptions of the symptoms. But the eruptions keep happening. Last Thursday was just another example of the fragility of the system. As usual, ‘trader error’ was the culprit wheeled out to take the blame much as aviation authorities rush to finger ‘pilot error’ in the event of one of their catastrophes.
There is a fine piece of analysis over here that does not rush to any easy judgment while giving a detailed account of the events. Clearly, the ‘system’ is astoundingly complex and beyond the ‘ken’ of anyone person. Clearly, also, there are diminishing returns to complexity which can turn negative.
We have a ‘HeathRobinson’-esque financial markets system that is massively removed from the needs of capital formation for industry and safe investment vehicles for our pensions and savings. It is clear to all that this grotesquerie has now become a vampire, feeding off that which it was supposed to serve. It has become bloated at the expense of a healthy economy, infrastructure and society.
What we need right now is less finance, not more, and less debt, not more.
There is a ‘green’ angle to all of the above ‘blather’. Everywhere you look on the planet right now humanity is banging up hard against the diminishing returns to complexity. Take the Large Hadron Collider and compare it to what sort of laboratory James Clerk Maxwell needed to resolve the complexities of electromagnetism. Examine the differences between the illfated ‘Deepwater Horizon’ rig and what was required in the age of Standard Oil to harvest fossil fuels. Contrast the ‘Green Revolution’ of Norman Borlaug with the manipulations of Monsanto. In all cases we are adding enormous complexity for less and less return.
This has been analysed and forecast by Joseph Tainter in his book ‘The Collapse of Complex Societies’. You should read it.
Where we are is exhausted at the top of a ridge, with steep, near-vertical, falls on either side and folks just want to rest but the air is thin and cold and we cannot lie down….
Tyler Durden over at ZeroHedge.com says this…..
The race to the currency devaluation bottom is now in its final lap. And gold is the only alternative to the now imminent collapse of the fiat system: the world had a chance to take writedowns on losses, punish those who took risk and failed, and refused to do so. There is now no risk left, but it only means that eventually all the risk will come back and lead all capital markets to zero. The result will be the end of Keynesian economics as we know it. Do not trade in this broken market, do not hold your money in a bank as they are all now one hour away from a terminal bank run – buy and hold real, FASB mark-to-myth independent assets.
I think I agree, though whether the run will be deflationary or inflationary I still don’t know. But, for sure, hold real assets only….