Just little over 24 hours after I posted the comment on Gillian Tett drawing attention to the ‘financial markets’ elephant in the room, I came across two very good pieces that underscore the points made in that post.
One is from Bawerk.net. It has got four terrific charts. The conclusion is spot on:
Years of capital consumption have led to peak debt whereby each additional unit of debt reduces economic growth instead of artificially stimulating it. There is only one way out of this, and that is a wholesale admission that current policies of extend and pretend is no longer working; unfortunately only real crisis seem to focus minds enough to implement necessary changes. Until then, the painful slog will continue. Our dire prediction for the future is simply one where the confluence of a struggling middle class and politics jointly forces through some sort of structural change. These usually makes things much worse before the system reset toward a more sustainable path. Upcoming elections in Italy, the US, the Netherlands, France, Germany and Spain in a post-Brexit environment provide ample opportunity for radical change.
The need for making things worse reminded me of my column in MINT a month or so ago on why America needed a Trump Presidency.
Also, would like to recommend for reading this post by Edward Harrison at ‘Credit Writedowns’: ‘The new normal that never was’. It is not as direct as the one by Bawerk but it has some interesting charts and points to the divergence between financial asset prices and the real economy in the post-2008 QE inspired world.