Bubbles End; Eventually the Can Explodes

No matter what politicians promise, bubbles end at some point.

Kick the can… kick the can… kick the can…

kick the can

It’s a game Western politicians and Central Bankers play with incredible skill.

Unfortunately, economic reality can be delayed, but not completely denied. The “can” will one day go off a cliff—or slam into a wall—and the day of reckoning will be upon us. History shows those days often come in an instant—when no one expects.

Recently, Phoenix Capital Research wrote about what we are facing at Zero Hedge: “The Bubble to End All Bubbles.”

For 30+ years, Western countries have been papering over the decline in living standards by issuing debt. In its simplest rendering, sovereign nations spent more than they could collect in taxes, so they issued debt (borrowed money) to fund their various welfare schemes.

This was usually sold as a “temporary” issue. But as politicians have shown us time and again, overspending is nevera temporary issue. This is compounded by the fact that the political process largely consists of promising various social spending programs/ entitlements to incentivize voters.

This type of social spending is not temporary… this is endemic.

The US is not alone… Most major Western nations are completely bankrupt due to excessive social spending. And ALL of this spending has been fueled by bonds.

 This is why Central Banks have done everything they can to stop any and all defaults from occurring in the sovereign bonds space. Indeed, when you consider the bond bubble everything Central Banks have done begins to make sense.

1)   Central banks cut interest rates to make these gargantuan debts more serviceable.

 2)   Central banks want/target inflation because it makes the debts more serviceable and puts off the inevitable debt restructuring. 

3)   Central banks are terrified of debt deflation (Fed Chair Janet Yellen herself admitted that oil’s recent deflation was an economic positive) because it would burst the bond bubble and bankrupt sovereign nations.

The bond bubble, like all bubbles, will burst. When it does, everything about investing will change.

Citizens’ penchant for living off of their neighbor’s hard-earned money, and the willingness of politicians to act as intermediaries in the nefarious plundering, have created an unsustainable cycle of theft and greed. It will come to an end, we just can’t predict with any specificity when that will be… and I can say with personal experience that it seems to be about as economically damaging to prepare too far in advance as it is to do so one day too late.

So… don’t worry about it. Enjoy. Party like it’s the summer of 1929.