Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24
How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - 17th Feb 24
Why Rising Shipping Costs Won't Cause Inflation - 17th Feb 24
Intensive 6 Week Stock Market Elliott Wave Training Course - 17th Feb 24
INFLATION and the Stock Market Trend - 17th Feb 24
GameStop (GME): 88% Shellacking Yet No Lesson Learned - 17th Feb 24
Nick Millican Explains Real Estate Investment in a Changing World - 17th Feb 24
US Stock Market Addicted to Deficit Spending - 7th Feb 24
Stocks Bull Market Commands It All For Now - 7th Feb 24
Financial Markets Narrative Nonsense - 7th Feb 24
Gold Price Long-Term Outlook Could Not Look Better - 7th Feb 24
Stock Market QE4EVER - 7th Feb 24
Learn How to Accumulate and Distribute (Trim) Stock Positions to Maximise Profits - Investing 101 - 5th Feb 24
US Exponential Budget Deficit - 5th Feb 24
Gold Tipping Points That Investors Shouldn’t Miss - 5th Feb 24
Banking Crisis Quietly Brewing - 5th Feb 24
Stock Market Major Market lows by Calendar Month - 4th Feb 24
Gold Price’s Rally is Normal, but Is It Really Bullish? - 4th Feb 24
More Problems in US Regional Banking System: Where There's Fire There's Smoke - 4th Feb 24
New Hints of US Election Year Market Interventions & Turmoil - 4th Feb 24
Watch Consumer Spending to Know When the Fed Will Cut Interest Rates - 4th Feb 24
STOCK MARKET DISCOUNTING EVENTS BIG PICTURE - 31st Jan 24
Blue Skies Ahead As Stock Market Is Expected To Continue Much Higher - 31st Jan 24
What the Stock Market "Fear Index" VIX May Be Signaling - 31st Jan 24
Stock Market Trend Forecast Review - 31st Jan 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Bulletin: It’s a Credit Bubble!

Stock-Markets / Liquidity Bubble Jul 14, 2015 - 02:05 PM GMT

By: Gary_Tanashian

Stock-Markets

You may have caught the title’s little inside joke.

Sometimes you (well, I anyway) can look at a graph representing data that is a culmination of history (i.e. reality) and just let it settle in for some perspective and even some conclusions.


Whether these conclusions are right or wrong is subjective and open to debate.  But what I see here when viewing the Prime Rate historical is summed up after the graph (graphs courtesy of Economagic, mark ups mine).

In the pre-Greenspan era, every rise in Prime rates was eventually corrected through recession.  This makes sense as the Federal reserve would, through its Funds Rate, make borrowing by banks more expensive during economic up cycles and hence, this was passed on to the borrowing public by the spread between FFR and Prime.

As rates rose along with the value of money, borrowing for consumption would pull back.  Viola!  Recession (pink bars).  Recessions were healthy and necessary (for the economy to naturally rejuvenate).  Today they are regarded about as highly as the Plague.

Recessions were more common pre-Greenspan, but they are more volatile intra and post-Greenspan.  And why not?  When your seed corn is all devoured and you are living on credit backed by an inability to repay said credit (without massive macro parlor tricks employed by ever more ingenious policy making), the busts that follow the booms are not only unpleasant, they are existentially significant; as in, the next one could terminate the system as we know it.

Reference 2001, which spawned a massive bubble in commercial credit and 2008, which spawned a massive bubble in official (government) credit.  The post-2008 bubble is now back on trend after a little err, blip in ’08.  Move along, nothing to see here.  The consumer is back as the tail end of the economy, the vast services sector, carries the day.

Except that there will be something to see here when the next recession arrives.  Will it be worse than 2008 or perhaps not as bad on this cycle?  You tell me what new an innovative toxic clean up methods policy makers will employ and then I’ll tell you how bad it will be.

But the bottom line is that graph #1 shows that a deflationary phase began after the last great inflation was whipped in 1980.  Now, for our purposes deflation has been defined as a solid backbone or undercurrent against which all manner of inflation has been unleashed by policy makers.  That continues to this day in the maturing inflationary operation that has truly gone global.

Enjoy the ride.  Mr. Toad’s Wild Ride…

“Near the end of the scene, a towering green dragon emerges and attempts to burn the riders to a crisp.”  –Wikipedia

Subscribe to NFTRH Premium for your 25-35 page weekly report, interim updates (including Key ETF charts) and NFTRH+ chart and trade ideas or the free eLetter for an introduction to our work. Or simply keep up to date with plenty of public content at NFTRH.com and Biiwii.com.

By Gary Tanashian

http://biiwii.com

© 2015 Copyright  Gary Tanashian - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Gary Tanashian Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in