Probably the most surprising part of credit-driven market tops is how long they take to play out. The early crash, the central bank pushes back, the highly-leveraged speculative melt-up, then the initial blow ups (Archegos) that force banks to pull back.
Minsky witnessed a lot, but he surely never imagined an environment of zero rates and endless Trillions of Fed monetization, and how such a backdrop – the perpetual “bonanza” – would extend the “deviation amplifying” Ponzi phase.
After such a historic year of monetary inflation, efforts to pull back will expose myriad fragilities. Unparalleled debt and speculative leverage in a backdrop of rising inflation risk and more cautious central bankers create a high-risk backdrop. Toss in an epic speculative mania in equities, derivatives trading, cryptocurrencies and the like, and it’s difficult to envisage an environment fraught with greater risk. All eyes on the global leveraged speculating community.
Noland comment: I abhor historical revisionism. “Rates were very low. They were at zero for seven years… During that we didn’t see… excess buildup of debt. We didn’t see asset prices forming to bubbles… We didn’t see a housing bubble.”
194% in 1990
358% marked 2000 mkt top
387% marked 2007 mkt top
In sum, the volatility experienced across markets over the past couple weeks indicates growing risk of a financial accident.
Unsound money, asset bubbles, inequality, and slow economic growth all are symptoms of the same bad policies that funneled money to the financial markets and not the real economy until this year.
“‘We have come dangerously close to the collapse of the entire system and the public seems to be completely unaware of that, including Congress and the regulators,’ Peterffy said…”
Central banking traditionally operated as a judicious and conservative institution, with an overarching mandate focused on promoting monetary and financial stability. Historically, recognition that missteps can impart such profound societal hardship necessitated an incremental and risk-averse approach. Stability and doing… Read More ›
Wealth was redistributed – and count me skeptical that the flow was from professional speculators to retail traders.