Source: Charles Hughes Smith Blog

“The saying ‘never let a crisis go to waste’ embodies several truths worth pondering as the stock market nears new highs. One truth is that extreme policies that would raise objections in typical times can be swept into law in the ‘we have to do something’ panic of a crisis….A second truth is that crises and solutions are generally symmetric: a moderate era enables moderate solutions, crisis eras demand extreme solutions. The Federal Reserve and other central banks are ready for bubble-related financial crises: they have the extreme tools of zero-interest rate policy (ZIRP), negative-interest rate policy (NIRP), unlimited credit lines, unlimited liquidity, the purchase of trillions of dollars of assets, etc. But what if the current speculative credit bubbles in junk bonds, stocks and other assets don’t crash into crisis? What if they deflate slowly, losing value steadily but with the occasional blip up to signal ‘the Fed has our back’ and all is well? A slow, steady decline is precisely what we can expect in an era of credit exhaustion….As expanding credit no longer generates real-world growth, growth slows. This erosion is so gradual, it doesn’t qualify as a crisis, and therefore central banks can’t unleash crisis-era fixes. There are no extreme ‘fixes’ to secular declines in sales, profits, employment, tax revenues and asset prices….The Fed and other central banks are trapped in more ways than one.”

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