"This epic debt bubble will ultimately burst
first by deflation (the "Ka!")
before then exploding (the "Poom!") in hyperinflation
due to additional massive money printing efforts
by frightened global central bankers acting in unison.
First an inwards collapse,
then an outwards explosion.
What's unsustainable melts into thin air
no matter how many people want it to keep going.
Charles Hugh Smith
"The Federal Reserve is flailing
and global currency markets are in disarray.
The global Bubble is bursting
hence financial conditions are tightening.
Bubbles never provide a convenient time to tighten monetary policy.
The News and Record's Editorial Board
made up of Allen Johnson and Doug Clark,
who relatively don't know anything about economics or monetary policy
other than consistently wanting our local governments
to borrow more for any purpose whatsoever,
have become convinced interest rates will rise from here,
even though the global economy is coming off the tracks.
Best practices would require central bankers
to tighten early before Bubble Dynamics take firm hold.
Central bankers instead nurture and accommodate Bubble excess.
It ensures a policy dead end.
As the unfolding EM crisis gathered further momentum this week,
the transmission mechanism to the U.S.
has begun to clearly show itself.
While “full retreat” may be a little too strong at this point,
the global leveraged speculating community is backpedaling."
The [financial] system failed in 2008/09
and rather than allow a proper creative destruction cleansing,
policy makers have been aggressively propping it up ever since.
...it’s a highly inefficient global economy and financial system
absent the arguably necessary creative destruction...
Deutsche Bank's chief credit strateigst Jim Reid
piled on top of the prior mountain while GDP grew by only $12 trillion
over the same time period...
It was probably a terrible idea
to pile up debt at 2x the rate of income growth,
what the world did instead was to double down on that terrible idea
and pile on more debt at 5x the rate(!) of nominal GDP growth.
What all of that money printing,
lower interest rates and new debt creation did
was force capital over the globe to look for some place to go.
Absent any really good and creative ideas,
that money primarily chased yield.
It piled into risk assets like stocks and junk bonds,
often in bubble-like fashion (meaning, in haste),
and without proper due diligence.
Judging from the market action over the past month,
we think that shift has happened.
And we're increasingly concerned that this next ‘correction’
could be pretty rough for a lot of folks.
The borrowed money
used to spark all those heady asset gains and falling yields
on the way out do the exact opposite on the way back.
Afflicted countries are going to see vastly weaker exports,
plunging currencies, and their local corporations
unable to pay off dollar-denominated loans
on borrowing that ballooned from $4 trillion in 2004
to over $18 trillion just 11 years later.