This weekend I did an interview for the Parallax Views podcast – a show that has talked with a variety of great guests on cultural and political topics. This was a wide ranging two hour interview in which I tackled the financial markets and the economy from an angle that I have yet to see anyone do – and it is the first time I have attempted to fully articulate it myself
I believe we are in a triple crisis involving the coronavirus, sharp economic recession/depression, and a financial bubble bust. The first two are obvious to people, but the latter though is not well understood and just as important for the economy than the shutdown. What we saw was a massive expansion of capital in the economic system over the years that went into all sorts of assets and fueled a debt bubble in the bond market that the Federal Reserve is now propping up with its own buying as it topped out with the stock market a few weeks ago. If it were not for that buying the US financial system would completely collapse.
However, no one thinks about that massive expansion of capital that led up to the moment we are in. We are in a deflation/inflation boomerang process. That deflation process represents the destruction of excess capital in the financial markets. Although everyone is focused on the coronavirus for good reason in the long-run I am personally more worried about a coming inflation that will hurt people’s living standards for a period of time than the virus.
A positive way to look at it is that people and businesses who are able to weather the deflation/depression economy we have entered by not going bankrupt first will have their debts inflated away in time – whether that’s the government itself, indebted companies, or people overburdened with student debt. That will pave the way for an economic reset in the economy, but it will be a wild ride getting there and I don’t know what things will look like culturally or politically afterwards.
To listen to this as an MP3 file click here:
https://www.podbean.com/site/EpisodeDownload/PBD79080S7AUC
Or watch the video:
Books referred to in this video:
I believe this book explains the why or how: David Harvey: Marx, Capital, and the Madness of Economic Reason
And this reference work provides the reference to how this process plays out historically in financial markets and an economy so it can serve as a guide for what is to come:
Ray Dalio: Principles For Navigating Big Debt Crisis
-Mike
