A post-crisis cure that has stored up economic pain[1]
It has become clear to many people that their future has been re-priced
When the world's central banks leapt into action to save the global financial industry in 2008 there was not much discussion about whether that was the right thing to do. Some economists observed that the central banks had shown a bizarre level of incompetence in allowing a credit crunch to turn to crisis on their watch — so gambling that they were competent enough to fix it seemed a bit nuts.
12 years on from the start of the financial crisis (I’m dating it from the peak in US property)… wave of experts now insisting another crisis is just around the corner.
The obvious alternative to bailouts and printing money would have been to accept a very deep but probably quickish recession. That would have brought a nasty fall in asset prices but also kicked off new economic growth. But there were many other ways for the central banks to have done something instead of their great monetary experiment
The obvious alternative would have seen the bankers take a haircut, and the rest of the world safely through. But the Central Bankers have to look after their pals.
Asset prices only matter to asset owners, very specifically the big ones… particularly so when they are caught unawares. For everyone else, it is a great opportunity to invest.
Central Bankers cabal called this an experiment. This was anything but an experiment! They knew they had to take the wind off the sails, shake the trees, and refill their broken piggy banks. Calling this an experiment allowed them to pull wool over the masses, just in case shit hit the fan. A very well thought out strategy.
Their experiment allowed for big asset owners to access cheap credit and off-load toxic bad debts to gullible governments led by incompetent politicians.
What we can do, however, is look at the side effects of the rescue and ask if they were really worth it. Think about what QE and super-low interest rates have done. The idea was that they would prevent corporate and personal bankruptcies but also — as explained by the US Federal Reserve and the Bank of England — push up asset prices so that the wealth effect (the idea that if you feel richer you spend more) would drive consumption and hence recovery.
Both bits worked pretty well. But in neither case is that a particularly good thing… the net effect has been the redistribution of wealth on a massive scale.
The wealthy, and those in a position to borrow and take risks, have become wealthier.
On the other end of the scale, we have those who have spent 10 years being punished for thrift.
The key point is that determination to avoid the sharp pain and instant wealth reshuffling of recession has resulted in a decade of slow burn pain for large parts of the population — pain coupled with anger at the obvious fact that not everyone is in the same boat. Far from it.
The consequences of those solutions, one of which was to make rich people richer in the hope they would spend more, look like they could end up neutering capitalism
[1] A post-crisis cure that has stored up economic pain
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