Guest Post by Karl Denninger
As I’ve discussed at length, there are many catalysts in play in the market’s turn, from fears about China to corporate earnings and commodity prices. But at the core, much of this plunge is about a loss of faith in cheap money stimulus. It’s as simple as that.
Loss of faith?
The problem isn’t simply that “central banks will rescue us.” It’s that the world economic system has become addicted to a 30 year trend of fiscal irresponsibility that long ago crossed the line into abject fraud, and utterly nobody has gone to prison for it.
Specifically, the “I can afford $10,000 in interest, so how much can I borrow?” paradigm has become embedded not only among business but more importantly among governments of all stripes as well.
When the rate of interest is 10% the answer is $100,000, of course.
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