Who bears the greatest downside risk from monetary madness that has swept the world since 2010? Not central bankers. They operate in a world of theories, personal impunity, above-average salaries, guaranteed pensions and benefits. The answer is not the real economy, it has already been suffering through years of stagnant wages and growth.
No, downside risks today are concentrated on financial market participants and we, the tax base. Central banks have not abolished drawdown cycles or recessions. They have only delayed and magnified the extent of the next one.
This chart since 1956 tells the story of recurring loss cycles and an increasing correlation between global markets even as central banks were slashing rates by several percentage points and pumping ’emergency’ liquidity.
An important distinction this time, is that we enter the next mean reversion cycle with no meaningful monetary stimulants left to deploy. A tsunami of government underwritten credit indiscriminately buying up all financial assets, is a world full of ‘dumb’ money due for a crashing.
Or as John Hussman points out today: “The forgotten lesson of the mortgage bubble and global financial collapse is that when every speculation seems safe, nothing is safe”.