and we don't even know the scope of the consequences to come

Posted on: May 5, 2020 at 23:05:27 CT

If we already had "The Mother of All Bubbles", and I think there's a lot of evidence for that, this could end up causing an unprecedented financial crisis down the road.

If we're lucky, this will go away quickly and the world economy and US economy will be pretty resilient and some people will even come out way ahead, even as others suffer greatly... lost businesses, personal bankruptcies, destroyed careers and so on.

Perhaps the likely inflation will mostly be in a few areas of the economy and ongoing innovations will help make up for the capital, both human and economic that was wasted.

But we could also see things start to spiral out of control. Production has undoubtedly contracted sharply, even as the government has been pumping out trillions of dollars. That's a recipe for significant inflation. How would that be handled? Raise interest rates? That's a recipe for all kinds of pain & further economic disruption. But doing nothing or not doing enough would let inflation kick into a higher gear, and that too causes a lot of pain and economic disruption.

Another point to keep in mind is that it hasn't just been a major disruption in the U.S. economy, but in virtually every nation worldwide. Sometimes other nations can help absorb an economic shock to a nation, or even to a number of nations, but this time everyone will be reeling at the same time. That further destabilizes things.

Yet another bad factor is how this will play out regarding world trade. A lot of nations are ticked at China, and rightfully so. This could very well escalate trade tensions and the US has a high probability of ramping up tariffs on Chinese goods and other nations may do the same. China (the number 2 economic power in the world?) will of course retaliate. Trade wars are likely.

Trade wars can turn into real wars, of course, especially in economic crises. Chinese business owners are already burning down their businesses because there are no orders and the communists are mandating they open up again... foolishness, of course, but people can't operate businesses at a big loss for long regardless of government mandates... Some are running the machines, but making nothing, but others are smashing the machines and burning the buildings to have an excuse for not consuming the amounts of power mandated by the government.

The communist chinese government may be a bigger bubble economy than the US. At some point they are going to crash and burn unless something changes quickly. A cornered animal is a dangerous animal...