Will financial history repeat like bad shellfish?

Will financial history repeat like bad shellfish?

Hero image by Zlaťáky.cz on Unsplash

It has been 30 years since the 1987 stock market crash that pulled the carpet from under any number of brash high-fliers of the day. Many analysts have compared the precursors of that momentous day to the current conditions in overvalued stock and real estate markets around the world.

The main point seems to be that money is no longer real.

It has been a long time since gold, the hard precious metal, was held in reserve to match with the currency issued. Today 90% of the world’s cash is electronic and unconstrained by the need for a gold standard so central banks print the stuff by the trillions. They did this to save the system after the 2008 financial crisis and have just kept going ever since, with no obvious slowdown.

The global debt load is now three times greater than it was at the turn of the century and grows by staggering sums each year.

Source: Bloomberg 

Governments, companies and households raised $24 trillion in 2020 to offset the pandemic’s economic toll, bringing the global debt total to an all-time high of $281 trillion by the end of 2020, or more than 355% of global GDP, according to the Institute of International Finance.

Here are the gross national debt numbers for the US over a longer time period showing recovery from the impact of WW2 and then some political decisions by both Republican and Democrat presidents since the 1980’s.

Now here is the thing. 

Most of this cash has been used for speculation to give us booming stock markets, crazy house prices and, arguably, Donald Trump. 

Convention says that markets will correct, bubbles will burst, and the politics will burn. 

Or will they? 

If money is only loosely tied to material things (resources, products or services) and governments can print it at will then any correction is bailed out by more ‘printing’. Whatever it takes to ensure the economic system survives.

Why not go all out? 

Print more and more. Give citizens a basic income and do away with welfare for the unemployed. And while at it spend some more money to encourage decentralisation of people away from the big cities by subsidies to services in rural areas. 

After all, many of us just learnt to work from home. So home could be anywhere, maybe even somewhere with a kind rural outlook.

Here is my question…

If governments can mortgage the future to save economies from financial and pandemic crises why can’t they do it to stimulate an economic transition?

Alloporus

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