Monday, May 23, 2016

Unintended Consequences: 
Easy Money = Overcapacity = Deflation
John Rubino* commentary on the illusion of easy money producing sustainable economic growth .. "What actually happened was textbook, long-term, surreally-vast misallocation of capital in which individuals, companies and governments were fooled into thinking that adding new factories, stores and infrastructure at a rate several times that of population growth would somehow work out for the best." .. what resulted was massive overcapacity - through overborrowing & overbuilding .. the result is deflation .. "The next stage of this process will be either: The mass failure of marginal players in virtually every basic field. Steel mills, cement factories, shopping malls, high-cost miners, dairy farms, etc., etc., will default on their debt, fire their workers and liquidate their assets, leading to a global depression in which deflation exceeds the 25% seen in the 1930s. Or… Mass devaluation in which the world’s governments lower the value of their currencies to make their debts survivable. This will, of course, scream 'borrow and spend me before I lose even more value' to the markets, thus increasing systemic leverage and producing an even bigger bust somewhere in the future. We’re clearly opening door number two, so the volatility of the coming decade should put today’s uncertainties to shame."
LINK HERE to the commentary

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