We are seeing a fucking replay of 2008, aren’t we? All of the trillions of dollars spent on stimulus, bailouts and QE down the drain. Due to the bailouts of 2008-2009, sovereign nations took on too much debt, trying to transfer risk from banks to us. They figured if the economy came back and taxes were raised, they could stave off collapse. Let’s be clear, without the bailouts of 2008, for better or for worse, the entire system was going to collapse.
Over the past 3 years, we’ve been sustained on free money and lots of eloquent speeches. The reality, we haven’t grown fast enough to dig out of the massive debt hole. While everyone feared the inflationary side effects of quantitative easing, the real threat was deflation, which is the reason why Bernanke continues to print at a rapid pace. Asset price destruction occurs quickly and it is absolute. The only real threat of inflation, in the eyes of the Fed, is wage inflation. Due to our stupid economy, wage inflation hasn’t been a problem in 30 years.
As we sink into the vortex of asset price destruction, it is clear to me there is only one way out: print more. The problem with printing more is the unfortunate side effects of artificial, manufactured inflation. The alternative is debt restructuring and failure on a monumental scale. That simply isn’t going to happen, especially after seeing how policy makers managed the crisis of 2008.
This is the primary reason why I have been long. It was never based around the idea that the economy was terrific. Sadly, like many other investors, I was long because while the printing presses were running, the prices of equities were gunning. There is no debating that fact.
People are fleeing for the exits now based upon the premise that “it’s all over.” Can the ECB bailout everyone? Is BAC going to bite the dust this time around? Moreover, is there political capital left for future bailouts, if needed?
It’s 2008 all over again and policy makers, once again, seem stupefied to stem the contagion.
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