There is no doubt that the worlds economies are in serious trouble and indeed they have been for quite a while now. Policy makers have been desperate to maintain some kind of order even though there are many warning signs that our systems are breaking down. In 2020 things have come to a head with the COVID lockdowns leading to a situation that looks like a bit of a controlled demolition of the worlds economies.
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We have had massive asset price appreciation for years now with the stock market hitting new highs and the real estate valuations (especially in Australia) have damn near priced entire generations out of the market, so perhaps you could argue we’ve been in a Crack Up Boom for a while now. However it feels like we are just about to go “Next Level” with some of the uninhibited stimulus spending we’ve seen (and are yet to see) in the wake of the COVID lockdowns and the recessions they've induced this year.
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I’ve known about the Everything Bubble for years and after a massive Deflationary wave hit us in March it looked like we were going to be in for an epic crash in 2020. There has been a bit of a rally in the asset markets since then but it has reeked of false hope to me. I’ve been waiting for the next Deflationary wave to hit us when reality really bit…..but it hasn’t come. We’ve seen Stocks and Precious Metals take a hit in the last month or so but it’s been mild. We’re in an election year for the worlds leading economy and the major parties seem to be tripping over each other trying to promise more stimulus to support the flailing economy at every turn. It probably doesn’t matter who wins at this point because it looks like Deflation will not be allowed to happen either way. What that means is lots and lots and LOTS of money printing is going to be on the cards to keep everything propped up.
In history there has been a lot of examples of countries getting into strife and turning to the printing press. At first it doesn’t really do much because people are in crisis mode and are reluctant to spend. Money velocity is low, so the money printing doesn’t really have an effect because the new money doesn’t make its way into the economy while everyone is tightening their belts…..it’s when things start to normalise and people start spending again that suddenly all that newly printed cash starts flooding into the economy and causing inflation. By that time the damage has usually been done. The inflation beast is unleashed and can’t be easily tamed. Some, like my friend @welshstacker make parallels to the 1970s where inflation ran wild, but at that time it was eventually tamed by implementing ultra high interest rates – which was a painful policy. In todays world I don’t see any of our leaders with the courage or strength to implement such a tough, unpopular policy and deal with run-away inflation. No, I expect them to let inflation run….
Thus the Crack Up Boom begins in earnest with currencies devaluing and assets (priced in those currencies) seeming to moonshot by comparison. In the last few days I’ve come around to believing that the time could be now. We’ve seen Trump (a so-called conservative) deny more stimulus agreements until after the election – the market wobbled ever so slightly – and then he backflipped almost immediately. If a ball-breaker like Trump can’t turn off the tap then who can? In response to his backflip the Precious Metals and Crypto markets have surged together again, showing disproportionate strength and suggesting we could be at the start of another big rally in these alterative currencies.
I hope you do because in a Crack Up Boom your Cash is Trash!
I'm expecting Pandemic pay soon, though I am working full time I get this cash as an incentive as Risk premium as I am a nurse. To incentivize Nurses from Not staying home in the crisis. This summer my department underwent a serious under-staffing. It was discouraging know PT staff getting Full Time pay while working only Part Time or even a fully paid vacation in some cases. So I could have faked some coughing and get a fully paid vacation but decided my team and patients needed me.
One guess where that cash will be going into?
It'll go to the most irresponsible demographic possible as they are the most likely to immediately blow it and that's what the Keynesians want - Spending.
Oh, I just realised I mis-read your comment. I know exactly where YOUR cash will be going. If only there were more like you in the world @kerrislravenhill
Velocity is dead in the water. Never seen levels like this. The stimulus money will continue to pour in no matter who is elected. It's the only way to keep the economy alive. Check out this velocity chart from the FED. Ouch!
Absolutely. I guess what I am saying is that Money Velocity will start to pick up again when people start to get confident the worst is behind us. At that point all the printed money floods back into the economy and gives us a massive inflation hit.
I think we could be at that inflection point right now and Money Velocity could be bottoming right now. That's the good thing about posting on an immutable blockchain. We can come back in a few years and see if I was right ;)
We have a bunch of new bills being introduced over here about a new Crypto Dollar being created....soon. After the election I think we'll see many months of confusion due to the mail in voting BS.
I think they will then use the new dollar to try to stimulate the economy. From what I've read the new "banks" will be the Post Office. Then they can give you free digital dollars but will have a short expiration. Guessing that is their plan to get velocity moving again. How ever it plays out it will be a shit show and we'll try to drag the rest of the world along with us. LOL
Yes, it is frightening. A UBI style crypto-currency with an expiration date on it to prevent any kind of saving. Plus the worst of element of crypto tech - Full surveillance capability. The masses will love the free money (at first) but anyone with half a brain knows where this will take us.
Here in Australia we will follow. We always do.
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Yes, it is going to be epic. Some think it should have already happened. Get ready it is coming. Even a little preparation will go a long way.
Totally agree. It's been like a slow moving train wreck for years but things seem to be speeding up a bit now.
It sure is at a tipping point, I think the next few months are going to be interesting with all the clouns arguing over who gets the fiat and how much.
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Indeed. They look to me like seagulls fighting over a chip.
But the chip is old and stale and tastes like ass :)
Good observation and analysis. Interesting times ahead.
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Money velocity, just like anything, will pick up again. I do not worry much!
Crazy times ahead 😬
Buggs, you’re not kidding. I remember 10% yield on certificate deposits when i was a kid. That was nuts, people buying houses at 6.75% or higher. It would destroy everything we know. But our gold & silver won’t .......😃