509 sats \ 2 replies \ @shado_op 23 Dec 2023 \ on: What Would it Take to Get a Depression econ
I've wondered about this a bit lately. Every time the economy starts to slow down across the West, the magic money tree gets shaken again to inflate everything back up. So does that mean this could keep happening? And major recession or depression avoided? I would have said no a few yrs ago but it keeps happening. So maybe our thinking has to shift slightly... The can will keep getting kicked down the road, with massive monetary stimulus each time, temporarily averting serious recessions, but with added strings that increase government authoritarianism as the price of the gov "helping" everyone. Because all gov financing has strings attached to promote public policy. Example; in the UK, the gov has issued mandatory sales targets on heating manufacturers for green tech. Not criticising heat pumps here, as I understand it they're great for the right property. But public policy says we all have to have them regardless. So heating manufacturers have to sell x% of heat pumps. But there is not enough market demand to meet the gov sales targets. So the companies face fines for not meeting targets. To pay the fines, they increase prices (on all types of heating). As prices go up, that feeds inflation, and green tech subsidies have to be increased to compensate... But the gov overspends so it has no money for subsidies, so it has to borrow to fund the subsidies... increasing gov debt, which then increases central bank intervention cos gov debt costs would rocket otherwise, as gov debt keeps increasing, and so on... It is illogical and is certainly not a sign of free markets or capitalism... I'm not saying this outcome is preferable but I do wonder if the most likely outcome of our current economic mess, a depression, wont happen because central banks now effectively indirectly fund our governments... Maybe this just carries on indefinately until we have a 'communist lite' system that arrives by default.
At that point, there is no financial depression, but plenty of shortages and a waiting list for everything! Just a thought...
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100 sats \ 1 reply \ @geisterde 24 Dec 2023
It has been strung along longer than any of us would have expected, and they have tricks up their sleeve to keep it going as long as political will doesnt turn. There is a systemic instability though, the numbers get more extreme with every turn, where the turns get more and more frequent. I think its reasonable to extrapolate out and say the next time the money printer starts, maybe its a 50% haircut for savers, maybe the next is 80%. There is no mechanism for reducing items like the national debt, and even under full yield curve control there is only so much they can do to keep rates down (evidence japan), meanwhile politicians follow their incentives to spend more. I see no way out of this cage, its a falling wedge where the top line is the collapse of investor confidence (double/tripple digit inflation and interest rates) and the botttom line is default.
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200 sats \ 0 replies \ @shado_op 24 Dec 2023
It's been a surprise to me also just how long this has been going. As other posters have pointed out, there is plenty of evidence it's all going badly wrong for those prepared to see it. Ultimately, maths wins. But I just don't see a default in the true sense for the US, Japan, UK, Euro-zone. Regardless of inflation, they will just hit the button and "print" more money. There are numerous schemes already in place to manipulate liquidity and solvency in the financial system (see Lynn Alden recently on investment banks arbitraging the Fed). So maybe talk of a default is a distraction. We should be more concerned at what policy steps will be taken to avoid default?! Obvs it's all speculation at this stage. All pov are valid.
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