Endgame ... how does this all end?
So we have rampant credit inflation. There appears to be a consensus here that CPI inflation is significantly higher that Gov't statistics suggest. But we have massive debt in the economy, which is deflationary. Gold continues to remain under pressure. And the debate continues as to whether gold is best considered a quasi-monetary asset at present, or has elements of just another speculative "play" that easy liquidity has in part facilitated.
Sure, the rise of China, India, et al, "peak oil", and low commodity inventories seem to argue for a secular bull in commodities (the Jim Rogers view), but again the global economy that sustains this demand is on the precipice of a massive debt and credit bubble.
So (a) what's the endgame here? And (b) what's the likely timeframe for the "end game" scenario to unravel?
It's funny, I remember back to the great emerging market equity (and bond) bubble sometime in the 1990's. I remember reading an article by Donald Coxe in Canada's Globe & Mail, and the headline was something like "Wall Street is No Longer King", or something like that. The article went on to suggest that the reign of Wall Street was effectively over, and that the real action for the next decade or more would be in Indonesia, Mexico, Brazil, Turkey, China, etc.
Well, of course, from a secular vantage point there is a case to be made here. But alas, it turned out that a significant part of the emerging market equity boom was, once again, simply easy credit. And when that easy credit was removed, a lot of capital rushed back to Wall Street ... leaving a lot of investors poorer for the experience.
Yet at the height of the emerging market boom, there was a near unanimous concensus that the emerging markets were a "secular growth story", and the full appreciation of easy credit was lacking (well, except maybe for Jim Grant and a few other diehards).
So in spite of the present "inflation train wreck", does this present environment end similarily? Is there a spectacular demand bust when the global financial system is revealed as basically insolvent?
Surely sooner or later we will reach an "inflection point" of some sort ... where the current ballooning expansion of credit reaches a point of diminishing returns, or perhaps is simply no longer sustainable. Won't we???
I mean, the US could actually destroy the US$ like the Germans destroyed the Deutsche Mark in the 1930's. But that destroyed Germany's financial system. Surely the U.S. is not THAT powerless that it would see the best way out of its current dilemma to destroy the U.S. financial system. Would it?
Anyone up to shedding any light on these questions?
Confused and concerned.
Glenn |
