trade, finance and inflation

Debt & Inflation – Economic Disaster Recipes

History contains numerous examples of government fiscal mismanagement combined with crony-capitalism designed to achieve financial power and status. When these major down turns occur, there are huge grabs for distressed assets. Real estate is a prime example.

When things really go wrong, that’s when some form of autocratic / tyrannical authority is ushered in. No one wants to think this can be repeated, but the only way to alter that trajectory is to find ways of reducing debt and spending.

Just like weight loss is difficult, so too are all of the reasons to continue to spend. Finally, some individuals realize cutbacks are necessary, but it has to be understood by those who so often are at the helm. I’m not just referring to government spending, I’m also referring to outrageous executive compensation. There are people on each side of this issue which argue that there’s a need for all of the government intervention and spending programs. The other side is willing to talk about waste in government, but will argue vehemently that any curtailing of executive excess is detrimental to the free market economy.

Here’s where sensible moderation needs to be part of public policy, just as important as personal decisions.

Greece was a bellwether, a warning of what happens with too much debt. China also faces mounting debt and acted as you expect. It pumped more money into the economy to swamp the ratio of debt with inflated valuation of equity. Obviously this is artificial equity but it’s this inflationary spiral that can get out of control. Market corrections are a symptom of the change in perceived value.

Here’s a sampling of the events over a short but recent time span.

In mid July this news came out.
The really worrying financial crisis is happening in China, not Greece

In late August this occurred.
China share plunge smacks world markets; S&P, Nasdaq in correction

What drove this change?
Everything you’ve heard about China’s stock market crash is wrong

The best way to gain control, is to ignore the fringe elements that demand extremes and find ways to decrease spending, building real value, and reduce the huge income gap through appropriate compensation, up and down the business/ corporate structure.

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