How I Learned to Stop Worrying and Love the Bubble

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'There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved.'
The above quote from Ludwig von Mises's Human Action (1949) pretty much sums up where we are and where we're headed. There are two ways out of this mess: Allowing bad banks and bad companies to go bankrupt and take some pain in the short term; or bail them out through government "creation" of more money and cheap credit.  Looks like the world has opted for the second option. 

This means we will experience a period of illusionary recovery, mostly in real estate prices and equity markets, powered by the huge amount of new money created by government(s). This illusionary recovery can last anywhere between 6 months to 10 years - depending on the amount of money being printed and on external triggers - but will eventually come to a painful stop, when all governments are deeply in debt and there's no one left to bail them out. 

Once we reach that point, governments are most likely to choose the only way out that allows them to divert public attention from their failure and get everyone to work together towards a common goal -  war. Until then, enjoy the ride. 

2 Comments

I'm investing in nuclear bomb shelters.

Don't forget to install a Nintendo Wii...

Note: The views and observations expressed on this web site are published for the sake of public discussion and do not represent my personal opinion or the opinion of my companies, clients, and/or employers. If you would like to get my opinion on anything, ask me.

This page contains a single entry by Dror Poleg published on March 16, 2010 8:19 AM.

The Politics of Economics and the Biology of Sociology was the previous entry in this blog.

America's Debt is not China's Fault is the next entry in this blog.

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