Quite a lot of things can go wrong, especially if the mainstream’s rose-tinted sunglasses induce a delusional confidence in fantasy.
The conventional assumptions are remarkably rosy: the “recovery” is V-shaped in all the ways that count (i.e. the top 10% are once again doing well), the Federal Reserve will never let stocks go down or interest rates rise ever again (never never ever!), and the Federal government will borrow and blow endless trillions in stimulus ($2 trillion every six months seems about right, but since there’s no limit, we’ll double it if that’s needed to bail out every zombie corporation, bloated bureaucracy, skim and scam in the land).
<b?far be=”” it=”” from=”” me=”” to=”” question=”” the=”” rose-tinted=”” sunglasses,=”” but=”” prudence=”” suggests=”” asking:=”” <i=””>what could go wrong? Gordon Long and I considered the question and came up with: quite a lot of things can go wrong, especially if the mainstream’s rose-tinted sunglasses induce a delusional confidence in fantasy.
1. A key part of the happy story is the US dollar (USD) will continue its decline, which is wunnerful for stocks and exporters: dollar down, stocks up, yea!
The official explanation for this free-fall is the USD will weaken as the Fed eases / prints. The mainstream thinking is that Japan and the Euro bloc are farther along in their socialization of debt (i.e. their central banks are monetizing fiscal deficits) and so the US will have to play catch-up, weakening the USD.
What could go wrong?
US-centric analysts forget the USD is the primary reserve currency and due to Triffin’s Paradox, it doesn’t just serve the US economy, it serves the global economy. You will never hear a Fed representative admit this publicly, because the PR / fantasy is that the Fed only cares about the American public (awww, gosh-darn it, aren’t they sweet?) and keeping inflation low and employment high.
In reality, the Fed’s core interests are enriching and protecting private banking globally, and maintaining U.S. global hegemony via a strong dollar. Recall that geopolitically, no empire ever got stronger by weakening its currency. Will You Be Richer or ... Best Price: $10.99 Buy New $11.55 (as of 05:55 EST - Details)
The Fed never addresses the USD’s global role and so conventional pundits ignore geopolitical forces: capital flows, the global need for dollars to service debt denominated in USD and reserves, etc.
Also recall that China pegs its currency to the US dollar, not the other way around. That alone tells you the role each currency plays in the global economy.
For the USD to weaken, the yen and the euro would need to significantly strengthen. But there’s a problem with this thesis.
Rather than being stronger, Japan and the EU are weaker than the US. Credit impulse is essentially zero in both Japan and the EU, both their banking sectors are insolvent, their economies have been stagnant for years (EU) or decades (Japan) and their demographic declines are accelerating. Both are export-dependent, an Achilles Heel as world trade / globalization enters a secular decline that could easily gather momentum.</b?far>