Jump to content
House Price Crash Forum
Sign in to follow this  
interestrateripoff

Welcome To The Age Of Instability

Recommended Posts

http://www.zerohedge.com/news/guest-post-welcome-age-instability

As Taleb has explained, the very act of suppressing fluctuations renders systems extremely prone to large-scale disruptions that are viewed as low-probability events, the infamous “black swans.” The key to understanding this rising likelihood of supposedly improbable disruptions is to understand the difference between linear and complex systems. Linear systems lend themselves to causal chains (A causes B which causes C) or probability (the odds of drawing two aces in a game of Blackjack) that can be calibrated with a high degree of accuracy.

Complex systems such as financial markets exhibit fractal or chaotic characteristics that lead to an unpredictability that is prone to disruption by seemingly small events. When volatility and risk (in political terms, dissent) are suppressed by central authorities, the variations that inform an open market (“variation is information”) are lost.

The misrepresentation (and thus the mispricing) of risk and the suppression of everything which doesn't pander to the Status Quo is a defect not of individuals or specific institutions but of the entire system, including the Federal Reserve, the Treasury and the regulatory “alphabet soup” agencies (SEC, FDIC, etc.).

The misguided attempts to engineer a false stability by suppressing "undesirable" volatility have created an intrinsically fragile system that is doomed to crises of ever greater dimension even as the periods of calm between crises shrink from years to months.

......

As a result, the system is now facing the same old problems--asset bubbles held aloft by "free money," massive government intervention, systemic financial fraud--and a new problem: price inflation for the resources that sustain the real economy.

The Central State/Financial Elites are thus faced with an impossible choice: if they let the speculative free money flow, then their populations become impoverished as the prices of tangible goods such as food and energy skyrocket. Recall that the masses aren't provided with billions of dollars at zero interest; that privilege is reserved for the financial Elites who fund the campaigns of the Central State’s political class.

The Classical Capitalist answer to this vast financial overshoot is simple: once the unlimited free money and moral hazard guarantees stop, interest rates will rise as risk is repriced and the market “discovers” the cost of borrowing scarce capital (savings). Once interest rates rise, then the ballooning debt can no longer be serviced. Borrowers big and small go bankrupt, their assets are sold at auction on the open market, and their unpaid debts are absorbed as losses by their creditors.

This renunciation of debt triggers a domino effect as credit becomes increasingly expensive and other overleveraged borrowers and insolvent creditors are toppled into bankruptcy.

In other words, the Status Quo is now addicted to unlimited flows of free credit issued by central banks. If the flow continues, then inflation will destabilize it; if it's cut off, then rising interest payments will destabilize it. No matter what policy path is taken, the result is the same: instability and destabilization.

This is why a systemic financial meltdown is now inevitable.

I have to agree the more they try to fight the inevitable the bigger the final collapse will be.

If only they hadn't bailed out LTCM / Asia in 97/98 we would be in a better position. If the Fed hadn't then bailed out the tech bubble with free money we'd be in a better position, if the BoE hadn't avoided a recession by triggering a huge credit bubble we'd be in a better position.

Everyone is addicted to prices going up, whatever the new higher price is, is the new "normal" it's not a bubble it's the normal price which must go up to a new higher "normal" price the day, week, month, year later to show we have growth.

The system appears to have reaching it's own logical fail state now. It's hard to see how they can prevent the natural contraction to purge the system. At each bailout point they just made the end failure even bigger.

Share this post


Link to post
Share on other sites

YAWN

Why don't you just add a link to ZH to your signature, instead of linking every single thread they start?

Edited by Deckard

Share this post


Link to post
Share on other sites

YAWN

Why don't you just add a link to ZH to your signature, instead of linking every single thread they start?

I'm not a fan of pasting links, but the guys running zero hedge are seriously sharp...

Share this post


Link to post
Share on other sites

http://www.zerohedge.com/news/guest-post-welcome-age-instability

I have to agree the more they try to fight the inevitable the bigger the final collapse will be.

If only they hadn't bailed out LTCM / Asia in 97/98 we would be in a better position. If the Fed hadn't then bailed out the tech bubble with free money we'd be in a better position, if the BoE hadn't avoided a recession by triggering a huge credit bubble we'd be in a better position.

Everyone is addicted to prices going up, whatever the new higher price is, is the new "normal" it's not a bubble it's the normal price which must go up to a new higher "normal" price the day, week, month, year later to show we have growth.

The system appears to have reaching it's own logical fail state now. It's hard to see how they can prevent the natural contraction to purge the system. At each bailout point they just made the end failure even bigger.

THank you for the link, great read.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 338 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.