This is a syndicated repost courtesy of Credit Bubble Bulletin. To view original, click here. Reposted with permission. Another unsettled week for global markets. Japan’s Nikkei equities index rallied 6.5%. Italian bank stocks surged 10%, with the Europe STOXX 600 Bank Index up 8.1%. Germany’s DAX equities index rallied 4.5%, with Spanish stocks up 5.0%…
From my analytical perspective, unsustainability is a fundamental feature of “Bubble Economies.” They are sustained only so long as sufficient monetary fuel is forthcoming.
It’s not as if we’re lacking history as to how this works. Some two decades ago the Greenspan Fed’s “asymmetrical” (baby-step “tightening” measures versus aggressive rate slashing and market support) policy approach emboldened speculation.
The 1987 stock market crash raised concerns for the dangers associated with mounting U.S. “twin deficits.” Fiscal and trade deficits were reflective of poor economic management. Credit excesses – certainly including excessive government borrowings – were stimulating demand that was reflected in expanding U.S. trade and Current Account Deficits. Concerns dissipated with the revival of the bull market. These days we’re confronting the consequences of 30-plus years of mismanagement.
The fourth quarter was a period of financial instability and tightened financial conditions. What tracks would be left in the data? Moreover, would the report confirm a continuation of the broadening Credit slowdown that had turned more pronounced during Q3, a slowing that would portend weak GDP and corporate earnings. Would the data support the thesis of mounting financial fragility? This Z.1 did not disappoint.
With global risk markets staging a significant rally, it’s an appropriate time to update my bursting global Bubble thesis.
The current global backdrop remains alarming and, especially on bad days, darn right frightening.
A multi-decade experiment in unfettered “money” and Credit has encompassed the world. Unique in history, the global financial “system” has operated with essentially no limitations to either the quantity or quality of Credit instruments issued. Over decades this has nurtured unprecedented Credit excess and attendant economic imbalances on a global scale.
Few are yet willing to accept the harsh reality that the world has sunk back into crisis.
For seven years, I’ve viewed global rate policies akin to John Law’s (1720 France) desperate move to hold his faltering paper money and Credit scheme (Mississippi Bubble period) together by devaluing competing hard currencies (zero and now negative rates devalue “money”).