Bubble at the Fringe
prudentbear.com
I recall reading articles highlighting noteworthy examples of spending extravagance that preceded by only months the respective crises in Mexico, Thailand, Russia, Brazil, and Argentina. But, then again, lavish purchases and ballooning trade deficits are a hallmark of Monetary Disorder. And while profligate spending is not a fresh development here in the U.S., I couldn't help but to think that almost 400,000 empty cargo containers leaving the Los Angeles and Long Beach ports during July is a signal along the same lines of booming Mercedes sales in Russia during 1998's first half.
And I cannot also help but believe that “strong vs. weak U.S. economy” debates have basically become moot. What should be clear at this point is that even huge fiscal stimulus and unprecedented financial excess are incapable of fostering a sound and self-sustaining economic expansion. The paramount issue, today and going forward, is the deeply maladjusted U.S. economy and its increasing unresponsiveness to even enormous yet misdirected financial stimulus. Both the Financial Sphere and Economic Sphere are severely maladjusted. Two years of Fed-orchestrated “reflation” have only added to the U.S. economy's inflated cost structure and further weighed on global competitiveness. Meanwhile, the Global Credit Bubble (and China and Asian booms, in particular) has worked to strengthen the capabilities (financial and economic) of our determined competitors.
But we should have expected nothing less. Today's Boom at the Fringe is but a further manifestation of historic Credit Bubble excesses that has inflated asset prices, bolstered consumption and imports, and inflated the general economy's cost structure, while having limited impact on sound business investment. And I will stick with the analysis that today's predicament of Monetary Disorder and Deep Structural Economic Imbalances is on course to precipitate some type of financial crisis. But, appreciating the extraordinary nature of current global financial systems and markets, it is anyone's guess as to how long market “ebb and flow” can hold tumult at bay. We do know that the U.S. economy and markets require $2 to $3 Trillion of total annual Credit growth. Succinctly, there remain two overarching issues: First, how long can this amount of Credit creation be maintained? Second, what will be the nature of Inflationary Manifestations while the Credit Bubble is sustained? |
