Long Term Parking
June 16, 2014·0 comments
The economy is supposedly recovering, but debt isn't growing the way it should. Households and corporations are in better financial shape than they've been in decades. Yet growth remains stuck in a gray, perpetually disappointing middle ground. The disconnect between what we're told should be happening and what's actually happening has pushed investors toward increasingly desperate narratives about hidden bubbles.
- The real debt danger isn't private. Household debt service is at 35-year lows. Corporate balance sheets are stronger than they've been in more than 20 years. The asset-backed securitization market is quieter than it was in 2000. If private debt bubbles were the threat everyone claims, the evidence would look different.
- The Fed's $5 trillion sits locked away in bank reserves. This money never entered the real economy. It parked itself in the financial system instead. It can only transform into actual economic activity if private lending accelerates. The question is what happens if it does.
- Inflation would require that private debt growth explodes. The Fed's balance sheet only becomes dangerous when those trillions of dollars start flowing through real economic activity. That's when reserves turn into money velocity. That's when inflation becomes possible.
- But catastrophic inflation is the opposite of what policymakers want. So the system has engineered a permanent condition where private debt growth stays anemic. The very thing that would destabilize the Fed's position is the thing that can never be allowed to happen.
- This creates an economy locked in perpetual mediocrity. Growth stays weak enough to prevent inflation but strong enough to avoid collapse. Stock markets move sideways. Expectations are constantly disappointed. Emergency policies become permanent architecture. The question becomes not whether this ends, but whether it can continue indefinitely.
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