Charles Hugh Smith from Of Two Minds
A global recovery dependent on a spiraling addiction to debt and sovereign spending/intervention has been undermined on numerous fronts.
Today’s exercise: design a semi-plausible scenario guaranteed to halt a global recovery that is entirely dependent on massive money printing, credit creation, Central Bank intervention and Central State spending.
I don’t know about your answer, but here’s my scenario for kicking out the rotten posts holding up a fragile, debt-fueled global recovery:
1. A natural disaster which disrupts production in one of the top four exporting nations, preferably one that is essential to the global manufacturing and high-tech supply chain. Once those supply chains are disrupted, then so are product cycles and profits.
2. An event that triggers a financial crisis in one of the four largest economies. The ideal setup for falling dominoes is to take a financially vulnerable major economy and topple it with an unexpected disaster.
3. Ignite a chain reaction of volatile mass movements in the major oil-exporting region of the world, i.e. the Mideast. I don’t mean the disruptions caused by small terrorist cells, I mean the unleashing of mass movements of ordinary people who have suddenly decided to renounce the delegitimized autocracies they have accepted for decades.
By their very nature, such movements are unpredictable, and the situation is thus intriniscally unstable–just what global markets fear.
4. A long-wave increase in global demand for essential materials and grains which are suffering drawdowns of inventory due to inadequate supply. Throw in a few oil-rig disasters and failed crops in key regions of the world, and what might have been modest supply-demand imbalances balloon into shortages which trigger massive leaps in price.
5. Central banks and governments which have become addicted to radical increases in money supply, sovereign debt and spending to keep their economies afloat. As the banks can’t control where these stupendous injections of “free money” will go, they are helpless spectators as the money seeks fat speculative returns somewhere, anywhere–a dynamic that leads to asset bubbles and commodity inflation.
An addiction to money and credit creation is an ideal setup for implosion: high inflation in tangible essentials generates social and political turmoil, while the stimulus acts as a “must-have” drug for the global economy: any slackening in the stimulus will trigger Cold Turkey: a rapid descent into illness and tremors.
6. A failed Status Quo which seeks to mask its own greed, incompetence and servitude to Financial Elites and fiefdoms via propaganda, i.e. manipulating statistics, misrepresenting risk and obscuring the symbiotic relationship between the Central State and crony-cartel monopolies.
OK, let’s run through the list:
1. Natural disaster dusrupts production in a key global exporter: check.
2. An event which nudges a major economy into financial crisis: check. (If you don’t think Japan’s economy and finances will be pushed over a threshold by the quake, please be patient.)
3. Ignite a chain reaction of mass movements in a key oil exporting region: check.
4. Supply-demand imbalances in critical materials and grains: check.
5. Central banks and sovereign states addicted to vast quantities of printing-money and credit creation stimulus which trigger rampant inflation in essentials: check.
6. Massaged statistics, channel-stuffing, misrepresentation of risk and unlimited propaganda by a failed Status Quo: check.
Does anyone seriously think the global recovery is still intact? Based on what? Does anyone think that stagnant/declining wages, falling real estate values, skyrocketing prices for materials and energy, and belt-tightening by bankrupt States are ideal foundations for higher profits?
Anyone who doesn’t realize the quake in Japan is a tragic load dumped on a fragile addict’s quivering back (i.e. the global recovery) will undoubtedly be surprised by how fast the global economy will start unraveling. Anyone who kept their eyes open is only wondering how a debt and propaganda-fueled recovery lasted this long.