This is why I believe economic + financial doom is going to happen

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  • The history of the past 40 years “proves” the Fed & Govt can effectively contain all recessions: all recessions since 1981-82 have been shallow and brief, basically a spot of bother that lasts one quarter.

  • We’ve habituated to both the bubble economy and the speculative mania so that these are now considered normal. But behind the comfortable normalization, something counterproductive has taken hold: we’re now addicted to the bubble economy and its crazed twin, speculative mania. If the bubbles pop and speculators go broke, the economy and financial system will both implode.

  • Having made unprecedented, permanent stimulus the bedrock of the economy, there’s no stopping the runaway train

  • Since the Fed has implicitly guaranteed that no bubbles will ever be allowed to pop, this gambling has acquired a dangerously thin veneer of safety. Any dip in housing or stock prices will soon be bought, and so valuations will continue their happy ascent to ever higher highs

  • As a result of the great success of outlawing recessions, everyone is complacent. There will always be plenty of credit, jobs and monetary-fiscal stimulus, and the Fed will always jump in to save the bubbles from popping. Nothing can possibly go wrong because it’s all under control, and we have 40 years of “proof” that there’s nothing that can possibly break this guarantee.

  • Beneath this complacency, the counterproductive dynamics are increasing. Inflation limits the Fed from dropping interest rates back to zero, wealth inequality undermines social stability, speculative manias are actually not low-risk, and bubbles find a way to pop despite all the assurances of god-like control.

  • Rather than guarantee the permanent expansion of all the good things, outlawing recessions guarantees a monster recession as our innate ability to normalize extremes and slip into blissful complacency will shatter in unexpected ways. Those who came of age after 1982 have never experienced a real recession, and so they’re unprepared for anything other than guarantees of rescue and permanent expansion.

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This has been the world for 40 years now. Normalcy bias, optimism bias and recency bias mean that very few are expecting any END of this “glorious” period. These biases enable a comfortable mental existence.


h/t mark000

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