“It’s Worse Than Bad” – We’re On The Cusp Of Global Economic Depression

Investment Research Dynamics

Since 1971, when the world officially abandoned the gold standard, economic growth has been stimulated through vigorous applications of aggressive Central Banking monetary policies:  the imposition of artificially low nominal interest and boundlessly unrestrained credit issuance.   Eventually the global economic system becomes immune to the stimulative effects of low interest rates and the financial system reaches a point at which it can no longer absorb additional debt issuance.

The de facto financial collapse, nee Great Financial Crisis,  in 2008 was the manifestation of these destructive financial policies.  Central Banks globally shifted gears into outright money printing in order to defer the inevitable.  This served the purpose of keeping the big banks from collapsing and created a temporary mirage of “real” economic growth.  The money printing also enabled a post-2008 reinflation of the credit markets well beyond the proportions of  the bubble that popped in 2008.

What’s been billed as “economic growth” by a highly propagandistic media since 2008 is nothing more than debt-fueled inflation in the form of “nominal” economic growth.  In truth, the U.S. has been in a state of economic contraction since 2007 if a true inflation rate were used in the GDP deflator.  What’s been billed as “recovering housing and auto markets” is in reality nothing more than an abundance of cheap debt that has been made available to millions of borrowers who can ill afford to service that debt over an extended period of time.  This fact is already being confirmed by sky-rocketing auto loan delinquencies.

Amusingly, a reader sent me an email accusing me being wrongly a bear on housing for quite some time.  The truth of the matter is that I have wrongly underestimated the extent to which the Fed and the U.S. Government would intervene to reinflate the housing bubble.  The value of housing is the most disconnected from the underlying “organic” market fundamentals than at any time in history. Furthermore the Fed/Government market intervention has succeeded in putting a significant number of people and small investors into homes that soon will be unaffordable for them support.